How Comcast Plans to Leverage Its $39 Billion Sky Acquisition in 2019
Expect more evolution than revolution with content and talent sharing, increased original programming and potential launches of streaming offerings in new countries.
Comcast's $39 billion deal for European pay TV giant Sky was one of the biggest media industry deals of 2018.
After outbidding Walt Disney and sealing the deal in the fall, the focus for the U.S. cable powerhouse is now on reaping the benefits.
No surprise then that Macquarie Capital analyst Amy Yong in a recent report highlighted that for investors "the biggest question post Comcast's victory" is "what is it going to do with Sky?"
Executives on both the Comcast and the Sky side have signaled that there won't be radical change. After all, Sky CEO Jeremy Darroch and his top executives are all staying in place, with Comcast vowing to support their pursuit of further growth.
Comcast CFO Michael Cavanagh at a December UBS investor conference highlighted that Comcast was drawn to "the quality of the management team, the quality of the brand" in its pursuit of Sky. "It's a good business," he said. "Are we going to change anything? No. We think the team that's there that's staying with us has the ability."
So expect more evolution than revolution at Sky under Comcast. In addition, expect some of Sky's expertise, best practices and insight to find their into Comcast's other businesses.
Here is a look at some areas in which the mega-deal is likely to show its effects.
Talent and content sharing in news and sports.
Early on, expect Sky News and Sky Sports to start tapping into some of the resources at Comcast's NBCUniversal entertainment arm and vice versa.
Darroch in a recent interview with the Financial Times highlighted that the priority for the combined businesses is "to exploit what we have put together," mentioning that, for example, in its coverage of the U.S. midterm elections, Sky News relied strongly on news agency reports, while NBC News had hundreds of people covering the elections. Next time around, expect some NBC talent and content to make its way onto Sky News.
Observers similarly say that U.K.-focused news coverage by NBC News could benefit from leveraging Sky News resources, including reporters and analysts. Among the opportunities here will be coverage of Brexit and its fallout, according to experts.
The same opportunity for the sharing of talent and content is also true for sports on both sides of the Atlantic, including coverage of English Premier League soccer, the National Football League and the like. "For example, can we get their best NBC commentators to Sky for the London NFL games?" Darroch said in the recent FT interview. The answer is most likely a resounding yes.
Also expect a transfer of technology and other expertise between Sky and Comcast, with analyst Yong arguing that "they can push over-the-top innovation through scale in technology and content."
Sky has much experience in over-the-top services given its Now TV streaming service, for example, with Comcast management in a recent presentation calling Sky "Europe’s leading direct-to-consumer business.” With NBCUniversal having explored its own potential service, which could well be unveiled in 2019, it could benefit from the technology and other expertise at Sky.
Yong also noted next-generation premium pay TV service Sky Q as an offering that Comcast could look at more closely as it continues to update and upgrade its U.S. pay TV services.
Analysts also expect a renewed focus on Sky’s broadband business to grow with the help of know-how at Comcast's cable operations.
"The difference in [the price offered for Sky between Comcast and Disney] at the final hurdle was because of a different sense of valuation of the broadband of Sky and its other ancillary businesses," Enders Analysis founder Claire Enders tells The Hollywood Reporter. "And Comcast was much more likely to see the value of that because it generates a majority of its profit out of broadband."
Comcast CFO Cavanagh in December shared some color on the opportunities in broadband for Sky. "One of the things they're most excited about is they have access to wholesale broadband in the Italian market where nobody's got the scale or investment background that we have," he said. "So when they came to Philadelphia and saw everything that xFi [Comcast XFinity's digital dashboard for managing home WiFi networks and the connected home] is, [they were like] kids in the candy store in terms of how can they take that and, as the great marketers and brand positioning folks that they are, use it to differentiate themselves as a broadband reseller basically in the Italian market."
Overall, Yong expects Comcast and Sky to "leverage one another’s expertise to create an improved user interface, set-top boxes and streaming offers," among other things.
Increase in original series.
Comcast in a recent investor presentation said it plans to "grow and reshape" Sky's content investment, including increasing the number of originals in addition to maintaining its top position in sports and cinema. Overall, it is about "optimizing the content portfolio" at Sky, management said.
Sky has in recent years steadily boosted its original drama budget and output, including the likes of Riviera, Britannia, Gomorrah, Babylon Berlin and Patrick Melrose. For the current fiscal year, which runs through the end of June, Sky has said its spending on original dramas would increase by around 25 percent to about 500 million pounds, or $635 million. Expect the Sky original production budget to continue to grow under Comcast.
Plus, the combined company is positioned to get more revenue out of Sky originals worldwide. "Sky should be better able to monetize its originals outside its current territories via NBCUniversal," Enders Analysis analysts said in a recent research report. "Sky originals have a history of not selling well internationally, attributable to an inability to join the national conversation due to a paucity of press, a sharp decline in marketing efforts after the first season (as shows are launched for subscription rather than ratings reasons) and a lack of knowledge outside of the U.K. of British suppliers other than the BBC and, perhaps, ITV. That the first season of Fortitude — that year’s most-hyped Sky program — could only land on the now defunct Pivot channel in the US, is evidence of this trend."
Observers also forecast more co-production partnerships now that Comcast owns Sky, which previously inked a $250 million co-production deal with HBO, which includes upcoming mini-series Chernobyl. And NBCUniversal and Sky could explore licensing content of appeal in the U.S. and Europe on a joint basis, according to analysts.
Expansion into new countries.
Comcast chairman and CEO Brian Roberts has said that the addition of Sky would boost and accelerate the company's international strategy, saying it would be "increasing revenues from outside the U.S. to 25 percent of the total from around 9 percent."
Sky is currently offering traditional pay TV and streaming services in the U.K., Ireland, Italy, Germany and Austria, as well as streaming-only services in Spain and Switzerland. Comcast and Sky executives have said since the deal close that the company is considering rolling out additional services in existing markets, but also signaled that Sky could end up launching in new markets.
With Sky beefing up Comcast's international presence and reach, expect the company under U.S. leadership to explore streaming service launches in new markets. "They can expand into adjacent geographies," Cavanagh said about Sky in December without providing specifics. And Yong recently called Now TV "a major growth opportunity."
Overall, getting more revenue from existing subscribers with the help of further services, adding new customers and launching in new markets provides a range of opportunities for Sky to continue growing, management has said. "They have a number of means to increase their subscriber base and further monetize it," Enders tells THR.
But she suggests that Now TV launches in new markets may not happen until it is clear whether output deals with Warner Bros. and Walt Disney will be renewed given those companies' plans for their own streaming services.
Overall though, Enders is bullish that Sky, with the deep-pocketed backing of Comcast, can go from strength to strength. Says the analyst: "What we are really going to see is a return to Sky firing on all cylinders."