In Beating Disney for Sky, Comcast Remains in the Game

Comcast and the Walt Disney Co. have long been rivals. But Brian L. Roberts, who runs Comcast, has recently become the Magic Kingdom’s nemesis in chief.

He waged an unrelenting fight for 21st Century Fox over the summer, forcing Disney to pay about $18 billion more than it had planned in order to secure Rupert Murdoch’s entertainment empire. Then, on Saturday, Comcast emerged as the decisive victor in a battle with Disney for control of the British pay-television company Sky. In a deal valued at $39 billion, Comcast bid 17.28 pounds ($22.59) per Sky share, while Fox — bidding on behalf of its soon-to-be owner, Disney — bid 15.67 pounds a share.

For Robert Iger, Disney’s chief executive, the loss of Sky and its vast European customer base to Roberts has to sting. It was perhaps the first time during his ultrasuccessful 13-year tenure that Iger was denied such a prize, one he called “a crown jewel” when first pursuing it.

But the realities of the entertainment business make the outcome more complicated.

“I am happy that Disney didn’t get it,” Michael Nathanson, an analyst at MoffettNathanson, said in an email. “Comcast paid a very expensive price for this, and I think it’s hard to justify.”

Comcast’s offer for the majority stake in Sky puts the total value of the company at $48 billion including assumed debt, or 15 times expected 2018 earnings.

Nathanson added, “This doesn’t stop Disney.”

Disney will own 39 percent of Sky through its 21st Century Fox acquisition. Iger can hold on to those shares or sell them to Comcast. Disney’s stake in Sky would be valued at about $15 billion in such a deal, money that could be used to pay down debt associated with the Fox purchase.

Iger could also refuse to sell, which would put more pressure on Roberts because there will be a smaller pool of Sky investors from which to cobble together a majority stake.

Sky shareholders must agree to sell their stock to Comcast in the weeks ahead. Comcast needs more than 50 percent of shares to complete its offer.

Hulu could emerge as another chess piece. Disney is poised to own about 60 percent of that service after it closes the deal for 21st Century Fox, but Comcast would remain a minority shareholder with 30 percent. Hulu, which has over 20 million subscribers, is a pillar in Iger’s new strategy to sell Disney’s shows and films directly to consumers.

Comcast, however, is keen on keeping its Hulu investment and would be willing to continue selling streaming rights for its NBC series to the service, according to two people familiar with the matter who spoke on the condition of anonymity to discuss internal discussions. That stance could change, they acknowledged.

Analysts have bandied about the possibility that Disney could sell its 39 percent stake in Sky if Comcast were willing to sell its 30 percent ownership of Hulu. British takeover laws, however, would forbid such a tit-for-tat maneuver. A Hulu transaction would have to be a parallel deal and not contingent on the Sky stake.

In the battle with Roberts, Iger won the big prize: 21st Century Fox. That is a purchase that, in addition to Hulu and the Sky stake, includes assets like a leading TV studio with more than 30 series in production, the “X-Men” and “Avatar” franchises and overseas TV providers like Star of India. Absorbing those businesses — a huge task given disparate corporate cultures — will allow Disney to become one of the few traditional media companies with enough scale and intellectual property to compete against Netflix and tech giants like Apple and Amazon, both of which are moving aggressively in Hollywood.

In fighting to the end for Sky, Disney forced Comcast to pay 27 percent more than it initially offered, essentially returning the favor for driving up the 21st Century Fox price. Comcast expects cost savings of about $600 million after folding Sky into its business.

Iger can still use his world-class collection of content rights — Marvel superheroes, the Disney Princesses, “Star Wars,” Pixar’s beloved characters — to roll out Disney’s planned streaming service (known in industry parlance as an “over the top” business) in Europe.

“They can use their rights to go over the top in the long run in Europe,” Nathanson said.

In Sky, Comcast gets one of Europe’s largest media companies, with nearly 23 million customers across five countries, including Britain, Germany and Italy. For British viewers used to living in a media universe long dominated by the Murdoch family, the potential Comcast takeover signals a notable shift in ownership.

Indeed, the most stinging loss may belong to the Murdoch family, which has been fighting for control of Sky for the better part of a decade. Murdoch, 87, co-founded the satellite TV company in 1989 to compete with the British Broadcasting Corp. Sky, which has 31,000 employees and generated about $17 billion in revenue last year, ranks as one of the most popular TV brands in Europe. It creates its own original shows, runs an influential news channel and has exclusive partnerships in Europe with HBO, Showtime and Warner Bros.

After losing out to Disney in the battle for 21st Century Fox, getting Sky became an imperative for Comcast. It was, by some measures, the only way for the Philadelphia-based cable company to stay squarely in a media game now dominated by supertankers like Disney-Fox and AT&T, which recently completed its $85.4 billion takeover of Time Warner.

Roberts and his advisers began looking at Sky as an acquisition as early as July 2017, long before engaging in the bidding war against Disney for 21st Century Fox assets. Fox’s 39 percent stake in Sky was the primary reason that Roberts went after the company, according to two people familiar with the matter who spoke on the condition of anonymity to discuss internal strategy. For Comcast, pursuing Fox was always about building its international businesses. Roberts cared much less about other assets that the Murdoch family was selling, including the FX and National Geographic cable networks. Cable companies like Comcast, which primarily operates in the United States, have grappled with a decline in pay-TV subscribers who have flocked to streaming services like Netflix. Roberts, who fashions himself as his company’s principal dealmaker, identified Sky as one way to keep Comcast growing.

He was particularly taken with Sky’s technology. The British broadcaster sells a set-top box that streams its programming over a broadband connection and includes apps like Netflix or Spotify. Sky built the technology to become its key engine for delivering programming, a setup similar to Comcast’s Xfinity program.

Sky also owns valuable sports rights, including a large chunk of the English Premier League. That was seen as a nice fit with Comcast since its NBCUniversal division owns the American rights to those matches. In addition to sports, the deal gives Comcast some Disney and Fox content. Sky owns streaming rights to films from both studios for the European markets in which it operates for the next two to three years.

The British government supervised the weekend auction for Sky, which involved three rounds of blind bidding. Going into the process, analysts like Amy Yong of Macquarie Research put the chances for each side to succeed at 50-50. Commentators on Twitter debated whether the better moniker was SkyBattle or BattleSky.

At least 10 investment banks advised the various parties. Five law firms were involved, as were consultants from four outside public relations companies.

Roberts and a band of Comcast executives, including its chief financial officer, Michael J. Cavanagh, set up a war room in a London hotel before the weekend to wage their battle for Sky. To win, Comcast needed to submit a clearly superior bid — high enough to persuade Sky shareholders to tender their stock in the weeks ahead.

When it was over, Roberts had his victory.

Disney had no comment.

21st Century Fox said in a statement that it was “considering its options” regarding its 39 percent stake in Sky and “will make a further announcement in due course.”

Roberts allowed himself a few moments to celebrate.

“This is a great day for Comcast,” he said in a statement Saturday. “This acquisition will allow us to quickly, efficiently and meaningfully increase our customer base and expand internationally. We couldn’t be more excited.”