Murdoch's Back

There's little reason for the family to give up control over the British broadcaster -- yet

Debating whether the Murdochs are buyers or sellers of Sky is a favorite parlor game among investors.

Rising Sky

The broadcaster's shares have climbed 14% in the past year

Source: Bloomberg data

The answer depends on whether you think the satellite TV business is an ice cube sitting out in the sun or one sitting in a refrigerator. Both are melting but one more slowly than the other.

The nomination of Rupert's son James to the chairmanship of Europe's biggest pay-TV group, less than four years after he stepped down amid the phone-hacking scandal, will certainly be taken as a sign of the family's commitment.

It's not that simple.

Sky, which is 39-percent owned by Murdoch's 21st Century Fox, is still growing in terms of revenue and profit. On Friday, it said it added 205,000 customers in its key British operation during its fiscal second quarter, the strongest growth in that period for a decade.

U.K. Customer Growth

Sky added 205,000 customers in the fiscal second quarter

Source: Bloomberg Intelligence

More people are signing up to the company's cheaper packages such as video streaming service Now TV, so average revenue per user in Britain remained flat as it has been for more than a year.

Melting ice cube

Average revenue per user isn't improving

Source: Bloomberg

Sky last year bought out the parts of its German and Italian units it didn't already own and added broadband services and new set-top boxes in effort to boost growth. That's depressed Sky's operating margin, and competition from Mediaset in Italy is particularly fierce.

Sky's Starting Costs

The broadcaster's planned Q product will cost twice as much as its basic Sky+ package

Source: company

Sky argues that profitability in Britain will get a boost from Q, a set-top box it will start selling in February from between 42 pounds and 85 pounds a month. (That's more than twice the cost of its basic Sky+ package). The company also plans to enter the mobile market later this year.

Not much sign, then, of that ice cube melting fast.

But the satellite pay-TV business, which Sky pioneered in Britain in the 1980s, is losing its dominance as telecom and cable companies can increasingly deliver TV signals over fixed lines.

Young people are opting for cheaper alternatives -- video streaming services like HBO GO or Netflix. BT Group, Britain's former telephone monopoly, now offers pay TV in an effort to retain broadband customers. Competition from BT forced Sky to pay 70 percent more last year for the rights to the English Premier League -- the key subscription driver in soccer-obsessed Britain.

Investors seem relaxed about these deeper threats facing Sky: the shares have risen almost 14 percent in the past year compared to a 2 percent dip for the STOXX European media index.

Index-Beating Sky

Sky has outperformed the wider media benchmark in the past 12 months

Source: Bloomberg data

It's also not clear if there is anyone with the desire or firepower to buy Sky, especially if the Murdochs want to sell the British, German and Italian businesses together. The company has a market value of 18.3 billion pounds, and the Murdochs would likely demand a takeover premium.

Vivendi, owner of French pay-TV operator Canal Plus, did take a look at Sky in 2014 as it weighed how to spend the 8 billion euros it had amassed from asset sales, according to Reuters. But it decided Sky was too big of a bet on satellite TV given BT's push to buy content and concerns about the broadcaster's long-term growth.

Telecom carrier Vodafone is also floated as a possibility, but a massive investment in television would be a shift for CEO Vittorio Colao, who is fond of calling the pursuit of expensive soccer rights a fool's game. A deal to buy all or parts of Liberty Global would be a better fit for him.

James Murdoch himself said in December Sky's current ownership position wasn't permanent. Sky's performance on its own doesn't give him an incentive to sell immediately.

Any push to do so is likely to come from the U.S., where Murdoch is also CEO of 21st Century Fox, a juggernaut producing movie and TV content. Its bid was rebuffed by rival Time Warner last year.

If Murdoch believes the real value in the media business comes from controlling content and less from distributing it, then doubling down in the U.S. looks a better bet than Sky. And another run at Time Warner would provide the impetus to sell Sky.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Leila Abboud in Paris at

    To contact the editor responsible for this story:
    Edward Evans at

    Before it's here, it's on the Bloomberg Terminal.