Murdoch, Bollore Race Across Europe’s Borders to Fight Netflix

  • Fox’s Sky deal challenges broadcasters, telecoms to respond
  • TV seeks hit shows, scale to counter Netflix, Amazon threat

Never mind Brexit and the nationalist movements gaining ground elsewhere in Europe -- billionaire media moguls confronting the threat of Netflix and Amazon Prime are busy trying to break down borders.

QuickTake The Streaming Revolution

A push for European scale is driving Rupert Murdoch’s $14.6 billion bid for pay-TV provider Sky Plc and French tycoon Vincent Bollore’s move on Mediaset SpA, the Italian broadcaster controlled by former Prime Minister Silvio Berlusconi. More deals are in store as media and telecommunications companies counter the rise of the digital video services.

“2017 will be a year of proper M&A activity and consolidation in Europe which mirrors what has been going on and will continue to go on in the U.S.,” said Mathew Horsman, director at London-based advisory firm Mediatique. “It’ll be across content and distribution, it’ll be across borders and it’ll be between new and old media.”

A new wave of convergence between media producers and distributors arose in the U.S. with AT&T Inc.’s agreement to buy Time Warner Inc. While struggling with sluggish advertising revenue and viewership, broadcasters have become hot properties as media and telecom companies try to keep the digital upstarts at bay, and their shares are rising as investors bet on further consolidation.

Bollore’s Vivendi SA, which owns French pay-TV provider Canal Plus, acquired a 20 percent stake in Mediaset this week, days after the chief executive officer of the French phone carrier Orange SA expressed interest in buying Canal Plus. European cable provider Liberty Global Plc and mobile operator Vodafone Group Plc on Tuesday received regulatory clearance for a joint venture in the Netherlands that could presage a broader partnership.

“Traditional broadcasters are trying to find ways of remaining relevant,” said Neil Campling, an analyst at Northern Trust Securities LLP in London. “You’re seeing a number of consolidation moves and it’s partly reflective of huge changes in the way that consumers are literally consuming media.”

Sky’s sports-driven formula has begun to fray, a factor in the satellite broadcaster’s 29 percent stock drop this year through Dec. 8, the day before Fox’s preliminary offer was announced. To keep up with streaming services from Netflix Inc. and Amazon.com Inc., it’s shelling out more for dramas like Sky’s “The Young Pope,” which stars Jude Law and was produced by Sky and Canal Plus with U.S. cable channel HBO.

Netflix plans to spend almost $5 billion this year on entertainment programming, according to MoffettNathanson Research. That’s more than any established U.S. television network.

Convergence, Again

The latest round of consolidation harkens back to the bigger-is-better thinking that galvanized European telecoms and media executives around the turn of the century. That push ended in near disaster for the likes of Vivendi, which sold NBC Universal four years after acquiring the U.S. TV and movie-studio business, and Telefonica SA of Spain, which shed production house Endemol in 2007 for less than half the acquisition price in 2000.

Ambitious convergence plans were hampered by the fragmentation of Europe’s media markets, with language differences and regulations requiring local programming limiting the benefits of scale. The technology to make it all work was in its infancy.

“I consider it very risky to play the M&A theme in this sector as the risk of failure is high,” said Arnaud Scarpaci, fund manager at Montaigne Capital in Paris.

The new consolidators are betting things are different now. Thanks to the spread of fast broadband, more consumers buy telecommunications and television from a single provider. The European Commission is pushing “cross-border portability of online content,” which could create a single market for streaming services -- in contrast to the fragmented broadcast business.

Netflix and Amazon Prime already offer borderless European coverage, bypassing Europe’s telecoms and TV operators with their so-called over-the-top technology. Sky and other television providers are countering with their own streaming operations.

‘Global Leader’

While the Sun newspaper, owned by Murdoch’s News Corp., urged Britons to vote to leave the European Union in June, its sister company 21st Century Fox Inc. talked up the benefits of breaking down barriers in announcing plans to buy the 61 percent of Sky it did not already own.

“It creates a global leader in vertically integrated content distribution,” Fox Co-Chairman Lachlan Murdoch said on a conference call. “It enhances our sports and entertainment scale and gives us leading direct-to-consumer capabilities and technologies.”

For Gadfly’s take on why the Murdochs are getting a bargain, click here.

A combined Fox and Sky could capitalize on the EU’s push for cross-border portability and its greater heft to bid aggressively for pan-European digital rights to popular programming like soccer’s Champions League, which Sky lost to U.K. telecoms provider BT Group Plc three years ago, said Guy Peddy, an analyst at Macquarie Bank Ltd. in London.

“This, in turn, could give it a content base to launch OTT services across Europe,” Peddy said.

Bollore cited a similar rationale for a planned alliance with Mediaset, aiming to create a Netflix challenger in France, Italy and Spain. Vivendi’s stake-building follows the breakdown of an agreement with Berlusconi in July.

Murdoch, Malone

A wild card in the European convergence deck is Liberty Global’s response to the Fox-Sky deal. John Malone, its chairman, likes to keep pace with Murdoch.

Liberty Global, which owns cable operators like Virgin Media in the U.K., also holds 9.9 percent of U.K. broadcaster ITV Plc, known for dramas like “Downton Abbey.” ITV is up 17 percent this month, while potential takeover targets Entertainment One Ltd. and ProSiebenSat.1 Media SE in Germany have risen 4 percent and 13 percent, respectively.

Fox’s deal for Sky, along with BT’s purchase of U.K. mobile carrier EE, could also put pressure on Vodafone to revive talks with Liberty Global about a possible business combination that would extend beyond their Dutch venture, said Tim Westcott, senior principal analyst at research firm IHS.

Telecommunications operators are pushing into TV and other businesses because European Union Competition Commissioner Margrethe Vestager has opposed mergers of mobile operators within markets like the U.K. and Denmark, saying she wants to maintain consumer choice.

“They’ve got to do something,” Horsman said. “Maybe there will be a revival around the whole Vodafone-Liberty situation.”

— With assistance by Daniele Lepido, and Alexandre Boksenbaum-Granier

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