Comcast's $30.7 billion bid for Sky is a bet on the past just as Disney chases the future

Brian roberts

Disney wants to buy much of Fox's content assets to bolster its attack on Netflix.
Now Comcast may throw a wrench into things by trying to snag the UK-based pay TV service Sky, which Fox has long been after.
There's a lot of uncertainty regarding these potential deals. But what's clear is that these media giants are using two very different strategies when it comes to facing the challenge presented by streaming and Netflix.

Remember that shocker of an announcement a few months ago that Disney was set to buy a chunk of 21st Century Fox's assets for over $50 billion? That's already old news as media 'Game of Thrones' escalates.

Comcast on Tuesday jumped in with a bid to buy the UK pay TV service Sky – which is supposed to be part of Disney's acquisition. And it's a better deal for Sky on paper, with Comcast offering a higher price.

What's going on here? Isn't the media industry trying to combat cord-cutting and looking to take on Netflix? Isn't the future about streaming and not satellite TV?

That's where all the consumer trends are pointing. The number of cable homes is shrinking. Netflix keeps adding subscribers. That's why the two diverging strategies of these media goliaths are striking:

Disney seems to have come to grips with the reality that the media business will never go back to the way it was, so it's making the riskier move of disrupting its own business. That's why it's trying to stock up on content for a direct-to-consumer streaming service that bypasses the cable model.
Meanwhile, Comcast seems to be buying time, by trying to ring every dollar it can out of the legacy pay TV model, while hoping that model hangs on a bit longer.

Sky helps Comcast hold on to the cable cash cow longer

"The Comcast Sky deal is about protecting your existing property, while buying more subscribers and all the carriage and subs fees that go with that," said Elgin Thompson, managing director at Digital Capital Advisors. "It's a bit of an old world mentality."

For the time being, owning Sky would get Comcast into markets it isn't very strong in, like say Italy, and would help it lock up key sports rights – since Sky recently inked a deal to broadcast Premier League soccer by spending less than had been anticipated.

That's short term insurance against cord-cutting, which is occurring less rapidly in Europe, said Alice Enders, head of research at the UK-based media research firm Enders Analysis. "So Comcast has estimated that, 'If we get Sky, we can say that 25% of our revenue is now international.' Their story becomes one of international diversification, and getting away from relying on the US."

"Sky helps them get more international, and gets them into more sports beyond the big three or four in the US," said Thompson. "So there's some logic there."

AT&T/Time Warner kick started this mania. And it's uncertainty hangs over everything

AT&T's proposed acquisition of Time Warner was supposed to reset the media industry's chess board. But now the deal is being held up in federal court and may not be decided until halfway through 2018.

What happens with AT&T likely effects every other potential move yet to play out in the radically reshaping industry.

"Most companies in this space made money in the traditional way," said Jeff Green, CEO of the ad tech firm The Trade Desk. "They sold shows and networks to distributors and they sold ads. And that system has run TV for 75 years."

Selling shows to Netflix became a nice way for TV companies to make extra money. Then it got too big too fast, and became a threat.

"So these companies said, 'Let’s not do that anymore.' Now everybody is trying to own distribution. That's what AT&T started. And what the Sky deal represents is Comcast wanting to be even closer to distribution."

Black Panther

For Disney, it's all about Netflix

Disney's interest in Fox is all about building up its content library to bolster its coming Netflix killer – a direct-to-consumer streaming service that should feature the best of Disney, Marvel, Star Wars, and all of Fox Studios content (X-Men, Avatar, and so-on).

"The core deal logic in Fox is for Disney to get studio its assets," said Enders. "That’s what they really want. Fox wants Disney more than Sky."

Thompson is less than bullish on Disney's attempt to blunt Netflix. "They are so far ahead that no one is going to catch them," he said. "In the meantime, they can simply find all the disgruntled talent and wait for their contracts to end."

Comcast and Sky is easier for the regulators to swallow

As Enders noted, Fox has been trying to purchase the remainder of Sky that it doesn't own for some time. And the deal is being held up – not for competitive reasons, but political ones, with the small matter of the phone hacking scandal that rocked the UK a few years ago hanging over the deal.

"Fox can’t do whatever it feels like," she said. "So the question is how far Disney is prepared to go to get Sky." She theorized that both deals could happen in some fashion: Comcast could end up with Sky, while Disney could take home a smaller pile of Fox assets. Or Disney could step up its bid for Fox and/or Sky.

It's not out of the question that down the road, she said, that Comcast could try to buy Time Warner if AT&T ends up losing its bid. Or, as Thompson suggested, Comcast could try its own Netflix competitor using all of NBCUniversal's assets.

"There's a lot more reel left in this movie," Enders said. "In the meantime, chaos will probably ensue."

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