Conspiracy theorists were quick to seize on the revelation that BSkyB was aiming to buy Sky Deutschland and Sky Italia.
They suggested that Rupert Murdoch, chairman of 21st Century Fox, which owns 39% of BSkyB, was up to no good.
In fact, it would appear he is making a wise business decision. That also needs qualification because it’s not so much Murdoch’s plan as that of BSkyB’s chief executive Jeremy Darroch.
Before I explain the commercial wisdom behind a potential bid, it is important to knock down another theory — that this is some kind of manoeuvre to revive Murdoch’s attempt to gain full control of BSkyB, the bid that was aborted in the wake of the News of the World phone hacking scandal.
That is not so. Although I am sure that the Murdochian dream of complete BSkyB ownership lives on, he is acutely aware that it is entirely out of the question for the moment. BSkyB’s European ambitions are a different matter.
Darroch’s vision is based on sound business logic. BSkyB may not have achieved saturation in the UK but its growth potential is faltering.
By contrast, the German and Italian operations have failed to generate similar penetration in their markets. The figures tell the story: Sky TV in Britain has 10.6 million subscribers compared with Sky Deutschland’s 3.7 million and Sky Italia’s 4.8 million. BSkyB generates more than £1 billion a year whereas the German operation scrapes a profit and Sky Italia doesn’t do much better.
The reason for BSkyB’s strength is partly innovation — it has increased subscriptions through broadband and telephony offerings, plus on-demand TV — and partly through its higher subscription charges. Its customers pay much more every month than those in Germany and Italy.
BSkyB is, quite simply, better at the job than the other two companies. And Darroch believes he can introduce similar services and enhanced innovation that would attract many more German and Italian viewers.
It is estimated that a pan-European Sky operation would have a potential audience of 75 million for its satellite and internet TV services.
The merger would have another major benefit, giving the pay-TV broadcaster enough financial clout to bid for sporting rights. Darroch and Murdoch have been alarmed by BT’s encroachment on to their UK football turf and suspect that the costs of rights are likely to increase dramatically in years to come.
Although neither sports nor movie rights are sold on a pan-European basis, it is just about conceivable that a merged Sky entity could pioneer such a deal.
Then, of course, there are the straightforward cost savings that come with any merger, such as economies of scale and efficiency improvements.
So Darroch probably thinks he has a good story to spin his investors. But they may take some convincing because the stock dipped when the news emerged in public.
If discussions do work out, he will also need to spin the story in reverse, so to speak, to Europe’s competition regulators. Can he assure them that the giant company will not be too big? Will they not baulk at the idea of sports rights being sewn up by a single operator?
There is a long way to go before this vision becomes a reality.
Roy Greenslade is Professor of Journalism, City University London, and writes a blog for the Guardian
