Of course Karen Bradley must – and surely will – trigger an Ofcom investigation into the family Murdoch’s bid to reclaim all of Sky. That’s what media ministers are for. Of course there’s a need to decide how many boardroom chairs James Murdoch can sit on. Of course Rupert loathers have another field day. And of course investors (never the apple of the family’s eye anyway) may grow predictably restive over this £11.7bn offer for the 61% chunk of Sky the Murdochs don’t control already.
All of which probably won’t stop the deal going through. 2011 isn’t 2016; the media landscape Ofcom sees has changed hugely. Which is why the most interesting questions arrive from out of a clear blue sky.
In this more pensive sense, valuing Sky at £10.75 a share and £18bn-plus overall is a big call, even for 21st Century Fox. A nagging critic might ask whether, not for the first time in Rupert history, it doesn’t represent too much cash spent on the past rather than the future. A Wall Street Journal kind of question, you might say. Part of old giants getting together, AT&T/Time Warner-style, as digital gales blow.
Here and now, this month, this week, Sky fortunes would seem to be powering forward. As the UK nears subscription saturation, so Germany, Italy and Austria provide new opportunities. God tentatively bless non-Brexit land and its compliant European commission! But there are warning signals.
Next year is going to be torrid for economies, here and over the Channel. Think of those creaking Italian banks. How much longer can Sky go on ramping up its price without hitting a ceiling?
One price comparison outfit – uSwitch.com – has just calculated that some 49% of premium digital pay-TV customers in Britain are watching less than a fifth of the channels in their packages. But the average yearly spending for premium pay-TV here is now £508 – or £42.30 per month, with 32% spending more than £50 a month. A quarter of Sky customers pay more than £60 a month per household for their packages.
And earlier this year, the researchers at Enders Analysis looked at a churn rate of 12% among subscribers and produced a useful little worry list. “Up to now the achilles heel for the vertically integrated pay-TV platforms in Europe has been premium sports, above all top-league football, where retention of live televised rights has come at an increasingly high price, and BT’s acquisition of Champions League and Europa League rights looks the most likely suspect. But, in the internet age, could premium scripted entertainment become a second achilles heel, as global … services offered by the likes of Netflix and Amazon provide growing competition?”
Since when there have been clear signs – from US cable viewing figures – that sport isn’t quite the subscription hook that had once been hoped. American football audiences have fallen away sharply, and some of the individual soccer statistics in the UK aren’t too shiny either. Yet every time you shrug over some mid-table clash, remember that Sky has paid £10.2m to screen it, and that the latest contract with the Premier League cost more than £5bn (far more than the BBC’s entire annual budget).
That’s a potentially crushing weight to shoulder if viewing figures take an early bath. It can’t be mitigated by advertising growth. TV ad cash flows are estimated to be stagnant or a little down over 2017. And the entertainment competition becomes ever more ferocious. Netflix produced 600 hours of programming this year. Amazon has announced plans to spread its Prime video service to 200 countries, a grand tour even Clarkson might boggle at.
Sky has HBO’s and Showtime’s output in its pocket, plus the ability to make more programmes of its own. But Netflix doesn’t have to watch Sunderland or Stoke play football every week.
In short, the competition is stiff and getting stiffer. Football rights have to drive subscriber growth. Entertainment and film rights have to cement it. Expansion across national and language borders has to seal the deal with viewers. And the price has to be right in an era where wages seem stuck and exchange rates play a difficult game: helpful for the moment if you wish to mount a dollar bid from Manhattan, but not so good if you need to repatriate profits there.
None of which means that this Sky deal is falling in – or falling down. But there is something here that wasn’t there five years ago: pressure. This isn’t remotely a licence to print money any longer, nor a mighty route to global domination. It’s principally a fight over the declining goodies of conventional TV as the Googles and Apples circle menacingly. Is young James (44) as smart as dad (85)? Is satellite TV, with its increasingly old viewers, the future? Watch this space, because it’s a billion-pound question now.
