Fox deal for Sky faces sports licensing risks, OTT upside: analyst

If successful in fully acquiring Sky, 21st Century Fox could stand to become a strong OTT competitor in the U.K. Image: Coolcaesar/Wikimedia

21st Century Fox is taking another run at fully acquiring Sky, a deal that could present varying risks and upsides amid the European market in which Sky competes.

According to MoffettNathanson analyst Michael Nathanson, Fox isn’t just bidding for a satellite provider but for a “vertically integrated media company that owns powerful programming brands and sells multiple products.” But if Fox is successful in buying the two thirds of Sky it doesn’t already own, it will be assuming some of the risk that comes along with bidding for sports rights in the U.K. Those rules only allow broadcasters to have three-year contracts for popular rights to sports like soccer.

RELATED: 21st Century Fox makes another bid for pay-TV provider Sky in the U.K.

“As a result, the Premier League rights auction creates unpredictable content inflation,” Nathanson wrote.

Nathanson added though that Sky is on the verge of launching its own mobile product and expanding availability of its Sky OTT product, which put the company in a good position to compete in Europe.

“On a positive note, the acquisition of Sky and the potential for a broader rollout of Sky Now gives Fox operating control of a pan-European direct-to-consumer platform to challenge Netflix,” Nathanson wrote, adding that Fox would likely start moving its content off of competing SVOD services and onto Sky Now.

“This move could likely accelerate their push into the European market and provide a true point of differentiation between Fox and its peers. However, this move will take time and investment and will likely be another high concept project (like Hulu and Star India) that we will have to monitor,” Nathanson added.

Late last week Fox announced its potential bid for Sky in a deal that would value Sky at around $23 billion. The new bid from Fox comes after a 2011 bid for Sky fell through following revelations that two of Murdoch’s newspapers were hacking into the mobile phones of celebrities and politicians.

The new transaction for Sky would give 21st Century Fox, which owns brands including FX and National Geographic, complete ownership of one of Europe’s leading pay-TV providers. It also follows a number of other major transactions in the telecom and media space, most notably AT&T’s bid to acquire Time Warner for $84.5 billion.