Sky is reported to be close to announcing an agreement to acquire the media and entertainment business of ITV, the leading commercial television broadcaster in the United Kingdom. The deal is worth around £1.6 billion but includes a significant spending commitment to the remaining ITV studios business to guarantee the production of popular programmes for five years.
Sky, which is owned by the American media company Comcast, will commit £2 billion to ITV Studios for programme production over five years after the deal completes. That will underwrite the production of popular programmes, including long-running serial dramas Coronation Street and Emmerdale, which still attract loyal audiences, albeit significantly smaller than they once were.
ITV can trace its origins back to the beginning of commercial television in the United Kingdom in 1955. It came together as a single company in 2004 through the merger of Granada and Carlton, having previously operated as a loose federation of separate, independently owned regional franchises.
ITV Studios will remain a standalone production business and continue to be listed on the stock market. Its production companies make programmes not only for ITV but also for the BBC, Channel 4, and Channel 5, as well as Amazon and Netflix.
Any acquisition of ITV by Sky will attract the interest of the communications regulator Ofcom and the Competition and Markets Authority. Together they would have a majority share of the television advertising market in the country. However, it might be argued that is now a much smaller piece of the overall advertising market.
Such a merger would previously have been unthinkable. Sky previously attempted to buy a minority stake in ITV but was obliged to sell it off at a loss after the competition regulator ruled that it would have to reduce its shareholding to below 7.5%.
There may also be concerns about the plurality of news provision, since ITV currently has a 40% stake in ITV, which produces news for ITV, Channel 4, and 5, while Sky has its own news operation.
Buying the whole of the broadcast company is a big deal. So why would Sky want to buy what some might see as a declining broadcast business?
Clearly Comcast has its reasons, although it may have regretted overpaying for Sky, which it acquired for $39 billion in 2018.
Comcast span out some of its own media properties under Versant Media earlier this year.
As a commercial broadcaster, ITV still produces significant revenue from advertising. It also operates ITVX as an online video service.
For Sky, it offers an opportunity to provide a shop window to a mass audience to which it can promote its subscription offering.
The ambition is likely to be to create an online video business that can compete better with Netflix, Amazon, Disney, and others.
Under current regulations, certain events, like the World Cup Final, must be offered to free-to-air broadcasters. In any case, owners of sports rights generally balance rights revenue against the ability to reach large audiences.
ITV delivers daily reach that very few media companies can match. It has trusted news, sport, entertainment, soaps, and national events that remain appointment viewing. Those audiences are still valuable because they aggregate millions of people simultaneously.
An interesting question is where that leaves the future of digital terrestrial television in the United Kingdom and in particular the role of the Freely platform, which is being promoted as the future of Freeview.
Freely is operated by Everyone TV, which is jointly owned by the BBC, ITV, Channel 4, and Channel 5. If Sky gets a seat at the table will that strengthen Freely or scupper it?
Sky already has its own online platform with Sky Glass and Sky Stream. Arguably it does not need Freely. Yet it still needs to reach a mass market for the channels that it is acquiring.
£1.6 billion sounds like a lot of money, but in context it is a relatively small investment for Comcast, a company with revenues of over $120 billion a year.
Assuming the deal goes ahead, it will significantly change the landscape for public service broadcasting in the United Kingdom, introducing a different dynamic and potentially presenting a stronger challenge for other broadcasters.