Mark Sweney 

Rupert Murdoch’s Time Warner bid: media giants bulk up for digital battle

Mark Sweney: $80bn offer could spark fresh consolidation, as traditional media face competition from Netflix, Google, Amazon and Apple
  
  

Man of Steel
Rupert Murdoch's 21st Century Fox has made an offer for the owner of Warner Bros, maker of Superman movie Man of Steel. Photograph: Warner Bros/Sportsphoto/Allstar Photograph: Warner Bros/Sportsphoto/Allstar

Rupert Murdoch’s move for Time Warner underlines the importance of scale in content creation and distribution, as traditional media companies face an increasingly cut-throat battle for consumers’ attention and profits against a new wave of competition that includes technology companies and cable giants.

The prospect of a Fox/Time Warner deal, even though Murdoch’s initial $85-a-share offer was rebuffed, has fuelled talk of further consolidation in the media sector. The UK is not immune from this speculation, heightened by Liberty Global, owner of Virgin Media, buying BSkyB’s 6.4% stake in ITV on Thursday morning.

If Murdoch can push through the Time Warner deal he will create a content powerhouse – from Game of Thrones, 24 and Glee to the Harry Potter and X-Men franchises – with the muscle to negotiate better output deals for TV channels such as FX and HBO with cable giants such as Comcast. It would also be in a better position to deal with the emerging digital distribution platforms owned by tech giants such as Google, Amazon, Facebook and Apple.

“Part of the reason Fox wants to buy Time Warner is defensive,” says Steve Liechti, analyst at Investec. “Online players, be they Netflix, Google, Amazon or Apple, are all part of this new competitive set, which is big and ugly, as well as existing distributors in cable and satellite.”

The US’s biggest cable company, Comcast, is trying to swallow the second biggest, Time Warner Cable, while AT&T is buying satellite TV operator DirecTV.

Meanwhile the likes of Netflix and Amazon are pouring billions of dollars into original programming, such as House of Cards and Orange is the New Black, and striking content deals to lure customers; while Google’s YouTube is establishing itself as a key distribution outlet for content owners keen to reach teen and twentysomething consumers.

Murdoch has already started making consolidation moves in the content industry. In May it emerged that Fox’s Shine Group – the maker of shows including MasterChef and The Biggest Loser that was founded by his daughter Elisabeth – plans to enter a joint venture with the private equity firm that owns Big Brother producer Endemol and American Idol parent Core Media Group to create a global production giant.

Previous rounds of consolidation among the US media giants suggests that one merger deal could prompt others, as rival companies bulk up to survive.

This new round of merger activity is also likely to extend to the UK, where ITV provides one of the most attractive media assets still on the open market outside the US. ITV has been linked to potential US suitors including Comcast-owned NBC Universal in the past.

Liberty Global’s John Malone, who bought Virgin Media in a £15bn deal last year, is keenly aware of ITV’s value, regardless of the official statement proclaiming no interest in a takeover.

Liberty Global and Discovery, which counts Malone as its most powerful shareholder, recently teamed up to buy Skins and Midsomer Murders maker All3Media for £550m.

“It is hard to see how this will not be looked at as anything other than Liberty planting a flag in the ground for a potential acquisition at some point (or, at least, looking to block another bidder),” said Ian Whittaker, an analyst at Liberum. “Virgin Media did look to buy ITV nearly a decade ago and presumably the rationale for a deal then (access to content; help to support the Virgin brand and/or grow customers; financial engineering etc) still exists now.”

ITV has performed a remarkable recovery since the recession of 2009-10, most notably in its studios division, maker of shows including Mr Selfridge and Come Dine With Me, which has spent heavily on expanding into the US.

In the past two years ITV has bought into five US production companies, including makers of shows including Pawn Stars, Duck Dynasty, Teen Wolf and Real Housewives of New Jersey.

US firms such as Discovery have also targeted growth in international markets, particularly the UK.

Discovery came close to buying Channel 5 – MTV owner Viacom trumped it in a £450m deal – and has previously looked at deals including UKTV, owner of channels including Gold and Dave.

The sheer scale of Murdoch’s proposed move has led to analysts questioning the next strategic play for rivals, particularly smaller ones.

US cable channels business AMC Networks, best known for hits including The Walking Dead, Mad Men and Breaking Bad, has been named as a potential fit with Scripps, which owns 50% of UKTV alongside BBC Worldwide.

Discovery, which bought a controlling stake in Eurosport in January and could be a contender for major sports rights such as the Premier League, has also been linked with Scripps.

With BT spending billions of pounds on sports rights to build its broadband base, and take the fight to Sky, it is the battle for control of content that is fuelling media consolidation on both sides of the Atlantic.

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