BSkyB share price slides 3% as it confirms it's creating a £7bn European pay TV monster

BSkyB launched a rights issue to fund the acquisition of its European counterparts this morning, as it announced revenues had risen 7%.

by Emma Haslett
Last Updated: 16 Oct 2014

When it comes to BSkyB, the rumour mill's been working overtime lately, but this morning the company confirmed plans to buy Sky Deutschland and Sky Italia for a whopping £7bn.

Under the deal, Sky will acquire the 57% of its German counterpart Fox currently owns for £2.9bn, and will make an offer of €6.75 per share for what's left. It'll also pay £2.45bn to buy Sky Italia, which Fox owns in its entirety. There had been worries the Italian business had been over-valued (some reckon Rupert Murdoch wanted as much as €4bn for the business), so it'll be interesting to see what shareholders think.

It's a weird predicament: a company owned by Murdoch is buying other companies owned by Murdoch so Murdoch can raise the $80bn plus he needs to buy Time Warner, which there's no guarantee he'll be allowed to buy anyway because competition authorities in the US aren't very impressed with the idea.

But bear with us. Fox will still keep a 39% stake in the merged company, which (bizarrely) means Murdoch should avoid any regulatory complaints.

BSkyB chief exec Jeremy Darroch, whose head is presumably still spinning from the logistics of it all, said the deal will 'create a world-class, multinational pay TV business with enhanced headroom for growth and immediate benefits of scale'.

To be fair, it's not like BSkyB needs the help at the moment. The company also posted its end-of-year results, headlined 'VERY STRONG PERFORMANCE ACROSS THE BOARD'.

Revenues rose 6.5% to £7.6bn, although operating profit fell 5.3% to £1.2bn, down from £1.3bn last year, which the company blamed on a 'one-off step up in Premier League costs' and an investment 'to accelerate take-up and usage of new connected TV services'.

Since BT entered the sports TV market, though, the figure everyone looks at is the number of new customers BSkyB added (ie. those who chose it above BT). The figure looks good: overall, it added 342,000 new customers, its highest growth in three years, 264,000 of which opted for pay-TV. And Sky Sports apparently had its highest share of viewing in seven years.

Another interesting figure is the number of people using On Demand, which gives an indication of how fast people's viewing habits are changing. Over 50% of Sky's TV customers are now connected to the service, which has stiff competition in the form of Netflix and Amazon Prime Instant Video, etc etc.

So Sky needs to get two things right in the next few years: firstly, keep attracting those sports TV customers, and secondly get that On Demand offering perfect. The way people watch TV is changing, fast - and unless it can give people something the competition can't, Sky - even with its new European mega-broadcaster - could quickly find itself a minor player in an increasingly crowded market.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

The CEO's guide to switching off

Too much hard work is counterproductive. Here four leaders share how they ease the pressure....

What Lego robots can teach us about motivating teams

People crave meaningful work, yet managers can so easily make it all seem futile.

What went wrong at Debenhams?

There are lessons in the high street store's sorry story.

How to find the right mentor or executive coach

One minute briefing: McDonald’s UK CEO Paul Pomroy.

What you don't want to copy from Silicon Valley

Workplace Evolution podcast: Twitter's former EMEA chief Bruce Daisley on Saturday emails, biased recruitment and...

Research: How the most effective CEOs spend their time

Do you prefer the big, cross-functional meeting or the one-to-one catch-up?