Market reaction to Sky ITV Deal; NBCU/Comcast; Future consolidation

Speaker 0 · 0:02

Hello. Welcome to the Media Unfiltered podcast. There's been a flurry of m and a activity since we've been gone. Fox and Roku, which we've already talked about. The Sky and ITV deal has finally gone through. And, of course, the Comcast and NBC new announcement, which is more strategic than m and a, but we're going to talk about that today. In the meantime, we both went to Cannes, and I've been working on the future of gigs, cross media measurement, and the power of collaboration amongst broadcasters. In fact, I had the pleasure of talking to the Norwegian broadcasters yesterday, and I posted about them showing that once they align strategically on the markets that they're going after, they can set the narrative, they can work together, they can work together with clients, and they can build products around the end goal, which was, in their case, to go after social media. So today, we're gonna look at m and a and the market reaction to them. And I think Ian, sensible place to start would be the Sky and ITV deal. Obviously, it's it's gone through. How's the market reacted to it, and what's your view on the deal? Does it reflect positively on the market here in The UK?

Speaker 1 · 1:08

Yeah. So, I mean, interesting. Well, just just point of clarification, it hasn't obviously gone through from a regulatory standpoint, but, obviously, the the terms have been agreed between the two sides. I think, this was yeah. It was pretty, sort of, clear the the rationale for this transaction. Obviously, given what's happening in the broadcasting market moment, you know, the broadcast in The UK anyway have been collaborating a lot more closely at scale counts. And when you have a market which does face structural challenges, then the obvious move is to sort of bring yourselves together and sort of bring some synergies in terms of cost, but then hopefully also hope as well that the new entity can reignite revenue growth. I think if you look at sort of a market perspective on this, I think from an ITB standpoint, yeah, ITV in a way, you know, their share price are falling significantly from its highs of just over 260 p. So I think for for ITV, setting itself to Sky is the clean exit as it were. I think there's too much sort of negative investor sentiment at the moment towards the broadcasting space, certainly towards the listed broadcasting space that you could see any sort of change around in terms of sentiment anytime soon. Now, obviously, with this deal, the question mark then becomes about market consolidation. Yeah. Depending on whose numbers you look at. And bear in mind, also as well with Sky's numbers, they do do deals for other parties, so you have to take that into account. You're probably looking at a player on the headline numbers. Yeah. People talk about 70 plus market share. I think if you use to strip out Sky's, the party deals probably be far less than that. But it obviously does bring a question for regulators. And from a regulatory standpoint, you've got two things. One is obviously the market that you define, and this is where we're gonna get the whole debate as to what exactly is the TV market, who are the true competitors within there, should be thinking about the online players as well. I think the comment that was made on the call was that if you were to take into account ITV and Sky together, they'd only be around 7% of the total UK advertising market. That's the line that Sky will argue. This, of course, will focus very much on the TV market. I think for authors though, what regulators have to be careful of, and this is something that you've seen has become more of a policy over the past several years, making sure that they don't make a decision that looks bad in hindsight. And we can all go back to looking at what happened with Project Kangaroo and probably would argue that the regulators blocking that was structural mistake. Mhmm. On the part of The UK. But, yeah, historically, what happened was regulators tended to be very conservative. They were still blocking regional newspaper deals just over a decade ago. Clearly, there's gonna be too much market power even though those businesses have seen their revenue flows sort of dry up. Now what you're seeing with the regulators are trying to actually think about, okay, how is the market also gonna change as well? And I think this is probably sort of where, again, I think there's interesting sort of question here where the regulators will will sort of say, yep. We can see these businesses are under structural pressure. Yes. You know, in terms of market share, they look as though they've got significant market share now, but we've gotta be thinking about things in ten years' time. My view is this still will get cleared. There there may be some sort of, structures around it. There may be something around Sky needing to divest of the third party channels that or or not the third party channels, but the agreements it has. So in terms of of selling advertising for third party channels, but I think, fundamentally, this deal gets done.

Speaker 0 · 4:54

Yes. I agree with you. I think the stats that we should focus on and I shared some of these with with someone else. I was looking at the overall ad spend in The UK. There's three main companies that dominate it, and it's very high in The UK. So when you look at the three big boys, it's the, it's Amazon, Meta, and Google. And the the global average is around, like, 50% the market that they that they dominate of all media spend. In The UK, it's as high as 75%, which is crazy. That's higher than The US. That's higher than every other global market. So I think if we look at that, you can see, as you said, that the structural challenges for individual media owners is a real problem in that market. And it's not changing. Right? We it's something that we've discussed before that all new media spend, which they're still it's still growing, 90% of which is going to three companies. And that's not that's not healthy. And it's really, really challenging to compete against. And scale is increasingly important. Do you think when you see this consolidation happening in The UK, do you think that's the sign of what's to come across Europe? Because if these TV companies don't don't work together to compete with scale and, to to challenge the sort of the global platforms, activity?

Speaker 1 · 6:15

Well, I think we we've already seen attempts that. I mean, you look at France, you know, the attempts to to merge TF one and MCs. You look at the attempts in Netherlands as well, both of which are driven by RTL. You know, we've seen it also as well in in place like Spain. I mean, the main structure of the market now tends to be to the duopolies. Germany, RTL Proceben. So Italy, Mediaset or media for Europe and why? Spain, Mediaset Espana, Atris Media, France, TF one, MCs. That's sort of when you get the two players working sort of working together, I think those sort of duopoly structures probably can survive, but, yeah, but I think there has to be an element of cooperation. Look at what's happened in The UK. Yeah. The fact that Sky, ITV, and Channel four, preannouncement of any merger, came together and said we're gonna target the SME market. It's those sorts of initiatives that what really need to sort of I think the broadcasting industry and arguably also as well, not just broadcasters by themselves. It's a case for arguing that what about an industry like out of home? Should this also as well be brought into the fold as well? Mhmm. But there is no doubt moving forwards that from a broadcasting perspective, yeah, the momentum is very much with the online players. And what I mean by that is just you can see that in terms of the share of advertising market. Yep. The online place continues to grow share every single year. I think cooperation, collaboration has to be the message for broadcasters moving forwards. The obvious question is that may seem rational, sort of logical, etcetera. Does it happen in practice?

Speaker 0 · 7:57

Not at the rate it should do. And you're right. There have been aspiring of, of acquisitions across Europe. You've got DPG, as you mentioned in Belgium and Netherlands, and obviously RTL, acquiring Sky Deutschland as well. So, yeah, you're right. It it has already started. And I do wonder whether these acquisitions would go through if the TV companies would be more collaborative. It's almost sort of forcing them to work together. You mentioned TF one and m six, that that didn't go through. Do you know why that didn't occur? And perhaps I should know this, but why why did that why did that one not happen?

Speaker 1 · 8:30

Well, I mean, yeah. Although you see I mean, these deals were stripped down by regulators. So the the competition thought yeah. Competition authority still How long ago was that? It's it's several year. I I think you probably I don't call me any exact date, so I'm gonna say several years ago for that. But we yeah. They we're talking relatively recent, but I still think we had a an era then. Again, though, several years yeah. Many ways, that's a lifetime. Things have very much changed. And the broadcasters now, there is this case and increasingly been made that they are national infrastructure assets that having, you know, a sovereign broadcaster in today's world is actually sort of a very important attribute, particularly for European countries that perhaps struggle a bit on the world stage. And so I think yeah. Again, it goes back to this point. Yeah. A number of years back, regulators will look very much in this sort of, let's call it, the traditional size of the market or traditional way of looking at whether a merger should go through or not. I think increasingly now, sort of, yes, they are having that in mind, but they're also bearing into mind to the wider geopolitical national interests. Yeah. Also as well thinking about the future and what's gonna happen. Yeah. No regulator wants to be the one that's blamed for, let's say, ten years out that you get if they were to reject this deal, Sky and ITV, that this becomes projects, you know, Kangaroo Mark two. Mhmm. So so I think, yes, you know, those deals were closed a couple of years back. My feeling would be if they were reopened over the next twelve to eighteen months, there may be a different regulatory attitude or different regulatory approach taken.

Speaker 0 · 10:14

Totally agree. And I was just gonna be able to say that. I think the landscape's changed to the point where these deals will will go through with with with not too much with not too much friction. There's, there's another one occurring with Quebec Core and Chorus as well, where you almost got the entire market willing it to happen, and it's it's now sitting with the regulators, and it has been for a while. They're just too bloody slow. Right? They the the market the market just doesn't have time for that. Going back on the, Sky ITV deal, they've they've bought, obviously, the distribution arm, from ITV, but not the studio business, and they've they've separated them off. Do you think yeah. You wrote about this a little bit, and I just wanted to dig into it. But do you think Comcast or maybe someone else would be interested in the studio business further down the line once once this deal goes through?

Speaker 1 · 10:59

Yes. I mean, this is always the obvious question as to why, you know, when it was originally announced why Sky didn't just buy the entire business. I mean, ITB Studios is a relatively attractive business. And my view on this has been that, you know, quite frankly, shareholders Comcast shareholders were willing maybe to tolerate a deal to buy ITV's broadcasting business, which is, let's say, $2,000,000,000. But they would have revolted if Comcast has announced a deal of, let's say, $66,000,000,000 plus dollars for the whole of ITV. I think there are still some very bad memories regarding how much Comcast paid for Sky, and that has sort of booked the company since that deal was done. So I think a lot of the reason why the deal was structured as it was was because, again, shareholder pressure was ultimately forcing the actions of Comcast to Sky's ultimate owners. I think now that Comcast is splitting itself up into two and Sky will now sit within the NBCUniversal entity, There's a question here as to whether that dynamic still applies. I mean, you could argue that if you are an investor in NBCU, then essentially something like the studio's business would be seen as a good acquisition to make. Mhmm. Yeah. So we could get the situation where, actually, you know, things, you know, things revert back to where they were. Now as a vote, I put that as a possibility, not a probability at the moment, but I don't think it it can necessarily be ruled out with that. I mean, if you were then to look at who potentially else to buy ITV Studios, I mean, obviously, you've had Banerjee, which has rolled itself up with all three media, and ITV Studios would, again, be if you would look at it from the outside and think that could be an attractive asset for them. Obviously, Vania at the moment is sort of focusing more on on its gambling side, but still, that's one possibility. I don't think private equity would get necessarily involved in private equity at the moment. The industry is in a in a bit of a a sort of not like the hey days of, you know, let's call it seven, eight years back with the industry and where the investments going tend to be going more, yeah, if they're not AI, places like defense, infrastructure. I don't think necessarily the content business is gonna be higher the list of, of priorities. Could you get anyone else? I mean, sure. I mean, you know, why wouldn't there be on the other big studio players based in The US that would also look at acquiring ITV Studios as well? It could, of course, also as well just remain the listed entity. I mean, there's an interesting sort of scenario here where because we haven't really had a listed studios entity where shareholders have been able to buy and sort of trade the stocks. Not one of this sort of magnitude since, you know, I memory serves right. And since end of all, at least the New York markets, what might be quite interesting to see how in ITB studios as an independent firm is rated by the markets. How do investors think about the studios business longer term? And that's interesting as well because, of course, it won't have implications just for TV studios. But it's also as well, I think, a very good read across into how investors, whether private or public, what their thinking is on the entire content space.

Speaker 0 · 14:29

Yeah. So with that in mind, I think from what you were saying there, it seemed like it'd be a lot easier deal for Comcast to or for Sky to acquire ITV's distribution business because it's, you know, about the 2,000,000,000 mark or under under it. But if they did both, it'd be around four and perhaps a little bit harder to get through. But maybe in two tranches, it'd be, easier to acquire both sets, if if indeed that was that was the strategy. It's interesting that you mentioned that the the financial world and analysts don't view the content world and the media distribution world to be that attractive. Their their their eye is focused on other areas, which is which is obviously disappointing for our for our industry. Now looking at, the Comcast, NBCU sort of strategic split, if you wanna call it, do you just wanna explain what happened there and and why they did that? I think that would be really useful for our listeners.

Speaker 1 · 15:22

Well, I think if you look at the yeah. If you look again, a lot of it was share price driven. Polycom shares were down 25% around the quarter. Before this transaction, I mean, they rallied on the back of the news, so they so they came back down sort of after the initial announcement. Yes. The simple fact is is that this whole idea of bringing distribution content, a whole variety of assets together, Quite frankly, the markets didn't buy the story. And you can see there's an element there that, obviously, the markets are thinking about the entertainment business as a whole, the structural challenges it faces there. But also as well and this is, by the way, it's not just something in the media sector. I mean, this is, yeah, an entire theory across the financial markets. Yeah. Comcast is a conglomerate. Conglomerates to many investors just look unwieldy. There is, yeah, a view certainly of what should happen is that companies should be laser focused in the assets that they hold and not hold a stalling empire. Anyone who looked at Comcast's quarterly results in terms of the divisional splits and then the sub splits, you could see just how complicated this business was. So I think this is one of those classic trips. And by the way, slipping yourself into is you see it across multiple sectors, multiple sort of industries. It's one of the oldest tricks in the book if you want to you want to see a boost to your share price in its theme flagging. You split yourself, the idea being the separate entities have more of a focus. They therefore become more attractive shareholders and they re rate. That is what I think is the the driver of this deal. In terms of the split, it makes sense between broadband infrastructure distribution play and then also as well, you've got the media assets that sit within NBC. SkyPark was always gonna be interesting because of score of course, Sky has TV, but also as well, a broadband and telephony business off the back of that as well. Yeah, Sky's gonna be a more important part of this business moving forward. So I mean, we never for a number of years now, we didn't have the exact breakout of Skye's profits as the overall part of Comcast. Before, it was, you know, when it was announced, probably around nine to 10%, it's probably declined in importance to the overall Comcast group since then. But when you stood out when you have the NBCU group, that obviously sky's relative importance will become so that, more evidence. So I think, you know, this is very much sealed by shareholders or Yeah. Driven by the stock market performance. It is not a unique situation. It happens across multiple industries. I think for the media world, if you put aside the sort of what it means to a broadband and telcos, I think with NBCU, NBCU still has, you know, a large range of assets that sit between it. I think, you know, for Europe, this could be quite interesting. You know, I think for the new entity, I think Europe's gonna be sort of a much bigger area of focus moving forwards because arguably, there's a bigger opportunities there.

Speaker 0 · 18:37

Yeah. A lot a lot of people saying that that that the the growth engine for a lot of these companies is actually rest of the world outside of The US, which is I'm not quite too sure why that's being said a lot, but that that's that's what I've been hearing too. When you look at Comcast business and then then them splitting with NBCU, NBCU have actually had a pretty good start to the year. Right? They've had some major live temple sporting events, which has which has driven their advertising business. And they've got a huge sort of diversified strategy moving forward looking at, we'd obviously did an interview with Mark Marshall on here. He's the global chairman of advertising for the business looking at, leveraging the brands that they have. I mean, the the the sort of content assets, BravoCon is a really good example, and and doing things outside of spots and dots to make money. And I think that they're they're gonna have quite a successful year or future in order doing that. And this diversification play is playing across all TV companies actually around the world. You mentioned earlier about targeting SMBs and and new advertisers to television. Well, a lot of TV companies are are either investing in or buying or working with out of home businesses and radio businesses because, do you know what? They've got sales guys on the ground. They have, they're tied into local businesses. And if you've got that got those assets in market and you're selling TV and radio together or at home TV together, actually makes a lot of sense. Seven in Australia, as an example, just combined their sales forces. So it's Yeah. Radio and TV together. I think you're gonna see a lot more of that as well from, from TV companies and and local players. And we're seeing it also with SuperJix. Do Do you like that name, SuperJiks? The crazy it is very good, isn't it? And it's basically the local markets coming together. And and why not? Right? And I think you'll I think you're gonna see a lot of that sort of strategic play amongst the local markets. Because ultimately, with all this, and you can tell me if you agree or not, it's a scale play, isn't it, that we need to scale? The well, I don't say we need, but the the local media markets need scale in order to compete against the global giants.

Speaker 1 · 20:39

Yeah. I think look. You can you know, there there's definitely an element of scale. I think there's also as well. There were just ways that you can also compete smarter as well. Yeah. Scale yeah. Scaling is in some ways, good, you know, for for certain things. There's no doubt about that. One question is whether one of the problems for the, you know, broadcasters of the sex as well is that over the past couple of years, have they been tried and trying to fight the platform's game? You know, you never fight on your enemy's battlefield. You fight on your own. And, you know, my view is that essentially, at times, broadcasters have forgotten that principle. And that's been, yeah, arguably, a major cause of their problems. So Mhmm. I think, yes, you know, consolidation definitely will play a part in this. But bear in mind, again, I go back to the market perspective. When you consolidate, yeah, there was a question of generally the way that the market view those deals. Not always. But generally, particularly in the industry like this is they see it as a declining industry that effectively is trying to cost cut its way out. Yeah. I think what the broadcasting industry needs to show and, you know, as an industry and also as well as Sky TV needs to show this as a, you know, themselves is how does this lead to actually a better revenue growth outcome? And that's, quite frankly, I don't think it is is sort of where we've got tangible evidence at the moment. I think the SME opportunity could be absolutely fantastic. And I've talked about this sort of for for a number of years on how the broadcasters should get into this. And thank God we're actually listening sort of right now. But you you know, I think there's an element here also. I think the broadcasters don't just need to scale up. Yeah. There needs to be more initiatives like that. They need to more think about, okay, what are the others for the new markets that we can target that we haven't thought about before? How you know, what ways can we maybe sort of depart from our usual thinking, and sort of, as you said with Norway, you know Yeah. Thinking about how backed up by data, how you can actually take share back from social.

Speaker 0 · 23:09

Mhmm. Yeah. Do do you know do do do you know what? Just to just to chime in on that, it's, we've talked about the narrative and this cost cutting sort of victimization that some, domestic media has sort of suffered from. And what the Norwegians did when they when they figured out that they're gonna go after this market and and strategically align on how they're going to do that, One of the things that they came up with was, let's talk about all the positives of of television and not talk about victimhood and all the rest of it. And what a change, right? TV, not TV, but media spend isn't rational. And that's what they flipped. And that's that's the beauty of working together is not just on their tech and their data, their jig and their measurement and all that sort of stuff. But they actually strategically, they they aligned on messaging. And I think that's really important. The the positivity that they they set around it changed the narrative in that market.

Speaker 1 · 24:02

And I mean, this is oh, sorry. Yeah. Yeah. I mean, I was just gonna say, I mean, this is I mean, I I broke in because this is exactly the theme that had I think it was sort of future TV conference eighteen months ago, maybe just over eighteen months ago. Yeah. It was exactly this point that was trying to get across to the audience. Mhmm. You know, nobody likes the victim. Yes. Apologies for for being so harsh. But, yeah. And the point being is that your the broadcasters, your what they needed to talk about was all the positives. Yeah. The fact that they can reach a mass market audience, the fact they've actually got name recognition, the fact that particularly in Europe, people still want to watch national content, the fact that actually you look at short clips, a lot of, you know, short clips, that she generated from broadcaster content. How can that be monetized? What could they do with that? Things like this. This is why I say, you know, work smarter. Yeah. And in some ways, the consolidation angle definitely is is important. But, yeah, a market like Norway, how they turn the situation around is not necessarily by saying, we've all gotta come together, you know, scale up and what they you know, as in their corporate entities, what they've said is, we come together and collaborate, but we work smarter. And that's where I think they will get all casters will get more traction because the problem becomes when you sort of just say, let's do consolidation. The risk of that is essentially becomes that becomes your only strategy, and you're tempted to ignore everything

Speaker 0 · 25:37

else. Yeah. That's a bad move. Weirdly, one of our top podcasts is when we looked at the at home market, and I have no idea why, but just as a as an example to other, you know, local local media markets, what the what happened in the out of home markets or post COVID or during COVID is it got completely decimated. And we're back to the drawing board, worked together, figured out a measurement model, figured out a narrative to buyers, and it is many markets selling like hotcakes because they they work together, solved the I'm not gonna say solve the measurement, but they just work together to create something that buyers wanted. And they took it to market, and it's working. So, I mean, but they can turn it around. Again, the Norwegians, the Swedes, there's other examples too. It's just it's just about setting that narrative and and working together on a common goal. And there's tons of examples. And I have no idea why so many people enjoyed the the Out of Home podcast. But, you know, I think they wanted to listen to to markets and maybe because it was a positive story. I'm not sure. But maybe maybe that's what they were attracted to.

Speaker 1 · 26:41

Yeah. I mean, look. I I mean, it's interesting very, very well. I mean, here in The UK though, I mean, the out of home industry, I think this year I mean, it would get good growth, but, you know, it's probably not growing as fast as it should do. And I would argue maybe The UK market is one where there needs to be more collaboration. Yeah. I I would say The UK market's probably still still quite fractured Yeah. In terms of relationships. But I totally agree with you that, yeah, out of home is an industry. If it can come together, and there's very strong reasons why it should, particularly now that what you've got is a lot of the knowledge that you had sitting within the agency groups and specialists out of home units Yeah. Has been dissipated. So they don't have their traditional, let's say, guardians that sit within there. Right. Again, I come back to this point. It's not necessarily just making yourself bigger that counts. It's actually in more ways working smarter.

Speaker 0 · 27:46

So I think I think one of the things we're gonna do in the next few weeks. So next few weeks just coming out, just thought I'd tell the listeners, is brand new branded website and everything. It's coming out, e newsletters, the lot that should be out in about a week or so. Couple more interviews from Cannes. We've got, Rita Farrow and Jane Brook. So we'll add those. And then the other thing, we're gonna we're gonna decimate a few of the oh, not decimate. Sorry. Discuss. I don't know why I said that word. We'll have a good look at radio. I've been loving a bit of radio, recently. In some markets, there's some closures, which is unfortunate, but there's also some growth stories. Look at what the Australians do in a little of other markets. I think we should do a piece big piece on that, Ian. And also look at social and other stuff. So content creation creators, sorry, massive, in Cannes. But talking to a lot of advertisers, they're telling me it's like it's like the Wild West of black box. Right? They, have to buy thousands and thousands of creators, and they have no idea what they're buying. There's no there's no oversight. It's all self reported. And as you know, with anything digital and audiences and all of that, the rest of it, clicks, likes, and links, you know, all that can be easily manipulated. And some of the some of the brands are actually really worried about that. So we should we should do deep dives on all of those. That's what's to look forward to. And so good chat today. Ian, do you wanna cap us off with the usual line? We can do. No. Go on, Justin. You can do it. Okay. Well, Ian, thanks for your time. And listeners, thanks for listening. As usual, this is not investment advice.

Speaker 1 · 29:18

Thanks, everyone.