Chisholm, the battle for Sky and ‘a slight falter’ for Netflix

It’s sad that Sam Chisholm, the man who helped create the modern Sky, never got to hear the outcome of the great corporate media battle over what was once his baby, writes Raymond Snoddy. Plus: a dip in fortunes for Netflix.

We do not know whether Sam Chisholm, the man who did more than anyone else to create Sky, was able to follow recent events in his final short illness.

It was Chisholm who slammed BSB and Sky together to create British Sky Broadcasting – only two BSB employees survived – and managed to re-negotiate crazy Hollywood studio deals that would have pushed the new company under. It was Chisholm, as chief executive, who negotiated the original Premier League deal that set the future course for the satellite broadcaster and who took Sky to the Stock Market, before he fell out with Rupert Murdoch and departed.

The 1994 deal valued the company at around £1.5 billion and Sam cunningly had inserted a clause that he would get 0.5 per cent of the profits which is why he was able to retire to a farm as big as a small country in Australia next to the Murdoch estates.

It would be nice to think that Sam, who died last week at the age of 86, had a final smile at the prospect of Murdoch and Disney slugging it out with Comcast for Sky with £26 billion on the table and possibly more to come.

Sad that Chisholm, who combined a reputation for brutal sackings with numerous individual kindnesses, never got to hear the outcome of the great corporate media shoot-out over what was once his baby. It would be nice for his heirs if Sam had held on to any of those shares.

Murdoch, after all these years, finally got clearance from the regulators and the Government and must be mightily annoyed that Brian Roberts of Comcast, not exactly a Murdoch bosom buddy, is repeatedly trying to gate crash the carefully constructed Fox-Disney deal to snatch Sky.

If Murdoch alone was involved you might argue that residual stubbornness might push him towards another “final” bid to try to topple Comcast, which like Sky is also involved in not just entertainment but telecommunication and broadband and is also the largest US cable company.[advert position=”left”]

It should all come to a head later this month on July 27 when Fox and Disney shareholders meet to approve the £54 billion deal that will see Disney acquire most of Murdoch’s US entertainment interests.

When that deal is done the future of Sky becomes a sideshow in which Comcast, with no European regulatory problems, will clearly emerge as the favourite to own the Sky Group.

Those who want even more for the Sky shares than Comcast’s £14.75 a share offer – say something like £18 a share – look longingly, but probably optimistically, at the £140 billion capital value of Netflix.

The US video streaming company now has 130 million subscribers worldwide compared with 23 million Sky subscribers in six European countries, although Sky does sell a wider range of products than Netflix.

So what has looked like the most likely outcome for some time will now come to pass, barring some last minute corporate fit of pique.

The Disney-Fox deal will go ahead in the US and Comcast will make a lot of Sky shareholders very happy.

Each will have achieved what they most wanted – expansion – and the acquisition of assets that most naturally fit with their existing businesses.

Comcast, in particular, will have achieved what they most wanted: a large footprint in Europe in subscription television, mobile and broadband – businesses they understand.

As far as the UK is concerned both cable and satellite will be in the hands of two enormous corporate American giants. The third arm is Netflix. Then there is the BBC, ITV and Channel 4, minnows all – albeit it of differing sizes – compared with the opposition and that is before taking into account the growing video ambitions of Amazon, Google and Apple.

If there are any residual free market politicians still complaining that the BBC is too big and interferes too much in the operation of markets then it is time for silence.

It has never been so clear that the UK’s public service broadcasters are too small, not too large, and are in danger of being marginalised in the battle with the international competition they now face.

Ironically, just as the Fox consolidation was reaching its endgame, consolidation sparked by the need to be able to compete with Netflix, the streaming company announced less than stellar results.

Shares of Netflix fell by 14 per cent on the news that it had attracted 5.2 million new subscribers in the second quarter compared with company forecasts of 6.2 million.

The results are likely to be little more than a blip, although live broadcasts of the World Cup may have turned out to be a disincentive to new subscribers in this quarter.

Media and technology analyst Paolo Pescatore saw the results as “a slight falter” but added that Netflix needed more subscribers and needed them fast.

The company is about to add another $1.5 billion to its $6.5 billion of long-term debt and it has many billions of programming and contractual obligations which have to be serviced from its single subscription revenue stream.

But for the video streamers the news from Ofcom is good.

A new study shows that young adults in the UK are more likely to use their various screens to watch Netflix, YouTube and Amazon than broadcast TV.

Among 16-34 year olds, live and recorded television, plus catch ups, accounts for just 46 per cent of their viewing compared with 71 per cent for the average Briton.

All the signs are that the new streamers will provide more intense competition for the BBC, ITV, Sky and Disney going forward, however they reorganise themselves.

Not even Sam Chisholm with his energy, bluster and profanities could have coped with that.