I’ve already commented before in this blog on why I’m an increasingly cynical shareholder in Sky. My core contention is that its premium rating is dependent on two core structural advantages, both of which are declining in value because of technology and competition. The first is its stranglehold over premium sports and film content – it seems for now likes it’s developed a MO with BT, but the tech giants are snapping at its heel and I can’t believe that the competition authorities won’t at some stage take a look at this cosy oligopoly. The next advantage is its pipes or should we say dishes and pipes going into millions of households. In fibre areas, Virgin is already hard at work destroying this advantage whilst in non-fibre areas, people like me are slowly ditching its basic services, refusing to pay £30 plus per month for channels that can be accessed for free via Youview, Freesat and the internet.
None of this scepticism should imply that the Sky model is under any short-term threat – I bought into the shares ages ago because I thought it was a wonderful cash machine, that also happened to made it difficult for its customers to leave the service (you need to ring the main helpline and then go through various scripts designed to keep you signed up – smart move). I also appreciated its wonderful structural advantage in having all those dishes hooked into peoples homes. In addition, I think its been really quite smart in investing in original programming and building the internet based Now TV platform.
Smart management, great products.
But nevertheless I still think it’s a fading force which is why I couldn’t help but smile at the news today that Comcast has tabled a rival offer. I’ve put a note from analysts at the Share Centre below for more details on the offer. Clearly, the media and cable giant is overpaying for a premium asset but then again these media tech giants all have a record of over investing in safe cashflows – and then wondering why their competitive advantage is slowly ebbing away. I’m sure that Fox/Disney will come back with a better offer, hopefully all cash – and I’ll make an even bigger return. As my mum constantly says (in reference to Corbyn supporters) , the good news is that there are plenty of bigger fools born every day!
Observations from the Share Centre on the new offer for Sky.
“There is more good news for investors who held onto SKY shares as Comcast, the giant US cable network, today stepped into to bidding war with an all cash offer price of £12.50 a share, a premium of 16% to 21st Century Fox’s offer. The shares on the stock market this morning traded as high as £13.16, up 19% from the close last night. This reaction signals the market’s view that Fox will not be outdone and will probably come back with a counter offer.
“The Comcast bid will would make UK and European regulators more comfortable as the group has little exposure to these markets at the moment and will not bring up the issues of too much news media power under the influence of Rupert Murdoch organisations. The CMA (Competition and Markets Authority) has already made findings that Fox’s bid and subsequent control of SKY News channel not to be in the public interest control. Interested investors may want to acknowledge that Comcast’s management directly suggested that regulators would be much more comfortable and likely to approve its takeover more quickly than they have so far with Fox’s offer.
“The shares have now climbed over 65% since the day before Fox’s offer and this is fantastic for those investors who have stayed the course so far. We would suggest that investors just need to sit tight and let the two rivals bid up the share price until one emerges as the victor. However, should Fox pull out now, the shares will drop back to around £12.50, and therefore we would advocate locking in some profits for lower risk investors.”