“It’s a wing and a prayer,” Rupert Murdoch admitted at a party almost 27 years ago on an industrial estate in Isleworth, west London. The occasion was the launch of Sky, the UK’s first satellite television operator. The media mogul was aware the project was a risky bet; his candid aside to a journalist was an acknowledgment that he was taking a step into the unknown.
In its first few months of operation, Sky incurred hefty losses. But it became the UK’s dominant pay-television operator thanks to exclusive media rights to Premier League football. The sport was transformed by Sky’s money. Sky, in turn, grew into a vibrant business and one of the UK’s best-known consumer brands.
Mr Murdoch and his family have maintained a close connection to the broadcaster. 21st Century Fox, the entertainment group run by Mr Murdoch and his sons Lachlan and James, owns 39 per cent of Sky, but recent comments from James Murdoch, Fox’s chief executive, have raised the prospect of that changing. “We’ve . . . been clear that over time, having 40 per cent of an unconsolidated asset is not an end state that is natural for us,” he told The Hollywood Reporter.
His words were seized upon as a sign that Fox would, at some point, try to acquire the shares in Sky that it does not own. But the chatter in media circles suggests that Fox may, in fact, be a seller rather than a buyer. Could the Murdoch era at Sky be coming to an end?
Bankers are buzzing about what a Sky sale would mean for the European media sector. The company has a market capitalisation of £14.5bn and there would be no shortage of possible suitors — at the right price.
It has operations in three countries thanks to its acquisition last year of its sister companies in Germany and Italy, and 21m subscribers, with an additional 4m watching Sky channels on other services such as Virgin Media. It has also embraced innovation in distribution, launching Now TV, a lower-priced broadband-only service.
Vivendi, the French media group controlled by Vincent Bolloré that owns Canal Plus and Universal Music, has been mentioned as a possible contender. It has slimmed down from its bulky conglomerate days and is sitting on a hefty cash pile having sold €35bn of assets.
BT, which is engaged in a fierce battle with Sky for exclusive sports rights, could be another contender although it would probably run into competition issues. There would be no such problems for Comcast if the US cable giant were to make a move for Sky. It withdrew a $45bn takeover of Time Warner Cable this year after failing to convince regulators to approve it. Having run out of room to grow in the US, Sky would offer a European platform, a large customer base and the potential for further expansion.
Of course, the Murdochs and Fox may not choose to sell. Four years ago, when Fox was still part of News Corp, it tried to buy the Sky shares it did not already own but dropped the bid amid intense political pressure following the UK phone-hacking scandal.
Might the Murdochs revisit that bid? We are in a time of media fragmentation — more audiences choosing on-demand programming than traditional, appointment-style viewing, where audiences gather around the television at a predetermined time. Sky gives Fox something unique: a direct route to consumers, who pay it for a range of services.
Yet Fox’s recent deal activity and the interests of the younger Murdochs suggest its focus may lie elsewhere. Last year, Fox tried to buy Time Warner, a content powerhouse and the owner of HBO and the Warner Brothers studio. Its $71bn offer was rebuffed. But it recently gained effective control of National Geographic’s publishing, cable and digital assets when it formed a venture with the organisation’s non-profit parent. It is on the lookout for other brands that generate content on different distribution platforms.
Sky has blazed a trail in Europe for more than a quarter of a century but its future may be with a different owner. Selling a stake in a business that has paid handsome returns over the years would be a step into the unknown for Fox and Rupert Murdoch. But that has not stopped him before.