A merged Sky Europe comprising BSkyB, Sky Deutschland and Sky Italia would be able to make considerable savings on technology and back-office infrastructure, while cooperating to a greater degree on original programming, analysts noted in the wake of the news that the three could form a single, giant pay TV operator.
Investment bank Credit Suisse said that, sports and movie rights aside, the three entities currently spend a combined £1.4 billion on content a year. “Strategically, it would make sense to spend a greater proportion of this on original commissions and a larger entity would have more scope to do this,” the bank said in a note on the mooted merger, noting the recent three-way drama copro Diabolik as an example of how the partners could join forces.
There are also potential sports and movie rights savings, but that would depend on the rights in question being sold on a pan-territory basis, which is not currently the case.
Analysts identified key savings in technology infrastructure. The three pay TV operators add about 2.7 million subs a year and upgrade a further 1 million to new settop boxes, at a cost of about £500 million per annum. Joint buying would recoup savings of about £50-75 million. Furthermore, there would be additional cost savings as next generation boxes, platforms and apps are rolled out. An estimated £230 million of centralised costs could also be stripped out by a merger.
However, any deal is unlikely to happen ahead of the next auction of Premier League soccer rights in the UK. With Sky battling telco BT and possibly others for the premium rights, the cost implications remain unclear, making it difficult to structure a wider deal. The auction will likely take place in the second half of the year, meaning a Sky Europe deal would take place in late 2014 at the earliest.
Sky Europe would have, on current numbers, over 19 million subscribers and revenues of over £11 billion. EBITDA profit would be £1.9 billion and it would carry about £6 billion of debt. The merged entity would have a value in the region of £26 billion.
Separately, Sky Deutschland’s largest minority shareholder, Crispin Odey, has told the UK Financial Times that he will resist a BSkyB takeover of the German platform if, as German rules permit, there is no premium offered to the current share price. Odey holds about 8% of Sky Deutschland.
He told the FT: “While it makes quite a lot of sense for BSkyB to own Sky Deutschland, because a lot of its technology and knowhow has come straight from Sky, a nil-premium merger that massively undervalues the company does not make sense for minority shareholders.”