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Technology, Media & Telecom

Mobile World Congress: BT CEO Defends Strategy As Content Costs Face Scrutiny

Capital Markets

S&P Global - Data Services

Disney Ups Its Bid For Fox Assets To $84.97 Billion

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Technology, Media & Telecom
Mobile World Congress: BT CEO Defends Strategy As Content Costs Face Scrutiny

Highlights

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Mar. 07 2018 — The following post comes from Kagan, a research group within S&P Global Market Intelligence. To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

The CEO of British telecoms giant BT Group defended his company's content strategy around live sports amid a growing debate about the ability to monetize exclusive and expensive sports rights.

Aside from Spain's Telefónica SA, BT is one of a few operators in Europe that has invested large amounts in owning content, rather than simply reselling it. But after a rocky year for BT, as it experienced a dip in earnings and a £530 million write-down at its scandal-hit Italian unit, skepticism is mounting around its ownership of pricey soccer rights.

"With sports, we are very happy with the progress we have made and we can see a very exciting future as we add more sports rights to our portfolio," BT CEO Gavin Patterson stressed during a February 26 keynote at the annual Mobile World Congress.

In a saturated industry with limited growth opportunities, content does act as a differentiator for telecoms operators looking to complement their broadband businesses. For instance, BT Sport was recently awarded the rights to a range of Premier League soccer matches for a further three years at a cost of £295 million per season.

BT's package, however, amounts to 21% inflation per game so far and consists of 32 matches at a less attractive time slot, compared with 42 matches previously, analysts at Berenberg pointed out in a recent research note. They added that this raised questions about whether BT Sport was at risk of becoming a "sub-scale" player in content.

Also weighing in on the debate, Vodafone Group Plc's CEO recently shared his skepticism about the ability to monetize exclusive content rights, noting that soccer rights in particular had become increasingly more expensive over the years.

Similarly wary of content ownership, Verizon Communications Inc. CEO Lowell McAdam suggested during a recent earnings conference call that being a large distributor might be a "reasonable" substitute for owning content. As such, the company would not consider a large media play.

That said, with content rights only amounting to 5% of BT's operating expenses, Berenberg warned against "overstating" their impact.

BT said it is more committed to aggregating content outside of live sports, where its two million TV customers and just over five million BT Sport clients are a far cry from the client base of its larger competitor Sky plc and global over-the-top players Amazon.com Inc. and Netflix Inc.

"Netflix is proving to be a phenomenal proposition for customers. I do not think anyone who is running a network can be in denial of that," Patterson said.

So BT does not intend to be a producer of content. "In more general entertainment, our position is more of an aggregator," he clarified, concluding that the group's content strategy would mostly focus on aggregation.


Watch: S&P Global - Data Services


Technology, Media & Telecommunications
Disney Ups Its Bid For Fox Assets To $84.97 Billion

Highlights

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Jun. 21 2018 — Walt Disney Co. on June 20 submitted a new bid for 21st Century Fox Inc.'s assets valued at approximately $71.17 billion in equity, or $84.97 billion including assumed debt.

The new bid is $38 per share, a step up from Disney's previous $28-per-share offer made in December 2017, and more in line with Comcast Corp.'s $35-per-share all-cash bid from June 13. In the merger release, Disney said, "Since the original agreement was announced, the intrinsic value of these assets has increased, notably due to tax reform and operating improvements."

Disney's new bid allows Fox shareholders to choose cash or stock, something the management of both companies believe is a better deal than Comcast's proposal. There is a collar on the stock consideration that will ensure that 21st Century Fox shareholders receive a number of Disney shares equal to $38 in value if the average Disney stock price at closing is between $93.53 and $114.32.

The previous Disney bid for the Fox assets had a seller's multiple of 12.8x and a buyer's multiple of 9.0x. The new bid puts the seller's multiple at 15.4x cash flow and the buyer's synergized multiple at 10.8x cash flow.

After six months of integration planning, Disney's management team is confident in its outlook as the company has made progress toward meeting regulatory requirements in countries around the world.

On the investor call to discuss the bid, Disney Chairman and CEO Bob Iger said the combination would allow for the creation of more appealing content while also expanding Disney's direct-to-consumer offerings and international presence, especially in Europe, India and Latin America. He also cited the acquisitions of Pixar, Marvel and Lucasfilm as recent evidence of Disney's ability to effectively integrate cultures across corporations.

Iger said that vertical-integration concerns with Comcast are significant because the Philadelphia-based company is the leading provider of broadband in the U.S. Disney feels it has a much clearer path to the merger, as it is not a leading provider of video or broadband distribution.

Judge OKs AT&T/Time Warner, Opening A Potential Bidding War For FOX Assets

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Watch: Power Forecast Briefing: Natural Gas And Coal Dynamics, Pressure On Nuclear, And Southwest Capacity

Jun. 20 2018 — Steve Piper shares his Q1 2018 analysis and power market insights along with guidance from our Power Forecast solution on the Market Intelligence platform. The next guidance report will be released around mid-July 2018.

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Technology, Media & Telecommunications
Bidding War Over Fox Could Spur Titans To Take A Look At Paramount Pictures

Highlights

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Jun. 15 2018 — Potentially boosting its international portfolio and massively increasing the company's film and television library, Comcast Corp. on June 13 announced a $35-per-share cash bid for most of 21st Century Fox Inc., a 25% premium to the $28 per share offered by Walt Disney Co.

Kagan estimates that the Comcast offer values the Fox filmed entertainment division at $17.76 billion, nearly $4 billion more than the value placed on it in Disney's original bid. The transaction places the most value on the regional sports networks at more than $19 billion, or 24.2% of the total offer, with filmed entertainment coming in a close second at 22.4%.

While 21st Century Fox has close to a 16% share of the box office year-to-date, it has done better in prior years when big franchise films were in release. Comcast's NBCUniversal Media LLC would benefit greatly by adding the Fox studio to its portfolio. NBCU currently has less than a 10% share of the box office versus Disney's more than one-third share for its films.

The question is, who is next? Long-struggling Viacom Inc. missed a chance to sell a 49% stake in Paramount Pictures Corp. to Dalian Wanda Group Corp. Ltd. in 2016 at a valuation of $8 billion-$10 billion, an impressive number given the fact that the filmed entertainment division had negative operating income before depreciation and amortization of $328 million in fiscal 2017 and negative $407 million in fiscal 2016.

With the much-publicized showdown between Shari Redstone and Les Moonves over the future of Viacom, a sale of Paramount Pictures, all of Viacom or even a piecemeal sale of Viacom assets at high prices could help resolve this simmering feud.

Economics of TV & Film is a regular feature from Kagan, a group within S&P Global Market Intelligence's TMT offering, providing exclusive research and commentary.

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