Comcast Corp. would gain significant streaming video footprint if its proposed acquisition of European operator Sky plc materializes, experts said.
To diversify beyond its mature pay TV business, historically delivered via satellite, Sky has invested heavily in digital video services. It has launched streaming video services in Western Europe, primarily in the U.K., Germany, Austria and Italy, with expansion plans underway in Spain and Switzerland. Sky is also looking to virtualize its traditional TV business.
In the U.S., Comcast's streaming offerings mostly target its existing broadband and pay TV customers to support the general rush to digital video. The company has partnered with over-the-top providers to include their apps on its platform.
Bruce Tuchman, a media and technology industry investor and adviser, said that is really Comcast's best option in the U.S. at this point given the dominance of the mature players in the market.
"I think the game's already lost in the U.S. No one is going to be launching a big OTT service. ... Netflix is over 50 million subscribers. Hulu has put in a lot of effort. Amazon is a gargantuan company," said the former president of AMC Global and Sundance Channel Global. "That game is lost in the U.S., but it's not by any means lost in the international markets," he said. Tuchman previously worked with Asian OTT provider iflix.
Penetration in Western Europe would give Comcast a position in an OTT market that is still filling out, U.K.-based digital media consultant Nathalie Lethbridge said. Those markets are largely unsaturated compared to the U.S., she said. Some European countries, like Germany, still largely favor linear TV, with competition among streaming providers only recently mounting and the market getting attention from U.S. companies like Discovery Communications Inc.
Austria is also early in its OTT adoption, with Netflix and Prime Video accounting for just 1.2% of video consumption in that country compared to 81% for linear TV and catch-up services, according to Kagan research, a unit within S&P Global Market Intelligence. Italy is also very early in its adoption of streaming video, Lethbridge said.
For these markets, local TV catch-up programming is a big driver for digital video adoption, which could bode well for local players, like Sky's NOW TV OTT platform, over services like Netflix and Amazon that support less local content, said Lethbridge. The firm she founded, Atonik Digital, advises companies and investors on European OTT markets.
Kagan analyst Michail Chandakas agreed. "They prefer local content, so you'll see the most successful services owned by local operators," he said. However, small local OTT operators, like Germany's Maxdome, do not necessarily have the resources to compete with Netflix, which expects to spend $8 billion in content in 2018. This creates a good position for Sky, which not only has the financial resources but also the legacy local knowledge to compete.
"There is a huge tradition of local drama [in Europe] and Sky is probably far ahead of anyone out there right now in competing with local content," Tuchman said, echoing Chandakas. "Netflix and Amazon are going to have to go local, and they just can't invent a successful production process or acquisition process overnight."
Other markets in Europe are steadily maturing. Over 43% of broadband customers in the U.K. subscribe to one or more OTT services, according to Kagan. Sky's NOW TV streaming platform was No. 3 in the U.K. behind Netflix and Amazon, as of August 2017, with Kagan estimates putting Netflix at 6.9 million subscribers, Amazon Prime Video at 3.7 million and NOW TV at 1.5 million. Lethbridge said Sky's NOW TV platform, which launched after Netflix, is growing rapidly and steadily catching up to its U.S.-based competition.
Meanwhile, a potential acquisition would allow Comcast to leverage investments Sky has made in iflix, fuboTV, Roku Inc. and Molotov SA, as noted in a recent analysis by Kagan analyst Michelle Abraham. This is how Sky has distinguished itself, Tuchman said. The operator has "seen the writing on the wall" and invested in OTT and digital delivery broadly," he said. Already, 70% of Sky customers receive television over digital channels, said Sky CEO and executive director Jeremy Darroch during the company's Jan. 25 earnings conference call.
Comcast has yet to make a formal offer for Sky. The company announced its intent to make a takeover bid of £12.50 per share, valuing the British pay TV giant at about £22 billion. 21st Century Fox Inc., which has a minority stake in Sky, has said it "remains committed" to its earlier offer of £10.75 per Sky share for the 61% of Sky that Fox does not already own.