And the winner is… Comcast!!!!

Comcast has emerged as the winner of the drawn-out Sky acquisition battle with 21st Century Fox, offering shareholders £17.28 per share.

After 21 months, much bickering and passive aggressive commentary, the auction was completed on Saturday 22 September, with Comcast valuing the business at £30 billion. The unusual auction process was overseen by The Takeover Panel, an independent body established in 1968, whose main function is to issue and administer the City Code on M&A.

“We consider the Comcast Offer to be an excellent outcome for Sky shareholders, and we are recommending it as it represents materially superior value,” said Martin Gilbert, Chairman of the Independent Committee of Sky. “We are focused on drawing this process to a successful and swift close and therefore urge shareholders to accept the recommended Comcast Offer.”

“Sky is a wonderful company with a great platform, tremendous brand, and accomplished management team,” said Comcast CEO Brian Roberts. “This acquisition will allow us to quickly, efficiently and meaningfully increase our customer base and expand internationally.”

In securing Sky, Comcast not only adds an additional 23 million customer relationships to its current subscriber base of 29 million, it also increases its footprint in international markets. Prior to swallowing the Sky business, Comcast attributed 9% of its revenues to the international markets, though this now increases to 25%. It’s a more diversified business, offering comfort for Comcast shareholders, while also creating a broad and varied content portfolio. Alongside partnerships with HBO and Showtime, Sky also brings with it a heavyweight position in sport content, a presence which has underpinned its success.

Looking more specifically at the auction process, it was a slightly unusual one. Starting on Friday night, both companies made a starting bid, with the lowest offeror at the commencement being afforded the opportunity to make an increased bid in the first round. In the second round, only the offeror that was not eligible to make a bid in the first round could make an increased bid. If there was not an increased bid in the second round, the auction would have been concluded, though it did run to the third (and final) round, where both companies were offered a final opportunity to increase bids.

As a result of this process, Comcast tabled a bid of £17.28 compared to £15.67 per share from 21st Century Fox. The winning bid represents a premium of 125% to the closing price of £7.69 on 6 December 2016, the last business day before 21st Century Fox’s initial approach. Sky has proven to be a very successful bet for investors representing a ten-year total shareholder return (since 1 July 2008) of +402%, compared to +97% as an average of the FTSE 100.

While this might seem to be the end of a prolonged saga, there are a couple of twists yet to be turned. Firstly, Comcast still has to convince shareholders to part with their assets, and secondly, what will the future hold for the Sky telco business?

In terms of the shareholders, for Comcast to officially secure Sky it will have to gain approval of 50% of shareholders. Fox/Disney currently owns 39% of the business and is yet to disclose what its own position will be, meaning Comcast will have to convince 82% of the remaining shareholders to be safe. Due to the Fox/Disney 39% stake, de-listing Sky will be an unlikely outcome (75% threshold is needed), as will squeezing out remaining shareholders (90% ownership is required). 21st Century Fox could remain a thorn in Comcast’s side for some time.

Another question worth considering is what to do with the Sky telco business. Comcast’s intentions in acquiring Sky have been clear; it is Europe’s most powerful content business; though the telco business comes with this prize. Sky certainly has a notable broadband business in the UK (roughly 6 million subscriptions) and has successfully launched its own MVNO, though it is currently unclear whether this is an area Comcast would like to develop or whether it will look for a sale.

According to RBC Capital Markets, an acquirer would have to shell out in the region of £4.5 billion to purchase the Sky telco business, though there do not seem to be many suitors. BT, Virgin Media and TalkTalk are too large for antitrust approval, leaving only O2 and Three in the telco space. Considering the precarious financial position of O2’s parent company Telefonica, and recent comments from CEO Mark Evans dismissing the convergence craze, O2 seems unlikely.

Like O2, Three has a large mobile business but no presence in the broadband space; a converged offer would be of interest to cash-conscious consumers. It is unknown whether Three parent company Hutchison would want to pursue this avenue, though considering it has begrudgingly spent and cash in the past, instead trying to use political influence to better Three’s prospects (it has a reputation as a moany, spoilt child for a reason), we can’t see this as realistic.

The only other option which would be on the table would be a player from the financial market, though RBC Capital Markets feels Comcast will retain the telco business without expanding it to the continent. Sky is demonstrating the convergence business model can work, and it is an important aspect of the offering in customer eyes; why would it want to undermine a healthy position. As the old Bert Lance motto goes, ‘if it ain’t broke, don’t fix it’.

The auctions bring to close a long-running chapter in the European content game, but this is by no means the end of the story. With its 39% stake in the business, 21st Century Fox can still be a prominent character.

A view from the States: No summer slowdown here

Telecoms.com periodically invites expert third parties to share their views on the industry’s most pressing issues. In this piece strategic advisor Whitey Bluestein explores how recent developments on the other side of the pond are redefining the mobile landscape and blurring lines between telecoms and entertainment.

Hope you’re not waiting for a summer slowdown, at least in telecoms. In the last three months, several developments are redefining the mobile landscape and blurring lines between telecoms and entertainment. These include:

  • The AT&T-Time Warner merger was approved by a federal judge over the opposition of the Justice Department in mid-June, and the deal closed a few days later. AT&T’s $85 billion acquisition includes HBO, Cinemax, Turner Entertainment, CNN, Warner Brothers and much more. AT&T acquired DirecTV less than three years ago. (A few weeks after the trial court’s decision and merger closing, the Justice Department appealed, but most observers expect the deal to stand.)
  • Shortly after acquiring Time-Warner (now WarnerMedia), AT&T made a deal to buy AppNexus, an ad tech platform that will give advertisers an alternative to Google and Facebook for ad spending and data analytics;
  • T-Mobile and Sprint announced plans in late-April to merge the #3 and #4 wireless carriers, respectively, in a $26 billion deal which, if approved, would make the merged company the second largest U.S. wireless operator, behind Verizon;
  • 21st Century Fox accepted Disney’s $71.3 billion cash and stock acquisition offer over Comcast’s $65 billion offer in late June. Disney, which owns ABC and ESPN, among other assets, would acquire Fox’s film and production assets (but not Fox Broadcasting, Fox News or Fox Sports), global TV channels such as National Geographic and two major satellite distributors, Sky in Europe and Star in India.

The latter two deals still must be approved by regulators, but the AT&T green light increased confidence that the other deals will clear. Telecoms and entertainment are clearly converging, and mobile is increasingly the preferred viewing device.

Consolidation

The recent federal court approval of the AT&T-Time Warner merger without conditions means market consolidation is likely to continue or even intensify. Now all eyes are turned to the T-Mobile and Sprint deal. T-Mobile (including MetroPCS) and Sprint (with Virgin and Boost) have attacked the U.S. market with aggressive pricing and promotions, particularly in the no contract space.

With these two companies merging, many project a more stable, less cut-throat market; any price stability would presumably be good for MVNOs, who still buy data by the megabyte and must closely manage users’ data consumption in order to compete with unlimited carrier plans. The merger is also good for the industry; Morgan Stanley sees the “return to wireless industry service revenue growth for the first time since 2014, as competitive intensity has moderated.”

On the down side, since Sprint and T-Mobile both have hosted traditional (voice, data and messaging) MVNOs over the years, there will be one less operator offering traditional wholesale services and thus fewer carrier options for MVNOs going forward. (All four of the big operators have moved aggressively in the IoT space and have robust wholesale programs for IoT/M2M/connected devices; this is where the market is going and growing. Further, all of the operators are aggressively pursuing new business in the IoT/M2M and connected device segment.)

The Justice Department, which can ask the courts to block acquisitions and mergers deemed anticompetitive, nixed a merger of the same companies less than four years ago — and an earlier AT&T/T-Mobile deal as well. Much has now changed. Then, Sprint and T-Mobile were near equals. In the last four years though, T-Mobile’s “Un-Carrier” campaign has made it the industry’s fastest growing player, while Sprint has continued to struggle. The T-Mobile/Sprint deal is a merger of two direct competitors, thus raising very different issues than AT&T’s acquisitions of Time-Warner or DirecTV, both of which were “vertical” diversification into the entertainment space.

Still, traditional antitrust criteria for mergers suggest that a “3-4” merger in a concentrated market is not sustainable, due to risks of tacit collusion and decreased price competition post-closing. In the aftermath of their embarrassing AT&T-Time Warner loss, the Justice Department could challenge the proposed merger. T-Mobile and Sprint are keenly aware of this risk. In their application to the FCC, which also must sign off on the deal under a more government-favorable “public interest” test, the companies said, “T-Mobile and Sprint are merging to beat Verizon and AT&T, not to be like them.” Given the success of the Un-Carrier campaign, this is smart (and credible) positioning. AT&T, Verizon and T-Mobile are each pursuing different business strategies, and three strong competitors each moving in their own direction bring a growing range of choices and services. Some believe that the merger is critical just to keep up with AT&T and Verizon from a spectrum and technology standpoint. For all of these reasons, especially after the AT&T/Time-Warner approval, odds are up that in today’s changing wireless market, the T-Mobile-Sprint merger will go through, although there may be some conditions.

Enter the MSOs.

The two largest U.S. cable companies – Comcast and Charter – each launched MVNOs. Comcast’s Xfinity Mobile launched last May, and Charter’s Spectrum Mobile launched this month.

Xfinity’s first year of operations have gone well. With two pricing options – $45 per line for unlimited monthly LTE data or $12/GB for shared LTE – these two plans can be mixed and matched based on each user’s data consumption, allowing a family or group to average down per-line pricing to well below $45/line. Comcast, which has 22.5 million video subscribers, now has more than a half million mobile customers. New Street Research predicted that Xfinity Mobile could soon add two million customers per year. Although Charter just launched Spectrum Mobile, New Street predicted similar growth for Spectrum. Spectrum’s service, also on the Verizon network, is priced similarly to Xfinity on the unlimited plan, at $45/line, but at $14/GB for LTE data. Interestingly, New Street also concluded that Comcast pays Verizon $5/GB, the lowest reported wholesale LTE data rate in the U.S. This makes for a very good margin on per GB data customers but very thin margins on unlimited users, who reportedly use 15 percent more data than average customers. Much of the data is offloaded on Wi-Fi, which helps.

Comcast and Charter together cover about two-thirds of the U.S. population. Each has the key attributes of a successful virtual operator – a large existing customer base, deep pockets and the ability to bundle services in a single bill. Because these companies offer pay TV, Internet, phone service, and now mobile, they can cross-promote and discount other services to attract customers to their mobile offering. Coupled with a growing willingness among consumers to try lower-priced options like cable companies, this makes the analysts’ multi-million subscriber projections credible.

In April, Comcast and Charter announced a 50/50 operating platform partnership focused on development and design of backend systems to support their mobile services. They appear to be in it for the long run. Whether or not it makes sense to invest in and build all of the backend systems that they need (versus buying an existing solution) is the big question. Both launched with and are hosted by Arterra Mobility today. My experience informs me that in a build-or-buy scenario, companies often underestimate the costs, staffing and time-to-market required to build robust and scalable backend systems from the ground up. Further, integrating multiple vendors, even those with best-in-class components, always takes more time and money than expected. The risk is that they build a gold-plated backend that actually hampers their ability to compete.

Getting to market is one thing. Finding and retaining the specialized and operational talent it takes to be fast, flexible and smart enough to remain competitive in the fast-moving wireless world is extraordinarily challenging. It goes beyond retail wireless products and into IoT, campus/facility/building-based networks which could enable and may be necessary to serve the lucrative enterprise market, which will be more important as cord-cutters impact their residential base.

The more strategic question is whether and how Altice, a new Sprint-hosted full MVNO, and other MSOs become some part of that partnership, despite the fact that Comcast and Charter are on different mobile networks. The deals are strategic in that they involve some asset- and technology-sharing with their respective host operators, but the possibilities of expanding or creating a separate marketing partnership with a nationally branded mobile service could reduce marketing costs and result in a seamless mobile product nationwide, with the scale to keep carrier and other costs low. This makes the operating platform partnership more strategic and potentially far-reaching, if done right. The front-end marketing play to extend overall reach is far more important strategically than focusing on the back-end. Of course, it takes both, but effective marketing is key.

In the no-contract (prepaid) segment of the market, AT&T has Prepaid (formerly GoPhone) and Cricket, T-Mobile has its MetroPCS unit, and Sprint, through Boost and Virgin, all have very competitive prepaid offerings that are compelling from a price and value standpoint. But wait, there’s more.

Now there’s a new entrant to the operators’ branded plays. Verizon has entered the fray with Visible, a no-contract brand priced at $40/month for unlimited data, messages and minutes. While there’s no data cap for this low-priced option, there is a speed limit – up to 5 Mbps on the network, enough to stream video at 480p resolution. Verizon tag line is, “Exactly what you need. No fluff.” For now, while Verizon is “working a few things out,” it’s invitation only.

The MVNO space has been very active, too. Some interesting developments include:

  • Comcast and Charter launched, as described above, and have been successful by any measure, with Comcast now at more than half million subscribers and most expecting both to be multimillion subscriber players.
  • Multiplay is getting to be a “thing,” with one UK player, Smart, recognizing that there is strong interest in buying services from a single provider as a bundle, offering energy and insurance along with mobile. With the high cost of energy and insurance, they can package fantastic offers to attract subscribers without discounting mobile. Their “all in one” mobile App underpins a differentiated quint-play experience putting customers in control of their essential needs, allowing them to view bills, order services, obtain care and submit meter readings among other things.
  • Tracfone, the largest U.S. MVNO, with 22.1 million subs, lost SafeLink subscribers because of Lifeline rule changes, while its main brand, StraightTalk grew to nearly 9 million subs. The change in mix resulted in an ARPU increase to $25.
  • Ultra Mobile, one of the fastest growing MVNOs, launched Mint Mobile two years ago, positioning itself as the direct-to-consumer disruptor in the wireless category. Much like what Dollar Shave Club did to razors, Mint Mobile combines the direct-to-consumer business approach with warehouse pricing, where customers buy in bulk and save. Subscribers purchase service up-front, including data (2, 5 or 10GB) in bulk for 3, 6 or 12 months of service, with commensurate bulk savings, starting at $15/month. It’s no surprise that Mint has been growing dramatically, surpassing 200 percent growth year-over-year.
  • Kajeet, once an MVNO serving kids with sophisticated parental controls, has morphed into a six-carrier national mobility solution provider for the education market. With nearly 700 school district customers, including libraries, and expanding into school vehicle connectivity with its SmartBus™ offering, has expanded to Canada with Bell Mobility. Their parental controls now help schools, teachers, administrators and parents keep kids on task economically, and manage and analyse usage. Google recently hired them for their Rolling Study Hall project.
  • Newcomer Wing is focused on the higher end of the market, offering “stress-free” care, ease and value. As a result, nearly three-quarters of their customers come from a Big 4 carrier. Wing has digitalized the carrier experience similar to Amazon vs. Walmart. Customers are onboarded via text or call. Wing offers flexible plans that credit subs for unused data. Users track data, manage/change plans, and pay their bills via an app. Wing offers the same premium features as the Big 4 carriers, including international data roaming across 135+ countries at just $13/GB.
  • Lycamobile, with 15 million subs in 23 countries including the U.S., just launched Lycarewards in the UK. The loyalty program offers customers free data bundles and gift cards for viewing ads and special offers on the lock screen of their Android phone. The free service, delivered by app, uses an ad-funded model from U.S.-based AdFone, whose platform generates incremental monthly ARPU of up to $3 per user for its customers.

These are just a few of the more high-profile MVNOs. Of course, the IoT and connected device space includes many players providing value added services for which connectivity is an enabler rather than the raison d’etre. Many MVNOs and MVNEs are taking their connectivity experience and business relationships and extending them into the IoT space. This is the most exciting, innovative and fast-growing space in mobility.

 

Whitey BluesteinWhitey Bluestein advises young technology companies on mobile strategies and helping them win deals, as an advisor and as interim corporate development executive. His business is all referrals from clients, colleagues and the strong network of business and personal relationships built over his 35-year telecoms career. He works with young companies – mostly A and B Round startups – helping them navigate the mobile ecosystem and developing strategic relationships with mobile operators in North America, UK/Europe and AsiaPac. He’s also worked for big companies, including Disney, Google and Cisco, on new mobile initiatives. Current clients include Orion Labs and Payfone, among others. Recent clients are based in San Francisco, New York, Montreal, London and Paris. Whitey Bluestein is a regular speaker at the MVNOs Series events – including the MVNOs North America and MVNOs World Congress.

Outfoxed Comcast looks to the Sky

US telco conglomerate Comcast has decided it can’t be bothered with 21st Century Fox but is still really keen on Sky.

Apparently determined to complicate things for media rival Disney at every possible opportunity, Comcast seems to have decided that forcing Disney to come up with an extra $19 billion to get hold  of Fox is enough for now. The real fun will now consist of making sure Disney doesn’t get hold of Sky when the Fox deal goes through.

Disney bid $52.4 billion for Fox at the end of last year, but Comcast decided to throw a spanner in the works by offering $55 billion for it in June. This forced Disney to come back with a $71.3 billion offer soon after, which turned out to be enough to make Comcast throw in its cards. “Comcast does not intend to pursue further the acquisition of the Twenty-First Century Fox assets and, instead, will focus on our recommended offer for Sky,” said the Comcast announcement.

This seemed to be the likely outcome when Comcast quickly escalated the bidding war for Sky last week. An intriguing aspect of this bid is that, if it succeeds, Comcast and Disney will have to coexist in the running of Sky, since Fox already owns 40% of it. It’s hard to see how they could sustain that bizarre symbiosis, so something will have to give. On the other hand Disney could just decide to hold on for a bit just to annoy Comcast.

Digital TV Europe did a good analysis of the various plot twists back when the Comcast bid for Fox was just a rumour, which you can read here.

US DoJ throws $85 billion spanner in the works of AT&T-Time Warner

The US Department of Justice has decided to appeal the June 12 court ruling allowing AT&T’s $85 billion acquisition of Time Warner, it announced late on Thursday.

In a brief Notice of Appeal filed on July 12, the DoJ notified the District Court that it intends to bring the case to the Court of Appeals against the ruling that will allow AT&T’s planned acquisition of Time Warner to go ahead with no restrictions.

The US government, which had until August 12 to ponder an appeal, took a month to decide it would lodge an objection to the mega-acquisition. US entertainment industry news site Deadline sourced a copy of the Notice, signed by Craig Conrath, who was leading the government’s legal team during the trial. It doesn’t elaborate on the grounds upon which the appeal would be lodged, but the decision to appeal seems to have caught AT&T by surprise.

“The Court’s decision could hardly have been more thorough, fact-based, and well-reasoned,” David McAtee, the operator’s General Counsel, said in a statement. “While the losing party in litigation always has the right to appeal if it wishes, we are surprised that the DOJ has chosen to do so under these circumstances.  We are ready to defend the Court’s decision at the D.C. Circuit Court of Appeals,” he blustered.

The ramifications of the potential appeal could hardly be greater — not only regarding the future of a newly-created WarnerMedia business, and whether it might need to decouple from its parent company, but also for the whole telecom and media industries. The boardrooms of Comcast and Disney will be full of sweaty palms (yuk!), as the outcome of the appeal will set a precedent for future vertical integration deals, including their bidding war for 21st Century Fox.

If the DoJ was to win the appeal, the US Solicitor General could bring the case to the Supreme Court, where the judges generally siding with President Trump are in the majority. Since the days when he was a candidate, Mr. Trump has been a vocal opponent to the merger, citing the danger of “too much concentration of power in the hands of too few.” However, such a decision would not be without a twist: Eriq Gardner, the Senior Editor at The Hollywood Report, discovered in a disclosure paper that John Roberts Jr, one of the Supreme Court Chief Justices, still holds Time Warner shares.

AT&T has been moving very fast after the June 12 ruling to integrate the two companies, from appointing executives to stamping its authorities over HBO, although it has decided to leave Turner Broadcasting, the owner of CNN among other assets, independent until February 2019. However, it has already broken at least one promise related to the deal: instead of making the service more affordable, it just raised the monthly bill for its DirecTV Now service by $5.

Sky shareholders rejoice as Comcast immediately tops Fox offer

The bidding war for Sky is really hotting up with Comcast barely pausing for thought before trumping Fox’s latest acquisition offer.

Sky’s share price has pretty much doubled since 21st Century Fox first made a bid to acquire the rest of it back in December 2016. Sky shareholders’ wildest dreams were realised when Comcast eventually decided it wanted some of that action and it clearly means business.

Usually there’s a respectful silence in between competing mega-M&A bids but Comcast clearly has some kind of bidding ceiling in mind and hasn’t hit it yet, so why beat around the bush? A further hastening factor is the imminent announcement from some UK cabinet minister or other is going to make a pronouncement on the acceptability of Fox’s advances.

On the flip side the bidding increments seem to be shrinking. Comcast’s latest bid is £14.75 per share (£26 billion) – a mere 75p more than Fox’s last one, which it presumably hoped would be too rich for Comcast’s blood. If we assume, for the sake of argument, that Comcast’s ceiling is £16 per share, then it will be interesting to see if Disney-supported Fox chooses to make a more aggressive counter-bid.

“Yesterday’s offer from 21st Century Fox left the door widely open, but it’s slowly closing now,” said Analyst Paolo Pescatore. “The ball is now firmly in Murdoch’s and Disney’s court. I am expecting another round of bids and that will probably be it.”

Fox strikes back at Comcast in Sky bidding war

21st Century Fox has put in an increased offer to buy those bits of Sky it doesn’t already own, beating an earlier counter-offer from Comcast.

Fox bid £10.75 per share for Sky back at the end of 2016, but the bid was stalled by UK regulators taking a closer look at it to see what effect it would have on media plurality in the UK. They eventually concluded the potential acquisition could go ahead so long as Sky news is sold, to ensure its independence.

By that time, however, US cable and media giant Comcast had taken an interest and in April of this year counter-bid to the tune of £12.50 per share. After mulling this over for a few weeks Fox has decided Sky is worth fighting for and has raised its own bid to £14 per share – valuing Sky at around £24.5 billion.

“As the founding shareholder of Sky, we have remained deeply committed to bringing these two organizations together to create a world-class business positioned to deliver the very best entertainment experiences well into the future,” said a Fox statement. “We strongly believe that a combined 21CF and Sky will be a powerful driver for the continued growth and vibrancy of the UK and broader global creative industries.

“The enhanced scale and capabilities of the combination will enrich Sky’s ability to continue on its mission for years to come, especially at a time of dynamic change in our industry. This transformative transaction will position Sky so that it can continue to compete within an environment that now includes some of the largest companies in the world, but none of whom have demonstrated the same local depth of investment and commitment to the UK and to Europe.

“We said when we announced our proposed acquisition of Sky that we were firmly committed to UK’s creative industries and the contribution they make to the UK economy. We remain committed to the UK and believe that our offer for Sky will bring the best value for all the company’s stakeholders and are delighted that the Independent Board of Sky has recommended our offer to its shareholders.”

Apparently some UK politician still need to give such a deal their seal of approval, something that is expected to happen later this week. Fox is itself in the process of being acquired by Disney and maybe the imminent arrival of a wealthy parent that competes directly with Comcast probably contributes to its willingness to persist with a bidding war.

Throttling video streaming is not criminal but Xfinity has botched the move

Comcasts’s Xfinity Mobile is going to limit video streamed over cellular to 480p resolution and cap hotspot speeds at 600 kbps unless customers pay more.

In a letter sent to current customers, which inevitably got posted online for all to see (on Reddit), Xfinity Mobile announced two changes to its service: it will limit the resolution of video streaming over cellular networks to 480p (so-called “DVD quality”), and it will cap the speed of hotspots powered by mobile device to 600kps. Although it may help customers’ data plans last longer, ultimately this is a measure to control cost. Comcast does not have its own mobile network and is reselling Verizon Wireless’s data.

Limiting the resolution of mobile video streaming is nothing new. YouTube will fall back to SD (240p or 360p) when the network quality degrades, prioritising continuous play over picture quality. For a long time, Netflix had by default capped the resolution of streaming over cellular at 600p before it gave users the choice to go for higher resolution.

Neither is limiting tethering using mobile hotspots. When T-Mobile launched its Uncarrier programme “One”, mobile tethering speed was limited at 128kps. Even with the expensive “One Plus” the hotspot speed was only lifted to 512kps.

However Xfinity could have handled the issues better to avoid the backlash on its reputation. Xfinity should realise that the increasing popularity of video streaming is the main driver for data consumption. Therefore when designing the products it should either raise the data plan cap of its “Unlimited” data plan, currently at 20GB, or go for real “unlimited” but bill different customers based on the speeds offered, like the common practice in Finland, where per capita mobile data consumption is the highest in the world.

More importantly, Xfinity should have given its existing customers the grace period till their current contracts ran out if it wanted to avoid antagonizing them. Exerting new limitations and charging additional fee for services that are in the original contract is even potentially a breach of contract on the service providers’ side.

AT&T wastes no time in completing Time Warner acquisition

A mere two days after a judge rejected the US government’s attempt to block it, AT&T has completed its $85.4 billion acquisition of Time Warner.

The giant US telco is now the owner of some of the biggest properties and brands in the media world. HBO is arguably the number one producer of premium video content, responsible for Game of Thrones and Westworld as well as all-time classics The Wire and The Sopranos. Turner owns a bunch of major broadcast TV channels including CNN and Cartoon Network, while Warner Brothers is one of the big movie studios.

“The content and creative talent at Warner Bros., HBO and Turner are first-rate,” said AT&T CEO Randall Stephenson. “Combine all that with AT&T’s strengths in direct-to-consumer distribution, and we offer customers a differentiated, high-quality, mobile-first entertainment experience. We’re going to bring a fresh approach to how the media and entertainment industry works for consumers, content creators, distributors and advertisers.”

The strapline for the press release announcing the completion of the deal announces: “Positioned to be a Global Leader as a Modern Media Company. Set to Create the Best Entertainment and Communications Experiences in the World.” This chimes with the contemporary trend towards mutliplay and sets AT&T up as the big beast of this space.

The Time Warner name, which can be traced back to the launch of Time magazine in 1923, will now cease to exist. AT&T is adding a new super-silo to its corporate structure to accommodate these new media assets, alongside its communications, international and advertising business, but has yet to pick a name for it. You would presumably get short odds on ‘AT&T Media’.

That silo will be led by AT&T lifer John Stankey, who took over the AT&T Entertainment Group that was created to house DirecTV when it was snapped up for $50 billion or so in 2015. He’s going to get a crash course in running a media empire from former Time Warner CEO Jeff Bewkes during a transition period of unspecified length.

“Jeff is an outstanding leader and one of the most accomplished CEOs around,” said Stephenson. He and his team have built a global leader in media and entertainment and I greatly appreciate his continued counsel.”

There are only two larger media companies out there: Comcast and Disney, who are currently in a bidding war for Twenty-First Century Fox, with the former outbidding the latter to the tune of 19% earlier this week by offering $65 billion, apparently hastened by the AT&T development. Fox, meanwhile has trying to buy Sky for ages, a process also complicated by Comcast’s gazumping tendencies.

The US seems to be feeling pretty laissez faire about massive comms/media consolidation but Europe might yet have something to say about all this. The Fox/Sky acquisition has been mainly held up by concerns about media plurality in terms of TV news and the more of this sort of M&A happens the more questions like these will be asked.

UK Government confirms Fox can bid for Sky as long as it flogs Sky News

A protracted assessment of Twenty-First Century Fox’s desire to acquire the 60% of Sky it doesn’t already own has concluded something needs to be done about Sky News.

The concern is that giving Rupert Murdoch-owned Fox control of Sky would negatively affect media plurality in the UK because he already owns a bunch of newspapers. So the Secretary of State for Digital, Culture, Media and Sport, Matt Hancock, has concluded the acquisition process can only proceed if Fox finds an alternative, independent home for Sky News.

“I agree with the CMA that divesting Sky News to Disney, as proposed by Fox, or to an alternative suitable buyer, with an agreement to ensure it is funded for at least ten years, is likely to be the most proportionate and effective remedy for the public interest concerns that have been identified,” said Hancock.

“The CMA report sets out some draft terms for such a divestment, and Fox has written to me to offer undertakings on effectively the same terms. The proposals include significant commitments from Fox. But there are some important issues on the draft undertakings which still need to be addressed.

“I need to be confident that the final undertakings ensure that Sky News:

  • remains financially viable over the long-term
  • is able to operate as a major UK-based news provider
  • and is able to take its editorial decisions independently, free from any potential outside influence

“As a result, I have asked my officials to begin immediate discussions with the parties to finalise the details with a view to agreeing an acceptable form of the remedy, so we can all be confident Sky News can be divested in a way that works for the long term.”

There is, of course, another major potential spanner in the works for Fox and that’s the arrival of US broadcast giant Comcast on the scene with a higher bid a month or so ago. Hancock hasn’t got any issues with Comcast so Fox will need to not only deal with Sky News but outbid Comcast if it’s going to achieve its UK ambitions. All of this is good news for Sky shareholders.

“Sky welcomes today’s announcements by the Secretary of State regarding the proposed offers for Sky by 21CF and Comcast,” said a Sky corporate announcement. “In respect of 21CF’s proposed acquisition of Sky, Sky notes that the Secretary of State considers that the undertakings provided by 21CF have provided a good starting point to overcome the adverse public interest effects of the proposed merger that he has identified, and that DCMS Officials have now been instructed to seek to agree final undertakings with 21CF.

“The Secretary of State has stated that, dependent on the outcome of these discussions, he would hope to be in a position to consult on any agreed final undertakings within the next two weeks. Sky also notes the Secretary of State’s final decision not to intervene on public interest grounds in relation to the Comcast offer for Sky.”

All of this is good news for Sky shareholders. It’s hard to imagine Fox throwing in the towel now, after all the hassle it has taken to get to this point, and it’s equally hard to imagine Comcast bailing out after just one counter-offer. Having said that today’s decision seems to have been priced in, with Sky’s share price not having moved much since Comcast first indicated its interest at the end of February.

Comcast gazumps Murdoch/Disney with £22 billion bid for Sky

Giant US telco Comcast has upstaged Rupert Murdoch by offering £12.50 per share – around £22 billion – for Sky.

Murdoch’s 21st Century Fox bid £10.75 per share for Sky back in 2016 but the process has been bogged down by UK regulatory concerns that have called into question the prospect of it ever succeeding. Comcast seems to have taken advantage of this lull to swoop for the pay TV company and it wouldn’t be surprising to see Murdoch throw in the towel at this stage.

“We are delighted to be formalizing our offer for Sky today,” said Brian Roberts, Chairman and CEO of Comcast Corporation. “We have long believed Sky is an outstanding company and a great fit with Comcast. Sky has a strong business, excellent customer loyalty, and a valued brand. It is led by a terrific management team who we look forward to working with to build and grow this business.

“With its 23 million retail customers, leading positions in the UK, Italy, and Germany, and its history of strong financial performance, we see significant opportunities for growth by combining our businesses. Sky is a highly complementary business and will expand Comcast’s international footprint in the UK and Continental Europe.

“Sky will be our platform for growth across Europe. The combined customer base of approximately 52 million will allow us to invest more in original and acquired programming and more in innovation as we strive to deliver a truly differentiated customer experience. We look forward to receiving the necessary regulatory approvals.”

This is yet another example of a US telco looking to spend big on the content side of things. Comcast had already bought NBC Universal back in 2011 and now it clearly fancies expanding its operations internationally. Sky is arguably the most equivalent company to Comcast outside of the US.

The independent committee of Sky welcomes today’s announcement by Comcast of its firm intention to make a £12.50 per share pre-conditional cash offer for Sky, which follows its initial possible offer announcement on 27 February,” said the Sky announcement.

“The independent committee also welcomes the post-offer undertakings and commitments Comcast intends to give in relation to Sky’s existing business including Sky News, and believes that these voluntary commitments should comprehensively address any potential public interest concerns. In addition to Comcast and as required by the Takeover Panel, Sky also intends to give the same post-offer undertakings conditional upon the Comcast Offer becoming wholly unconditional.

“As a result of the announcement of this higher cash offer, the independent committee is withdrawing its recommendation of the offer announced by 21CF on 15 December 2016 and is now terminating the co-operation agreement entered into with 21CF on the same date.”

Since Fox has already accepted an acquisition bid from Disney, Comcast is effectively bidding against Disney on this one and may consider this to be an opportune time, while there is still uncertainty around the deal’s completion. Comcast has also gone to the trouble of publishing a presentation to show into news and journalism it is, presumably in anticipation of concerns about Sky News being closed down. Here it is.

Comcast journalism investments 1

Comcast journalism investments 2