Outplayed by Disney in a bidding war for 21st Century Fox Hollywood assets in 2018, Comcast instead acquired British satellite broadcaster Sky — for $36 billion more than it’s worth today, according to one Wall Street analyst, suggesting the plunging valuation may be less worrisome than the media giant’s lack of strategic vision for the U.K. company.
“Comcast still hasn’t said why they bought it, nor what they plan to do with it beyond simply running it as is. … Nor have they articulated any vision for why they wanted to own Sky, beyond simply arguing that it is a better business than most people think,” said Craig Moffett of MoffetNathanson in a deep dive into Sky’s shifting economics – which he said somewhat resemble U.S. counterpart DirecTV, but better.
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The U.K. pay TV market began shrinking in earnest, and Sky’s satellite TV customer base with it, almost as soon as Comcast closed the dea, he wrote. The U.S. pay TV market and DirecTV’s subscriber base did almost the same as soon as it was bought by AT&T.
The main difference is Sky’s incumbency in sports in the U.K. as well as Germany and Italy. Sky grew out its relationship with the English Premier League and has maintained its dominant position in domestic TV rights ever since.
But, even with that beachfront property, it’s still a legacy media company faced with an erosion in pay TV as rivals like Netflix, Amazon and others grab share. One option for longer term growth would be to invest aggressively in content like these players do and strengthen its own OTT streaming service, Moffett said. “But they have given no indication whatsoever that they plan to do so.” It’s increasingly urgent since owners of OTT services are also key content suppliers to Sky. Disney, AT&T (HBO), and CBS/Viacom (Showtime) – which all distribute in Europe today through exclusives with Sky — will likely eventually reserve their best content for themselves. Last week, Disney announced it was shuttering kid channels Disney Channel, Disney XD, and Disney Junior in the U.K. with content going forward exclusively available on Disney+.
Basically, Moffett said, the deal has muddied the view of Comcast from a pure – or nearly pure – cable company where the strategy is clean and the future rather bright.
Including NBC Universal, “Comcast’s non-cable assets now dominate the narrative,” Moffett said. That’s why investors didn’t like the deal at the time and the COVID crisis has reignited the controversy that surrounded the acquisition. Next to theme parks, he noted, no business under Comcast’s unbrella has been more impacted than Sky as sports were canceled in the heat of English soccer season.
But, he noted, the virus only accelerated longer term secular concerns. “It is very hard to argue that the picture for Sky, when it emerges from the deep COVID crisis, will ever again include growth. A merely slower decline in video isn’t terribly comforting given the astronomical multiple Comcast paid for the business.”
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