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U.S. cable powerhouse and NBCUniversal owner Comcast’s $31 billion bid for European pay TV giant Sky would significantly expand the company’s international reach and revenue abroad, something observers say Wall Street has increasingly been expecting the company to do.
So far, Comcast’s international business has been all about entertainment arm NBCUniversal, including its cable networks, TV production business, film unit and theme parks. But with many U.S. entertainment conglomerates looking for attractive assets and possible growth outside the mature U.S. market, some have been talking about more possible Comcast deals abroad.
Comcast already showed an appetite in growing in international markets when in late 2015 it bought a 51 percent stake in the Universal Studios Japan theme park. In February 2017, Comcast unveiled a deal to buy the remaining 49 percent for $2.3 billion. And Comcast chairman and CEO Brian Roberts on a conference call on the proposed Sky deal Tuesday highlighted that NBCUniversal owns the international production company, namely Carnival Films, behind global hit Downton Abbey.
Despite Brexit fears, “the U.K. is and will remain a great place to do business,” Roberts also said, mentioning that NBCUniversal has more than 1,300 employees in the U.K. and that it has invested more than $1 billion in film and TV productions over the past three years. But there is more upside, with Roberts saying: “We already have a strong presence in London, and Comcast intends to use Sky as a platform for our growth in Europe.”
In fact, “as a European market leader, Sky would accelerate Comcast’s international strategy, increasing revenues from outside the U.S. to 25 percent of the total from around 9 percent currently,” he told the call.
Comcast recently reported full-year 2017 revenue of $84.5 billion, with 9 percent of that amounting to $7.6 billion. Sky’s fiscal year ends in June, but its revenue for the calendar year 2017 would have amounted to 13.23 billion pounds ($18.5 billion).
A slide that Roberts and Comcast CFO Michael Cavanagh showed during the call mentioned the Sky deal would allow the company to “gain European market leadership positions” and “extend Comcast’s international footprint.” After all, Sky operates in the U.K., Ireland, Italy, Germany and Austria, plus has a new over-the-top service in Spain.
Another slide shown by Comcast management highlighted thatin terms of pay TV subscribers, Sky is number 1 in the U.K. and Italy and number 3 in Germany. In terms of audience share, it is number 1 in all three markets. Management comments on the slides mentioned that Sky is “a leader in its markets, similar to Comcast in the U.S.”
Discovery Communications CEO David Zaslav on his company’s earnings call Tuesday said that Comcast’s Sky bid fits into the industry’s recent M&A focus. We expect there will be more consolidation. There is going to be a race to try and be more global, to own more IP, to have some stuff that’s going to work on mobile,” he said.
Comcast management highlighted Tuesday though that it tends to be looking simply for good deal opportunities anywhere in the world rather than just those abroad.
“This is about a great asset that just happens to be in Europe,” Cavanagh said about Sky. “We’re not trying to be international just for the sake of being international. We’re not striving for diversification internationally just for its own sake. It comes back to what Sky represents for us.”
When asked if he wants to get beyond getting 25 percent of revenue from international businesses after the Sky bid, Roberts said: “There’s no magic percentage, and there’re no necessity to do that. We look for opportunities that are right for our shareholders. In this case, a confluence of events has occurred, as we all know, with Sky and with Fox. As a result, it dovetailed on our own curiosity and appreciation of Sky.”
In the U.S., Comcast has been one of the few companies that have bet on owning both content and distribution assets, something that telecom giant AT&T is looking to also do with its planned takeover of Time Warner. But in international markets, Comcast has only been present with its content businesses.
Key to the U.S. strategy has been what Comcast and NBCUniversal call “Symphony,” which is all about cross-promotion efforts that put company-wide support behind content, services and projects that management deems a priority. The Olympics, key film releases and full-season stacking of TV shows have been among the focus areas of Symphony. Management said Tuesday it would bring that approach to Sky.
Analysts said investors should see the Sky deal offer as a way for Comcast to grow its business outside the U.S. “There is a strong rationale for Comcast to acquire Sky as it would give it immediate leadership positions in the U.K., German and Italian pay TV markets and a presence in Spain,” said Liberum Capital analyst Ian Whittaker. “At the moment, Comcast does have presence in these markets mainly through its NBCUniversal film and TV assets, but this would give it a very powerful distribution pan-European network.”
Echoed Cenkos analyst Alex DeGroote: “It absolutely shows the ambition for international expansion.” And MoffettNathanson analyst Craig Moffett said: “The good is that Comcast would get additional distribution for NBCU content in Europe and some European content to distribute in the U.S.”
Some analysts had already mentioned Comcast/NBCUniversal as possible suitors of German TV giant ProSiebenSat.1 when its CEO said he would step down.
Macquarie Capital analyst Amy Yong said that “investors were expecting they would expand internationally or into wireless,” with Sky providing an opportunity to grow in both content and distribution abroad. “Sky would have more growth, less regulatory risk and the benefit of cross-platform synergies.”
Comcast’s conference call slides highlighted such possible benefits as allowing for the distribution of content and brands in new markets, as well as the development of new content and other offers, including multinational services.
Local content opportunities could be part of this. “More local content is a strategy that has been working throughout the world,” said Roberts. “What NBC has is many employees all over the world. We make content in many languages all over the world. And this will allow that to accelerate.”
Etan Vlessing contributed to this report.
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