Murdoch's $14B Plan For European Dominance Through BSkyB

May 13 2014, 4:41pm CDT | by

Perpetually in motion, octogenarian billionaire Rupert Murdoch is shaking up the chess pieces in an attempt to consolidate his pay-TV empire in Europe.  Through BSkyB, Britain’s largest pay-TV company, Murdoch is mulling a potential $14 billion merger of his assets in Italy and Germany that will give him approximately 20 million subscribers along with the rights to three of the world’s most important soccer leagues.  The move could set the stage for a billionaire showdown with John Malone, who’s Liberty Global has about 25 million customers across 12 countries in Europe.

In a press release, “preliminary discussions” were officially announced between BSkyB and 21st Century Fox, two companies controlled by the Murdoch family, regarding Sky Italia and Sky Deutschland.  The idea would be to acquire Fox’s controlling 57% stake in Germany, along with a full buyout offer to minority shareholders, and the totality of Sky Italia, which is fully under Fox’s control.  “BSkyB believes at the right value, this combination would have the potential to create a world-class multinational pay TV group,” the company said.

This would allow Murdoch to group its 10.5 million subscribers in Britain and Ireland with 3.7 million in Germany and Austria, and 4.8 million in Italy, in a deal valued at €10 billion by Reuters.  In Britain, BSkyB counts with a dominant position, with 57% of the market, which would be complemented with a 24% share in Italy and 19% in Germany.  The UK would contribute more than two-thirds of revenues and nearly 90% of operating profit.

Not only will Murdoch be fusing his European pay-TV assets, he will also be concentrating one of the largest portfolios of top-notch soccer leagues in the world.  With the value of TV rights for sports going through the roof, several major European leagues have recently negotiated juicy contracts.  The English Premier League signed a three season deal worth $2.6 billion per season, with BSkyB and BT paying more than $5 billion to secure the domestic rights.  In Germany, the Bundesliga inked a deal with Murdoch’s Fox for five years said to take domestic revenues to $907 million and nearly doubling international revenue to $150 million per season.

Despite a decline in on-pitch performance, the Italian league continues to be one of the most lucrative out there, with a $1.3 billion deal set to expire in 2015, as Bobby McMahon explained in Forbes’ soccer valuations package.  The Serie A, as the Italian league is called, recently moved to a centralized selling model, and negotiations for a new three year deal should kick off soon.

Murdoch’s attempt to fuse his pay-TV holdings would represent a challenge to Liberty Global, which counts with 25 million subscribers as of the end of the first quarter.  Malone’s Liberty is present in 12 countries across Europe including the UK, Ireland, Austria, and the Netherlands.  The company spent almost $50 billion in M&A in Europe over the past few years, including $6.8 billion for Dutch cable company Ziggo, according to Bloomberg.

Still, Murdoch is playing his cards close to his vest.  On Monday, 21st Century Fox released a two-line press release that acknowledged “internal discussions” that have “from time to time […] included BSkyB.”  Fusing his cable companies would allow him to streamline operations and leverage with the power of its increased subscriber base.  With three of the major five soccer leagues in his portfolio, Murdoch can mount a strong challenge for Malone.
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