After many years of rivalry for Britain’s goggle-boxes, Sky (SKY) and BT (BT.A) have decided to share their respective TV channels. If you can’t beat 'em, join 'em, or so the adage goes, particularly when your duopoly is threatened by creeping competition from TV newcomers.
Sadly, we will never know who initiated the discussions that led to this partnership. Perhaps Sky’s chief Jeremy Darroch decided it was the right time to bury the hatchet before he becomes a small fish in a much bigger pond (Sky is in the process of being bought by 21st Century Fox (US:FOXA), which in turn has received a takeover offer from media monster, Disney (US:DIS)). Or maybe Gavin Patterson saw an opportunity to extract costs after an exceptionally turbulent year at BT.
But the bottom line is the deal looks very sensible for both companies. BT will be able to integrate Sky Sports, Sky Cinema and Now TV into its product suite, while Sky can sell BT Sport directly to its customer base.
More importantly, together the groups are in a much stronger position to take on the might of new digital companies, which have begun to spread their tentacles into the world of sport. In February, the bidding war for the next three seasons of the Premier League will begin and it has been suggested that deep-pocketed US groups such as Amazon (US:AMZN) and Facebook (US:FB) may be warming up to make an offer. The former entered the sports arena earlier in 2017 when it bought the rights to the ATP Tennis Tour, while Facebook broadcast Thursday night NFL games in 2016 (before being beaten to the 2017 rights by Amazon).
External competition in sports broadcasting would be exceptionally problematic for both BT and Sky as their Premier League rights are key to retaining customers. With the cheap Netflix and Amazon Prime services increasingly showing high quality programmes and films, fewer people are interested in the expensive BT and Sky subscriptions. Both have witnessed a rapid decline in the growth of new customers this year. Although no financial details have been revealed by either company, it is assumed that BT and Sky will bid for the Premier League together.
For Sky’s investors, the deal is unlikely to move the dial. Instead the group’s future looks set to be dictated by higher forces across the pond. Sky comes as part of the $52bn (£39bn) 21st Century Fox media package Rupert Murdoch plans to sell to Disney. It’s the biggest deal in Disney’s history and is a response to the “changing way people watch TV these days”, according to Mr Murdoch.
However, BT’s investors do have reason to celebrate the partnership, particularly considering it comes at the end of a terrible year. 2017 began with an accounting scandal in the Italian division, which resulted in the write down of £245m worth of assets. Just a few months later, media regulator Ofcom forced the group to spin out its cash generative broadband business, Openreach, after accusations management wasn’t spending enough on improving the internet connectivity of millions of homes in the UK. All the while the overhanging shadow of the massive pensions deficit has plagued sentiment and investors have fretted – with good reason – that the dividend (which currently yields 5.7 per cent) may be in danger. It is surely a relief for investors that the year has been concluded with a partnership that should help BT retain the Premier League without having to spend too much money.
