This week, there’s a swirl of stories about Comcast, Fox, Disney, and Sky. (Nutshell: Fox and Comcast are fighting for control over Sky; Comcast and Disney are about to battle over Fox.) Although all of this has the impersonal buzz of brightly colored brands building bigger businesses, it’s actually a deeply human saga.
Comcast chair and CEO Brian Roberts and media mogul Rupert Murdoch, head of the 20th Century Fox empire, are looking to win long-running personal battles. Roberts wants to redress the drubbing he was handed by the Disney board when the company rebuffed his hostile takeover offer in 2004, and Murdoch is attempting to, finally, bring Sky under his control. Both men will be reluctant to cede an inch of ground, and because each has to have control over whatever he’s involved in, it’s highly unlikely that the two of them will end up under the same corporate roof. Most surprising, because ordinary shareholders in their respective companies have zero real power to change the directions these two men choose, it may not matter what investors think of the deals they end up doing.
Because here’s the fascinating thing to notice: Throughout this saga, Comcast’s share price has been plummeting. That’s right: Investors see Comcast’s moves as risky, and they’re not happy. But Roberts doesn’t have to care. Why? Because he doesn’t have to. He controls Comcast because he owns special shares in the company that don’t trade on the public market. Roberts decides what Comcast’s strategy is, no matter how much the company’s hoi polloi shareholders don’t like it.
The Roberts family, like the Gilded Age families of the late 19th century, possesses enormous wealth and power. In 2017, Brian Roberts was the sixth-highest-paid executive in the country, with total compensation of about $32.5 million (including a cash bonus of more than $9 million); he owns all the Class B supervoting shares of Comcast stock—an undilutable 33 percent voting power over the company—and thus retains effective control over its every step.
Roberts’ only public misstep came in 2004, when he made an unsolicited $54 billion takeover bid for Walt Disney in the mistaken belief that the Disney board would welcome his offer. Roberts wanted Disney because it owned ESPN, then the highest-priced must-have content in the cable world. Control over ESPN’s content would give Comcast, then largely a pure cable-distribution business (mostly sending on other companies’ content rather than owning that content) the ability to beat up on any distributor that hoped to compete. Following Roberts’s hostile takeover announcement, Comcast’s share price swooned while Disney’s went up, making Comcast’s all-stock offer—which gave shareholders 78 percent of a Comcast share for every Disney share—less attractive to the Disney board, which publicly rejected the bid. After a few weeks, Comcast backed down.
Roberts claimed that stepping back from the deal showed discipline, but the reality was that he had miscalculated the board’s reaction. This was a blow. Roberts wanted to be a true media mogul, not just a guy in the cable business. Snagging NBC Universal in 2011 allowed him to claim that status.
Now, 14 years later, through his supervoting shares, Roberts still controls Comcast, which has about 26 million subscribers. And Disney is still his opponent: Roberts wants to outbid Disney’s $52.4 billion offer to buy 20th Century Fox, one of the few media conglomerates not yet integrated into a content distribution company.
Roberts wants Fox for the same reason that he wanted Disney in 2004—exclusive power over must-have content that can be priced and bundled in ways that will keep competition from other distributors at bay. Basically, if, say, a competing cable distributor like RCN (which sometimes is allowed to have about 10 percet of available customers in Comcast’s footprint so as to maintain the appearance of competition) has to pay an enormous amount for irreplaceable Fox content because Comcast has the incentive to make life difficult for RCN, it will be far harder for RCN to struggle onward. And if RCN doesn’t pay up, its subscribers will decamp—for Comcast.
But the US Department of Justice is not enthusiastic about the handful of information distributors that dominate the American landscape absorbing additional programming into their empires. The DOJ has sued to block AT&T’s planned $85 billion merger with Time Warner, home of HBO, CNN, and the Warner Bros. production studio. So Roberts needs to wait until June 12, the date that federal district judge Richard Leon is expected to decide whether that merger is allowed, to launch his bid for Fox.
In the meantime, Roberts isn’t resting. Here’s where the Sky/Fox/Comcast triangle fits in. (Remember, Fox and Comcast are battling to buy Sky, a $31.2 billion British telecommunications company with 23 million satellite subscribers.) Sky has exclusive rights to broadcast Fox content, HBO, Showtime, Disney, certain beloved sports events, and lots of other things in Europe. Rupert Murdoch has wanted to get all his rights back under the Fox roof by acquiring the 61 percent of Sky he doesn’t already own, and he’s always loved the idea of vertically integrating content with distribution. So he has bid $15 billion to buy Sky.
Comcast also wants Sky. Comcast is ultimately after content and scale—the sheer numbers of subscribers that will allow it to ensure that no brands it needs to distribute (say, HBO or Disney) can snub it, refuse to make deals, and simply sign up online subscribers on their own.
If the AT&T/Time Warner merger is blocked, it will be clear that American regulators will make Fox a highly risky transaction for Comcast—the two deals are both vertical integration moves. But one way for Comcast to continue to bulk up its operation would be to get control of those exclusive rights (including rights to Fox content) and Sky’s 23 million subscribers. So Comcast has made a $30 billion bid for Sky; this week, the UK regulator said that combination would pose no difficulties.
So that’s why Fox and Comcast are in a bidding war for Sky—Comcast is offering more money per share than Fox, but Fox is deciding whether to increase its bid—while Comcast waits for the all-clear to be in a bidding war with Disney for Fox. Makes total sense. Meanwhile, Comcast’s investors are fuming: Those Sky exclusive rights are short-term, and Comcast will have to very quickly start generating top-flight content on its own if it loses those rights but still hopes to hang on to Sky subscribers. Risky.
At the same time, Murdoch has his own long-running battle to conclude: He originally tried to buy Sky eight years ago, before the News Corp. phone-hacking scandal broke and he had to back off. Then he separated his print and entertainment businesses. It’s the now-separate 20th Century Fox entity (still controlled by him) that bid in 2016 for Sky all over again. He’s been waiting and waiting. He’ll want to beat Comcast and tell his board to increase the amount they’re willing to spend on Sky; like Brian Roberts with Comcast, the Murdoch clan controls the supervoting shares of 20th Century Fox.
And here’s where Murdoch’s personal interests come sailing back in. Even if Comcast offers a ton of money for Fox (if the AT&T deal is approved), Murdoch won’t want Fox to be acquired by Comcast. The existence of Roberts’ supervoting shares in Comcast means that the Murdoch clan will never have a real say in Comcast’s strategy. And what 87-year-old media mogul wants that?
So if you are ever befuddled by any of this, just look for a trail of control. It’s less about strategy than the schoolyard.
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