Regulatory Challenges and Future Outlook

Sky News, the full story first The company behind Sky News wants to buy the home of Cordination Street. Sky and ITV combined could be the future of British broadcasting or perhaps a regulatory soap opera This is why How does a banana trigger a CIA backed coup Do airPods herald the arrival of a new global order? What do LED lights say about the future of humanity H I'm Et Conway and in each episode of my new podcast, Stuff Matters, I take an object, crack it open, and reveal the world shaping forces hidden inside This is economics told through the things we think we understand. Search Stuff Matters on your podcast app to listen and follow The drama is moving off the cobbles and into the boardroom. ITV is, of course the home of Cordination Street, Blve Island, I'm a celebrity, enty more on top. And the announcement of its takeover by Skye, who I happen to work for, obviously, has huge implications for the British media and not just those who work in it. This is an extraordinary opportunity to bring together what I would say is two of the most iconic brands in media. Skye's CEO, Dana Strong, knows that the media landscape is shifting All our feet right now. Traditional television habits are changing, the big streaming platforms have revolutionized the way we all watch Netflix, YouTube, Amazon, Disney, they are no longer the future threat. they are the present reality Soso the one point six billion Sky's Big boss is spending on ITVs TV and streaming services presumably came after a considerable amount of thought Not that this is entirely a done deal either. Sky is owned by American media giant Comcast, and ministers and the regulator may have something to say about so much of the free to air market. being owned by our cousins across the ocean. Paul Kelsso is Sky's Business Cp Paul, what exactly has been agreed? Because if you take a look at the detail, Sky is not buying the entirety of ITV, is it? No Sky is buying the broadcast bit of ITV and the stuff that people will know from their box at home. That's ITV one and there are in fact another ten Terrestrial channels free to air one way or another and it's buying ITVX, which is the streaming platform. About forty million people are registered to use that. That's where you go to watch ITV programming online. If you've missed it or it's how you prefer to watch it. There's also about a million paying subscribers to ITVX. it is that broadcast It is not ITV Studios, which is part currently of the ITV company, which makes many, many programs a lot of ITV's most popular programs, Love Island and the like that people will watch. That is not being sold to Sky. So it's the broadcast division which Subject all the approvals will become part of Sky There is also a bit of production work going back the other direction, isn't there? I keep hearing talk about loveove productroductions. They're the firm that They'rell be under G great British Bayoff, are't? Yes, indeed. So, to make this deal add up, it's one point six billion pound takeover, which around one point two billion is cash. There's about two hundred million that is contingent on various targets. And there is,ly what you refer to, there's a two hundred million pound valuation on Love Productions, which makes Bakeoff a massive hit around the world, that is going in the other direction that is being sold by Sky effectively to ITV studios. Sky is also, interestingly here, guaranteeing to spend two point one billion pounds commissioning those programs from ITV stududios, which will be a distinct company. And that underpins much of the output that people know ITV four effect if you your ITV, you are you are selling off your channels, but you're hanging on to Studios, which actually has been considered the most valuable part of ITV as it has faced quite a lot of questions about its value and its viability over the years. Studios, which makes these hit shows, The value is that. ITV actually hang on to that while realizing value for their shareholders who will have this nearly a billion pounds in cash effectively returned to shareholders Okay, Paul, so just explain exactly what both parties are getting out of this. Let's start with ITV themselves. haaven't they just given up the crrown Jewels? It might seem no way what's really interesting about this deal and actually about the presentation of this deal is that both sides are doing it really for the same reason and they are saying the quiet bit out loud. They don't think either of them, giants of UK broadcasting, they don't think they're big enough to compete and thrive in a transformed broadcasting landscape. So to varying degrees and for slightly differenting reasons, but both Sy and ITV are facing intense competition. at the moment, they don't think ultimately, I don't quite say this, they can win from Netflix, from Amazon, for the streaming giants in the U.S who are able to spend huge amounts more on production of programming. Crucially, they reach people where they want to receive these programs, the way we watch what we used to call tey is transformed. Direct to viewers streaming. donon't worry about our schedule. There's no need to appointment to view. You can watch it in bed. You can watch it on the train. That model has blown up the model. of UK broadcasters, ITV and Sky. And the conclusion has been that together They can be what they are calling a domestic streaming giant. We talkks about ITVX and all its subscribes of course Sky has technology that reaches about nine million homes at the moment. And one of its USPs, it believes, is to aggregate all those streaming platforms into one place so you can get to them easily bring together that technology and that streaming power plus, all the content they produce together, you have a much bigger company that perhaps has a punch' chance of in the domestic market standing, earning advertiser revenue serving viewers in this transformed landscape where they might be giants in the UK, but they're under fire from monsters in the US Is this all just essentially about making sure the long term financial viability of the company that you and I both work for? It's certainly absolutely part of Sky's plans Sky, of course, part of its own US giant in Comcast, which bought the company from Rupert Murdochs companies seven or eight years ago. It's absolutely part of strengthening Sky in the UK. It's absolutely part of ITV's plans to thrive and survive. My understanding is that it was ITV that was looking for a partner looking, frankly, for someone to get involved in a takeover as it looks at its strategic future. It has seen viewing numbers fall because less people watch linear TV, advertising revenue in part because those viewers have gone But in large part because now when you talk about TV advertising, what you're actually talking about is a tiny portion of video advertising, which is now dominated by meta By Google, by YouTube, by those streamers. So ITV was looking for a way of strengthening. and they went hunting for partners and they concluded that Sky was probably the likeliest if Sky was interested. And it turned out in negotiations that have been going on for a very long time that Sky absolutely saw something for it here with the blessing of its American parent And so it's a big deal for Sky. you might argue it's an even bigger deal for ITV. Okay, so let's ask some of the more basic questions. Forget news at ten, forget dancing on ice. Will my mum still be able to watch Coronation Street? Yes, she will. And Mrs. Patterson, enjoy All the free to air content that's on ITV. Sky I haveve said it's guaranteed to be free. Everyone I've spoken to both the chief executives of the two companies it's guaranteed. It's also guaranteed more fundamentally by the public service broadcast license that ITV has, which runs until twenty thirty four. And that that actually is the crown jewel here that Sky is buying and that license requires content to be sent to air for free. It's the thing that guarantees, for example, all the news output, not just the national international news you see on the main ITV channel, but the huge amount of regional news. That's all regulated. And so that license that will transfer ultimately to Sky is the thing that guarantees that programming, Cory and the rest. And Sky, one imagines, will want to keep making the programs that people like watching on ITV at the moment. In fact, I talked about ITV stududios, that commitment to spend more than two billion pounds over five years is to is effectively our second guarantee to commission the programming ITV stud currently makes. So the free bits will still be free. So in the short term, at least when this deal finally goes through, viewers shouldn't expect much to change when they're looking at the television screen. They shouldn't We've told that the brands will remain distinct and actually why would they are both valuable brands in their own right? Why would you destroy that? So what you might see, I think you'll start to see some more cross pollination More of both on the other platforms. Sky've talked about there being more sport available free to wear ITV, IT of course having a storming summer with the World Cup. They've now got that coursear a final next Saturday at ten o'clock. That's prime example of the kind of Pink free to air moment that channels, particularly ITV is built on. There's the advertiser offer of millions and millions of viewers, but we canpect more more sport feeding Of course, there are existing rights deals that are complex, but so you can see more of that Sky' talks about showing more of ITV's regional news across its digital platforms. Sky News, we provide that. That's the increased exposure for both brands on the other brand. you know what Sky gotot iss got volume of high quality, It's got stuff people will pay for on to the Premier League and all the sports. ITV got It's go bigger audiences on free to air than Sky Aracks to its subscription offer. I just want to focus on that point about sport just for a second because as you say, ITV, traditionally a free to air home from major sporting moments, England games, tournaments, racing, the rugby. Let's be honest, here at Sky Towers, they've often had a rather different approach when it comes to putting sport on the tey, free at the point of delivery, perhaps, but certainly not free. you sitting trying to sum up, what would you pick as the content from these two twow companies that really stands out. front and center in people's minds of Sky is the Premier League, along with, of course,' dedicated cricket and golf and a host of other sports, Formula onene is the British Grand Prix this weekend. And that will remain, one imagines is the heart of the Sky off. It will be very interesting. and I've got no idea if this will be the case. Everybody says it's too early to say But might one see Premier League matches available on free to wear? You could argue that completely undermines the pay model. but one can see all sorts of questions will be asked about, of course, the concern is, is free stuff going be you' going to have to pay for it? The answer today is no, or might it be that pay stuff, more of it might be available for free, particularly as the two companies are talking to regulators about how to get this deal across the lines. So it wouldd be very interesting to see precisely happens, whether those lines get a little bit blurred for both companies I know we've touched on it already, but genuinely, what does this actually mean for news in the United Kingdom. Whenever we see kind of takeovers, mergers of this kind plurality of media sources is something that people are very concerned about ITV owns ITV newews. It's produced by ITN. Sky is now going to have a stake in ITN. Sky also has its own news organization, Sky News, of which we are both members. Yeah It's certainly going to require attention. I mean, we're talk about the regulators here. when it comes to news and news plurality, it's a bit of a mouthful that word. You're going to hear a lot of it, essentially means the number and variety of news sources, viewers and consumers can expect to hear more than one viewpoint, frankly. And of course, broadcasters are regulated skky and ITV by offcO, which requires balance and fairness This plurality points Today, David Strong, the chief executive of Sky has said they will guarantee the editorial independence of the two news organizations. So there won't be one editorial mind governing both. They are pretty diverse. Sky News offers Rlling News channel as well as all the digital offerings. I typically have an offer that is both the bulletins that they are required by law under the license to provide the main evening bulletins early evening and around ten o'clock, but it also has crucially and this is perhaps Uareciated. The regional news commitments are enormous. They're a central part of the public serervice broadcast license. onlynly the BBC and ITV provide regional news, so those have been guaranteed. So for now, that is the problem. And the reason I linger on news is it matters. It matters perhaps a bit less to viewers who might take it for granted. Many people care a great deal, but it really matters to politicians. And why does new plurality, particularly broadcastters matter to politicians Well we're the people who put them on Tally quite a lot. So you can expect to see both companies that're certainly not at this stage telling us they're going to satisfy the regulators, but you can bet there are advanced plans and arguments tackle that question around news, who makes it? to ensure that people watch news that is fair, balanced, objected, and crucially coming from a variety of sources How does a banana trigger a CIA backed coup Do airPods herald the arrival of a new global order? What do LED lights say about the future of humanity I'm Ed Conway, and in each episode of my new podcast, Stuff Matters, I take an object, crack it open, and reveal the world shaping forces hidden inside This is economics told through the things we think we understand. Search Stuff Matters on your podcast app to listen and follow Isn't there a very real risk that this takeover means that one media group perhaps has too much influence over British television. I can imagine that there may well be voices within government not desperately pleased that an American multinational is the one that is coming here and taking up a significant chunk of the media landscape. Yeah, it's a good question. It's going to be very interesting to see how political heat this does generate. We should say that the regulatory part here, there's one bit that will look at essentially the money, the competition and Markets authority will look at advertising, revenue and how that breaks down and whether this is good for consumers good for advertisers. And then there is this question around the communications regulator OcomM and N news and beyond. the U. S. presence might cause somecempt because I'm sure Skye would say Comcast would say this. they are They have invested an enormous amount in Sky. They' paid thirty one billion pounds to buy the company. They've just committed more than a billion pounds to build a theme park in the UK, a big European theme park. The Chancellor was out at the site in the last couple of weeks. That indicates the government's enthusiasm for that money. So I think that argument they will certainly make is that they're investing money in the UK and Sky retains its British character Despite the fact it has US ownership. We should be clear, ITV is an absolutely central planank of British cultural life. It was the first alternative to the BBC in nineteen fifty five. And you think about it as the program not just in entertainment, we think of its light entertainment being its benchmark, but across its arts programming, its sport its cultural programming. It' a really significant part. Certainly you and I of our generation Andund three options at one point, and two of them were a BBC, the other was ITV. So you shouldn't be given up lightly, but the argument from both companies is going to be that if you don't allow this to happen, Look at the reality of TV, you know Who will you let? by ITV to try and secure its future And you'd imagine skies footprint and presence in the UK as an employer and an investor Ccast money that's coming in NBC Universal money coming in will be the counter to any argument that US ownership is a bad idea What then have we learned today, Paul, about the future of British television, The state of British television? I just wonder if we're going to see other broadcasters, perhaps looking to consolidate in the way in which Sky ITV are Yeah, this acknowledgement and I'll go back to this. they've said the quiet part out loud, frrankly, we are not big enough to compete U without scale. by coming together, we can be bigger there's a punch's chance. That begs the question, Well, you do this takeover now, you have a bigger company, you're into perhaps thirty million homes, you have huge reach down the line, do you still get dwarfed and how long will that last? We have one absolute media giant in the BBC, but it's publicly funded. It's facing its own challenges about its funding. It is a tough time to be a BBC executive trying to secure that as jobs are being shared, thousandousands of them BBC We had a dopoly with the BBC and ITV, Sky came along to challenge it successfully in a different way, a pain model There were three,' going to be back to two. It tells us that the challenge from course from the giant US companies, you think of the depth of Amazon's pockets, you think of the reach of Google for advertising. The real thing is what we're doing and how we consume