The UK government has given the green light to 21st Century Fox and Comcast to buy Sky, but there are two rather large elephants in the room called Amazon and Netflix.
Bidding war set for Sky, but Amazon and Netflix are the companies to watch
The world of online content - especially TV and movies - differs from other major online businesses in one key respect, there is room in the business for more than one player.
Facebook, for example, is a natural monopoly, the more people who use it, then from a user’s point of view, the better it is. It is not like that in the world of online TV. There is room for multiple players, users are willing to pay for more than one service - to many people, Netflix does not lose its appeal if Amazon releases a comparable rival service.
This marks a change. Before online TV began to emerge, a monopoly did seem to be forming in the UK - a monopoly based on satellite subscription. Not many people would pay to have two satellite dishes supplying different content. Sky offered a kind of ‘all you can eat meal’ - a meal that was far from cheap.
It is not like that now.
If you want variety of content, you now have options.
Sport was Sky’s big selling point. Then BT moved in on its turf. But news that broke in the last few days that Amazon has signed a deal to televise 20 Premier League matches must send a chill down the Sky spine.
Sky, of course, is part of a game of musical chairs. And a pretty complex one at that.
At the moment, the players are Disney, Comcast, 21stCentury Fox and Sky itself.
Disney is in the process - providing things go to plan - of buying 21st Century Fox.
Meanwhile, 21st Century Fox is trying to buy that part the 69 per cent of Sky that it does not already own. But the UK government is not willing for the company owned by the man that also controls The Times, Sunday Times and Sun to also own Sky News, which is currently a part of Sky. It has now okayed the bid, providing that, once its buys Sky, 21st Century sells Sky News.
Disney has said it is willing to take on Sky News, but then again, the news channel needs subsidising to the tune of £25 million a year. There is lots of kudos in owning Sky News, but not much money. Disney says it is willing to buy Sky News, but everyone knows it is after much bigger fish.
Comcast - with a market cap very close to that of Disney’s and around double the value of 21st Century Fox, has made a rival and bigger bid for Sky, and is now talking about bidding for 21st Century Fox.
Truth is though, the above players are scared. Online TV has decimated the barriers to entry. For as long as the only means to having multiple TV content was via a satellite dish, Freeserve for more limited content or via cable, it was very hard for a new player to muscle in and grab market share.
But now we can watch TV online, setting up a subscription is a piece of cake.
All that an online TV service requires is content.
This is why Netflix shares have risen ten-fold in five years and 700-fold since the autumn of 2002.
This is why Amazon is putting so many chips on this sector. In addition to the Premiership deal, it has signed a deal to broadcast tennis grand slam matches and is reportedly spending $1 billion on a Lord of the Rings TV series.
That is why Apple is reportedly producing a TV series based on Asimov’s Foundation series.
The market is global - barriers to entry in each region are modest.
There is potential for the likes of HBO (owned by Time Warner) and AMC to move in too - HBO has already begun this process in America.
Opportunity awaits organisations with good content - meaning Channel Four (which is effectively government owned), BBC, which is effectively owned by the licence payer and ITV (which is publicly listed) - if only...
If only the BBC and Channel Four were given more leeway, if only ITV could do more things like Downton Abbey - with global appeal - instead of shows like Love Island.
In fairness, the three British organisations are trying to collectively create something - there is the potential to create a business worth at least $100 billion, potentially netting ITV shareholders and the British tax payer a nice return.
As for the Sky
The bidding wars for Sky are fun, and considering the Sky share price is up around a third over the last year and has almost doubled since the end of 2016, it has been good news for its shareholders.
But there are bigger things afoot.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees