Pay TV Looking to Finance Time Warner Takeover, Murdoch Moves to Merge European TV Operations

As Rupert Murdoch attempts, via his 21st Century Fox, to buy U.S. rival Time Warner, he may sell his German and Italian pay TV units to come up with the cash.
Rupert Murdoch, moving ahead with the foundation of Sky Europe.

With the summer holidays on in full force, news last week that Rupert Murdoch’s British pay TV unit BSkyB had sold its stake in U.K. broadcaster ITV for £481 million (€607 million) was barely noticed in the German media scene.

But now it seems the deal might have been just the prelude to merging the German and Italian units of Sky into a British holding company, as Mr. Murdoch appears to be moving around the pieces of his media empire in an effort to sweeten his bid for Time Warner.

A successful bid for Time Warner would not only give him another Hollywood studio, as Warner Bros. would join 20th Century Fox. It would also provide access to the highly coveted pay TV broadcaster HBO, which has created widely popular series including “The Sopranos” and “Sex in the City.”

Time Warner recently rejected an $80-billion takeover offer from Mr. Murdoch’s 21st Century Fox, the holding company which includes Fox, 20th Century Fox, BSkyB, Sky Deutschland and Sky Italia.

It’s no secret that we are convinced our three broadcasters would be stronger together, James Murdoch

The Pieces of the Puzzle

Selling Sky Deutschland and Sky Italia to BSkyB would provide the Australian media mogul with an estimated €8 billion that could be used to raise his offer for the U.S. rival  Seen in that context, the recent comments made to Handelsblatt by Murdoch’s son James, who is 21st Fox’s chief operating officer, take on a new light.

“It’s no secret that we are convinced our three broadcasters would be stronger together,” James Murdoch told Handelsblatt in June.

Time Warner - soon to be taken over by Rupert Murdoch's Sky Europe?


“It’s too early to speculate,” he said at the time. “But at some point it could be useful.”

Currently BSkyB, Sky Deutschland and Sky Italia are three distinct units in Murdoch’s satellite TV division. Mr. Murdoch, via 21st Century Fox, owns 55 percent of Sky Deutschland, 100 percent of Sky Italia and 39 percent of BSkyB. Mr. Murdoch’s German and Italian stakes have an estimated value of €3.5 billion and €4.5 billion respectively.

The idea is to move the German and Italian companies over to BSkyB, a British company. Such a move would force the other shareholders in the British company to add cash to Mr. Murdoch’s coffers.

Despite that, a pan-European broadcaster with 95 million potential customers has its allure for other BSkyB investors. “The opportunity is to too big to ignore,” one of the top 10 shareholders told the news agency Reuters without wanting to be named.

The creation of a Sky Europe pay TV holding could be announced as soon as the next two weeks, according to the Sunday Times, a London paper that is also part of Mr. Murdoch’s media empire. Shares of Sky Deutschland jumped 3.5 percent on Monday amid speculation of an impending deal.

The three Sky divisions already work closely on production and technical issues, but in many areas there is little scope for tighter cooperation. For example, rights for TV shows are most frequently sold to national broadcasters and not to international holding companies.

A takeover of Time Warner would also benefit a newly merged Sky Europe at a time when new media players such as online portals Netflix and Amazon are shifting their gaze across the Atlantic.

Still, such a holding company under British leadership would have difficulty making pay TV in Germany as lucrative as it is in United Kingdom. With roughly 30 channels available for free, Germans remain extremely loath to pay for their television. Whereas 54 percent of British households have pay TV, less than 20 percent of German ones do.

Sky in Germany has tried to follow the Murdoch formula of buying broadcast rights to popular sports, including the top-flight Bundesliga soccer league. But the country’s two main public broadcasters, ARD and ZDF, have been willing to fight for the rights to big sporting events like the recent World Cup and the Olympics.

But Mr. Murdoch clearly has bigger fish to fry.