Sky Europe: A force to be reckoned with?

 
Oliver Smith
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A pan-European satellite TV network could be on the cards (Source: Getty)

With the news this morning that 21st Century Fox is in early stage talks with BSkyB, Sky Italia and Sky Deutschland to create a pan-European satellite TV network analysts have been weighing up what such a move would mean.

“If approved the company would be a force to be reckoned with in Europe,” said CCS Insight’s media director Paolo Pescatore.

There is a sound business case for this move in light of the activities of Netflix and other web TV players to expand their presence in Europe. By consolidating these three businesses BSkyB would be in a good position to become the first credible pan European pay TV provider.

Pescatore points to multi-territory licensing deals for sports, movies and TV shows where BSkyB would have a significant competitive advantage.

Other analysts have been less supportive. Investec’s Steve Liechti said: “This looks a negative for Sky near-term given no bid by Fox and potential share issuance dilution. Fundamentally, this looks sensible for scale, but Italia/Deutschland are in weaker competitive positions with lower margins/returns vs Sky.”

There are some operational scale economies, but Sky already shares practises and makes set-top boxes for Sky Italia. We question major cross-border TV synergies and note lower returns in Italy and Germany and weak competitive positions. In content buying – there may be economies on pan European deals e.g. Football Premier League (if sold on this basis eventually). And the deal could future proof against smaller regional competition, like BT, and larger online rivals.

Investors were sceptical this morning, siding with Liechti, sending BSkyB’s shares down 2.5 per cent to lead the FTSE 100 fallers on news of the talks to 868p.