Sky and ITV have agreed final terms for a £1.6B deal which will bring together the UK’s largest networks of free and subscription channels.
The tie-up, which has been under negotiation since last November, will see Sky buy ITV’s broadcast unit which includes the entire portfolio of ITV branded broadcast and FAST channels plus the ITVX streaming service.
However it excludes ITV Studios, the global production business which produces shows for multiple broadcasters and streaming services, including the BBC, Netflix and Apple TV as well as ITV’s channels.
As part of the deal, ITV Studios will acquire Sky’s Love Productions which owns the rights to The Great British Bake-off, a move which bolsters its intellectual property portfolio.
Launched in 1990, Sky quickly became the nation’s undisputed king of pay-TV thanks to deep investments in sports and entertainment content, a commitment to technological innovation and hefty marketing budgets.
These helped the business see off rivals BSB, which it eventually absorbed, and onDigital, later rebranded as ITV Digital, which ultimately collapsed and was replaced by Freeview.
It also brushed off successive challenges to its status as the UK’s biggest sports broadcaster.
For many years Sky’s long-term content deals with major sports and US studios meant its channels were a ‘must have’ for both audiences and TV services from smaller operators such as BT, TalkTalk and Virgin Media.
However its appeal has dimmed in recent years as the Hollywood studios which once fed it a steady diet of content launched their own direct to consumer streaming services, the latest of which saw Sky lose its exclusive hold on HBO’s premium shows.
Sky has responded by agreeing deals to bundle many of these new services in a single package and positioning itself as an aggregator of content.
However, there are limits to the number of customers likely to be interested in signing up to Sky’s 2 year minimum term contracts to watch content that’s available direct from the streaming services on more flexible terms and without the need for a dedicated Sky TV or set top box.
Its purchase of the ITV channels now gives it an additional opportunity to monetise content.
For its part, selling its channels business removes ITV Plc’s exposure to the vagaries of the UK’s advertising sector and allows it to focus on selling finished shows and formats to broadcasters and streamers around the world – activities which come with a more certain and predictable income stream.
It also rids the company of the costs associated with broadcast TV, especially on Freeview where the unscalable costs inherent in the technology have recently been cited as a justification in closing down the service in 2034.
Sky is part of Comcast meaning that the ITV network will now ultimately be owned by an American company as is rival 5 which is part of Paramount’s portfolio of international broadcasters.
This leaves Channel 4 and the BBC, including its UKTV commercial subsidiary, as the only major UK owned free to air broadcasters.