Why did Sky Acquire Sky Italy and Sky Deutschland?

On the 12th of May 2014, BskyB responded to heavy speculation that yes, they were in in discussions to take a majority stake in both Sky Italia and Sky Deutschland. The deal would see it take 100% of Sky Italia in exchange for their stake in National Geographic and £2.07 billion in cash, as well as an initial 57.4% of the publicly listed shares Sky Deutschland, both purchased from 21st Century Fox. Ultimately, Sky would end up taking 89.71% of shares in Deutschland thanks to German stock market laws which meant that Sky’s stock purchase offer had to be extended to all shareholders. The final cost for the deal? More than £7 billion, although that number will be higher now that Sky have successfully negotiated the purchase of the remaining stock and taken the German outfit off the stock market.

It’s a significant amount of money to pay for two companies who hadn’t managed to turn a profit in their existence, leading many to question the decision to bring them under control. Now, the renamed Sky Plc, are beginning to show why it was such a good idea. So, why did they acquire their European counterparts?

The first part of the answer comes from within the UK. It’s no secret that the pay TV market in our nation is extremely competitive. Between Sky, Virgin, BT, EE, YouView, Freeview and others, there are countless companies out there trying to get customers to hand over their hard earned cash. As such, the number of new subscribers Sky can hope to add is limited, and competition is helping to drive down price. That’s great news for customers, but for Sky? It’s nothing but a pain. By expanding out into Europe, they enter a market which doesn’t have anywhere near the pay TV penetration that the UK has, and by taking over Sky Italia and Deutschland, they win themselves a footprint, customer base and infrastructure.

Next, it’s worth noting that with a company almost three times as large, Sky are now able to negotiate much harder on content deals with the likes of HBO, Disney, Fox and others. They can now boast of greatly increased viewership numbers, and so the costs of acquiring content per head drop dramatically, helping to boost profits for the company.

Of course, that’s of no use if Sky’s Italian and German arms can’t turn a profit, but that’s proven a relatively easy thing to achieve. By cutting staff numbers and consolidating much of the management, Sky has begun to treat these companies as though they were just an extension of the UK business, bringing over much of the technology and advertising which has seen them become such a success in the UK.

Finally, with Sky investing around £600 million this year into producing incredible new programming like Critical, Fortitude and The Last Panthers, Sky have begun to use their size to give these programmes a huge opening. By broadcasting them simultaneously across 6 markets, Sky are driving up excitement, cutting down on piracy, encouraging customer sign ups, and keeping people from the Sky TV telephone number.

Only time will tell if Sky can turn its Italian and German outfits into the juggernauts that it successfully built in the UK, but with all three now turning a profit, Sky are in an excellent position to silence the doubters and build something incredible.