Why Do Comcast and Fox Want to Buy Sky So Much?

International scale best way to fight off encroachment from Netflix, Amazon, says analyst

Sky PLC logo

Now that Comcast has formally thrown its hat into the ring to acquire Sky PLC, the U.K. broadcaster could find itself in the middle of a bidding war between Comcast and 21st Century Fox.

Which begs the question: Why does everyone want Sky so much?

More and more, U.S. companies have been looking internationally as a way to further build scale to compete against the rising tide of deep-pocketed tech companies — like Amazon and Netflix — invading their turf.

Sky’s businesses would grow Comcast’s international revenue from 9 percent of its overall revenue to 25 percent. Sky counts nearly 23 million customers in key parts of Europe, including Germany, Italy and Austria, along with the U.K. and Ireland.

Sky has “a tremendous distribution network around Europe,” Eric Schiffer, CEO of The Patriarch Organization and chairman of Reputation Management Consultants, told TheWrap. “These large companies [like Fox and Comcast] have to do more with distribution in the battle against streaming giants like Netflix, and now Amazon, and there are not many things that you can acquire today to give you that power and ability.”

In discussing the proposal on its first-quarter earnings call Wednesday morning, Comcast chairman and CEO, Brian L. Roberts attempted to beat back any assertions that Comcast needed to buy Sky. “I don’t think we have to do this,” he said, but added that it makes sense with such similarities between the two companies.

“I think it is a unique asset in Sky’s case that fits well within the mix of businesses that we’ve already got,” Roberts continued. “A benefit is that you would get new geographies and additional scale, which gives you optionality for future things to consider.”

Sky would fit in nicely with Comcast’s other assets, namely NBCUniversal, with its mix of entertainment, sports and news content. In February, Sky extended its rights deal with the English Premier League through 2022, among the world’s most popular (and thus, valuable) sports leagues. That would work well with Comcast, which holds the U.S. TV rights for the British soccer league via NBCUniversal, also through 2022.

There’s also a bit of corporate gamesmanship going on.

Comcast’s proposal, which caused Sky’s independent directors to withdraw their recommendation that shareholders accept the Fox offer, would also complicate Disney’s impending purchase of Fox assets, of which Sky was supposed to be a major part. If Fox doesn’t get Sky, Disney would be on the hook to make an offer itself for all of Sky.

“The Machiavellian view is that Comcast is doing this to try to blow up Disney’s deal,” Schiffer added. “It’s jamming a competitor.” However, a Fox insider told TheWrap the deal with Disney is not contingent on what happens with Sky.

For Fox, Sky is a bit of a passion project for Rupert Murdoch, who founded the satellite broadcaster in 1990, and already owns 39 percent of the company and has had his eye on gaining full control for years.

At least investors remain bullish that Fox will not give up its pursuit of Sky despite Comcast’s best efforts.

Disney, Comcast and Sky did not immediately reply to our request for comment.