BSkyB’s plan to buy Murdoch’s pay-TV assets in Italy, Germany

BSkyB's plan to buy Rupert Murdoch's pay-TV assets in Italy and Germany for perhaps as much as €10 billion is a bold bet on long-term growth at the expense of short-term profit, but the pioneering British media firm has pulled off such gambles before.

Facing the toughest market conditions in its 25-year history, BSkyB has opened talks with Murdoch's 21st Century Fox to acquire Sky Deutschland and Sky Italia to create a European powerhouse with 20 million subscribers. BSkyB, also 39 per cent-owned by the Australian-born media mogul, has set the standard in Britain for technological innovation such as its award-winning Sky+ set-top box, streaming TV app and Europe's first 3D channel.

Having seen off a string of challengers to dominate the British pay-TV market, BSkyB, which is in more than 10 million homes in Britain and Ireland, is now betting that the time is right to enter two European markets where pay-TV is not yet as popular or profitable.

“The asset is too good and the opportunity is too big to ignore it,” one top 10 shareholder in BSkyB told Reuters on condition of anonymity, adding that they would view the deal positively as long as they could agree reasonable terms. Analysts have put the likely price at between €7 billion and €10 billion.

Sources familiar with the deal have told Reuters the talks are progressing well but that there are still many areas they need to find agreement on. BSkyB, which declined to comment, has history in making expensive but ultimately winning gambles. Back in 2006, it set out plans to offer broadband for free, spooking analysts and investors who feared the gamble would be costly, but the strategy paid off by luring new customers who took its other subscription services. It also led the way in investing in high definition programming, which also proved extremely popular, boosting the amount customers paid each month.

Analysts and investors are divided over whether the new deal is aimed at creating scale so it can better compete with new online challengers such as Netflix or is more a reflection of Sky's saturated home market, which is forcing it to look overseas to find growth. Many see the hand of Murdoch behind the deal since it would give Fox billions of euros in cash at a time when the 83-year old mogul is looking to expand in content. Fox revealed on Wednesday it had tried and so far failed to buy media conglomerate Time Warner, with a source putting the price at roughly $80 billion.

A separate source close to the Sky talks said they did not expect Murdoch to raise his holding in BSkyB, which would be contentious in Britain, where rivals and some politicians believe he controls too much of the media.

Reuters