What Comcast’s Sky sale to RTL means for the European streaming biz

RTL Group, Europe’s biggest television company, made a major bid Friday to challenge the untrammeled dominance of the U.S. streaming giants, announcing a deal to acquire Comcast‘s Germany pay-TV network Sky Deutschland.

RTL got Sky on the cheap, paying just €150 million ($175 million) upfront plus an additional payment based on share price performance, up to a maximum of €377 million ($442 million). Against that, RTL boss Thomas Rabe said the merger would deliver €250 million ($293 million) in synergy savings over the next three years.

If approved by antitrust regulators, the deal would combine Sky’s 5 million+ subscribers across Germany-speaking Europe with the more than 6 million customers for RTL’s in-house streamer, RTL+, to create Germany’s third-largest streaming company, behind Netflix and Amazon Prime but ahead of Disney+. It will also, says Enders Analysis analyst François Godard, position RTL as the “unavoidable” partner for streamers looking to launch, or expand, in Europe’s largest TV market.

“HBO Max is launching in Germany next year; they won’t be able to do it alone,” says Godard. “The logical move now would be for them to partner with RTL/Sky. Disney+ needs growth [in Germany]. Bundling with RTL would make sense.”

While RTL focused on the importance of the Sky deal for its German streaming business, Godard noted that the push to consolidate is also driven by competition in the advertising market. “The streamers have begun carrying ads, competing with the traditional broadcasters,” he notes, “and YouTube, of course, is a huge threat for them.”

Sky is a minor player in the German advertising market — of Sky Deutschland’s €2 billion ($2.34 billion) in sales last year, just 12 percent, or €240 million ($281 million), came from ad sales — which should make it easier to secure approval for the RTL deal.

“Both groups are highly complementary, and we would expect the combined unit to take a much bigger
share of the German advertising market five years down the line as it aims to maximize the
monetisation of its content,” Bernstein Societe Generale analyst Annick Maas wrote in a Friday report.

RTL Group CEO Thomas Rabe, who called the Sky deal “transformational,” has been pursuing a “national champions” strategy in Europe, pursuing M&A deals to bulk up RTL operations in individual territories to achieve scale in both free- and pay-TV. Rabe failed to make that work in France. There, a planned merger between RTL’s M6 network and market leader TF1 was blocked by regulators. After a similar move was derailed in the Netherlands, RTL sold its Dutch operation RTL Netherlands to Belgian group DPG Media. [That deal, worth €1.1 billion ($1.3 billion), was just approved.]

Rabe’s logic: Get big or get out, has become the rallying call among Europe’s traditional broadcasters who are seeing their market share erode amid competition from streamers. RTL’s Sky buy comes just a week after another milestone deal, in which TF1 agreed to license its live broadcasts and on-demand content to Netflix in France, boosting its reach.

“The [RTL-Sky] move clearly highlights the ongoing and fundamental challenges facing traditional providers,” PP Foresight founder and analyst Paolo Pescatore tells THR. “We are now moving into a new phase where scale is key, as seen in other verticals. Attention will now look at other markets, such as Italy.”

For Comcast, “it’s a small transaction, so it’s probably not material one way or the other,” MoffettNathanson analyst Craig Moffett tells THR. “But it can only be a welcome sign that Comcast is unwinding even a small part of a larger Sky business that never really made sense for Comcast to own in the first place.”

Indeed, there is already chatter that Comcast’s Sky Italia could be next on the auction block. On a much larger scale, leading British commercial broadcaster ITV — $4 billion in revenue last year — has also seen suitors emerge, with RTL among the potential buyers, alongside Abu Dhabi-backed investment fund RedBird IMI, run by former CNN chief Jeff Zucker, and French media giant Banijay.