Market Insight

BSkyB chasing Italian and German sisters

May 12, 2014

Maria Rua Aguete Maria Rua Aguete Technology Fellow and Executive Director, Media, Service Providers, and Platforms

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UK pay TV operator BSkyB has confirmed its interest in buying Sky broadcasting companies in Germany and Italy, which are currently majority owned by 21st Century Fox. 21st Century Fox, majority owned by Rupert Murdoch, has a 57% stake in Sky Deutschland and 100% stake in Sky Italia. They are fully consolidated and form the company's direct broadcast satellite television segment, while BSkyB, in which 21st Century Fox owns a 39% stake, is an equity holding.

Our take

Should the deal go ahead, Murdoch's 21st Century Fox would effectively own 40% of all three Sky platforms. But the wider strategic gain will be centering all three assets around Sky UK. The Sky UK model has been applied to good effect in both Italy and Germany, markets in which pay TV has been hard sell. Sky is facing increasing competition in all of its markets from emerging platforms and new entrants into the premium rights market. In all three, Over-The-Top (OTT) players are increasingly bidding for movies and series and in the UK, BT has taken a chunk of Sky's key Premier League rights. Sky Italia also faces intense competition for movies and sports from Silvio Berlusconi's Mediaset in the Italian market.

A pan-European operation with control of 19 million subscribers would almost certainly have more power at the content negotiating table, particularly for US movies and series as well as channel carriage, a key battleground with OTT players. 

Concern over power in the content market would almost certainly spark regulatory review, although the trump card for Sky would be the regionalised nature of pay TV. This would be most evident in sports rights bidding, were local league rights remain the crown jewels and would be unaffected by the size of the buying entity because of local competition.

In the German case, if BSkyB buys the 57% stake that 21st Century Fox already owns, then it will be forced under German law to make a takeover offer to the minority shareholders of Sky Deutschland. Attempts to consolidate the assets around Sky UK have been made in the past, with Sky previously owning a direct stake in Sky Deutschland's predecessor DF1, a holding which was written off to the tune of nearly £1 billion when owner Kirch Group went bust.

At the end of 2013 Sky had 10.5 million subscribers in the UK and Ireland, 4.8 million in Italy and 3.7 million in Germany. The total of 19 million subscribers would make the combined entity the second biggest operator in Europe after Liberty Global, which has 20.5 million pay TV subscribers.

Any deal is still pending agreement from both sides and regulatory approval.



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