Why is Sky buying the home of Coronation Street?

0:02Sky News, the full story first.

0:10The company behind Sky News wants to buy the home of Coordination 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? 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.

1:01The drama is moving off the cobbles and into the boardroom. ITV is, of course, the home of Coronation Street, Love Island, I'm a Celebrity and plenty more on top. And the announcement of its takeover by Sky, 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. Sky's CEO, Dana Strong, knows that the media landscape is shifting under all our feet right now. Traditional television habits are changing. The big streaming platforms have revolutionised the way we all watch.

1:38Netflix, YouTube, Amazon, Disney, they are no longer the future threat. They are the present reality. So the 1.6 billion Sky's big boss is spending on ITV's 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 Kelso is Sky's business correspondent. Paul, look, what exactly has been agreed? Because if you take a look at the detail, Sky is not buying the entirety of ITV, is it?

2:20No, Sky is buying the broadcast bit of ITV and the stuff that people will know from their box at home. That's ITV1. And there are, in fact, another 10 terrestrial channels free to air one way and another. And it's buying ITVX, which is the streaming platform. About 40 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. So it is that broadcast bit. It is not ITV Studios, which is part currently of the ITV company, which makes many, many programs.

3:01A 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 to 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 Love Productions. They're the firm that are behind the Great British Bake Off, aren't they? Yes, indeed. So to make this deal add up, it's a£1.6 billion takeover, of which around£1.2 billion is cash. There's about£200 million that is contingent on various targets. And there is, crucially, what you refer to, there's a£200 million valuation on Love Productions, which makes Bake Off a massive hit around the world.

3:45That is going in the other direction. That is being sold by Sky, effectively, to ITV studios. Sky is also, interestingly here, guaranteeing to spend£2.1 billion commissioning those programs from ITV Studios, which will be a distinct company. And that underpins much of the output that people know ITV for. In fact, if you're ITV, 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 realising value for their shareholders, who will have this nearly a billion pounds in cash effectively returned to shareholders.

4:35Okay, Paul, so just explain exactly what both parties are getting out of this. Let's start with ITV themselves. Haven't they just given up the crown 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 different reasons, but both Sky and ITV are facing intense competition.

5:11At the moment, they don't think ultimately, they don't quite say this, they can win from Netflix, from Amazon for the streaming giants in the US 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 telly is transformed. Direct-to-viewers streaming, don'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.

5:53We talked about ITVX and all its subscribers. Of course, Sky has technology that reaches about 9 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 puncher's 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.

6:32Is 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 plan. Sky, of course, part of its own US giant in Comcast, which bought the company from Rupert Murdoch's 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.

7:31So 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. OK, so let's ask some of the more basic questions. Forget news at 10, 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.

8:08Sky have said it's guaranteed to be free. Everyone I've spoken to, both the chief executives of the two companies, it's also guaranteed, more fundamentally, by the public service broadcast licence that ITV has, which runs until 2034. And 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, Corrie and the rest.

8:52And Sky, one imagines, will want to keep making the programmes that people like watching on ITV at the moment. In fact, I talked about ITV Studios, that commitment to spend more than£2 billion over five years is effectively a second guarantee to commission the programming ITV Studios currently makes. So the free bit 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're told that the brands will remain distinct. And actually, why would you? They are both valuable brands in their own right.

9:27Why would you destroy that? So what you might see, I think you'll start to see some more cross-pollination. You'll see more of both on the other platforms. Sky have talked about there being more sport available free to air on ITV. ITV, of course, having a storming summer with the World Cup. They've now got that course of final next Saturday at 10 o 'clock. That's a prime example of the kind of peak free-to-air moment that channels, particularly ITV, is built on. There's the advertiser offer of millions and millions of viewers. But we can expect more sport feeding in there. Of course, there are existing rights deals that are complex, so you can see more of that.

10:05Sky, I've talked 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 got, it's got volume of high quality. It's got stuff people will pay for. One thing's in the Premier League and all the sports. What's ITV got? It's got bigger audiences on free-to-air than Sky attracts 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 for major sporting moments, England games, tournaments, racing, the rugby.

10:41Let's be honest, here at Sky Towers, they've often had a rather different approach when it comes to putting sport on the telly. Free at the point of delivery, perhaps, but certainly not free. I'm just sitting trying to sum up, what would you pick as the content from these two companies that really stands out? Front and centre in people's minds of Sky is the Premier League, along with, of course, this dedicated cricket and golf and a host of other sports, Formula One, the British Grand Prix this weekend. And that will remain, one imagines, the heart of the sky off. It will be very interesting. And I've got no idea if this will be the case.

11:16Everybody says it's too early to say. But might one see Premier League matches available on free-to-air? 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 to be a – you're 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. It'll be very interesting to see what precisely happens, whether those lines get a little bit blurred for both companies.

11:52I 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, And a plurality of media sources is something that people are very concerned about. ITV owns ITV News. It's produced by ITN. Sky is now going to have a stake in ITN. Sky also has its own news organisation, Sky News, of which we are both members. Yeah, it's certainly going to require attention. I mean, when we talk about the regulators here, when it comes to news and news plurality, that's a bit of a mouthful, that word. You're going to hear a lot of it.

12:25It 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, both at Sky and ITV, by Ofcom, which requires balance and fairness. But this plurality point, today, Dana 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 its rolling news channel, as well as all the digital offerings. ITV 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 10 o 'clock.

13:08But it also has crucially, and this is perhaps underappreciated, the regional news commitments are enormous. They're a central part of the public service broadcast license. Only the BBC and ITV provide regional news. So those have been guaranteed. So for now, that is the process. 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 news plurality, particularly broadcasters, matter to politicians? Well, we're the people who put them on telly quite a lot.

13:42So you can expect to see both companies, they're certainly not at this stage, telling us how they're going to satisfy the regulators. but you can bet there are advanced plans and arguments to tackle that question around news, who makes it, to ensure that people watch news that is fair, balanced, objective, and crucially, coming from a variety of sources.

14:13How 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.

14:48Isn'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 much political heat this does generate. We should say that the regulatory part here, there's one bit that we'll 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 and good for advertisers.

15:31And then there is this question around the communications regulator, Ofcom and news and beyond. The US presence might cause some concern, but I'm sure Sky would say, Comcast would say this. They have invested an enormous amount in Sky. They paid£31 billion 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.

16:11We should be clear, ITV is absolutely central plank of British cultural life. It was the first alternative to the BBC in 1955. And you think about the programme, not just in entertainment, we think of its light entertainment being its benchmark, but across its arts programming, its sport, its cultural programming. I mean, it's a really significant part. Certainly you and I of our generation, there was only three options at one point, and two of them were the 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.

16:48Who will you let buy ITV to try and secure its future? and you'd imagine Sky's footprint and presence in the UK as an employer and an investor, Comcast money that's coming in, NBCUniversal 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 said the quiet part out loud, frankly, we are not big enough to compete without scale.

17:31By coming together, we can be bigger. This is a puncher's chance. That begs the question, well, you do this takeover now, you have a bigger company, you're into perhaps 30 million homes, you have huge reach. But down the line, do you still get dwarfed? And how long will that last? And 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, thousands of them. The BBC, we had a duopoly with the BBC and ITV. Sky came along to challenge it successfully in a different way, a pay model.

18:10There were three, we're going to be back to two. It tells us that the challenge from, of 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 media. And that's not just a British question. This industry is being challenged like never before because of the way people consume it, the way younger people consume it. The rise of YouTube particularly is astonishing. And it's still a growth company. That's not yet fully realized. The world has changed and it's been transformed.

18:47So that's what it really tells us. And this industry has got to change fast. It's going to try and change. This deal is part of that, how quickly it can happen. We might be talking 18 months before this deal is clear. There's a question about whether regulation, frankly, can keep up with all the trends that this deal is in part trying to address. So it's about consolidating the strength of the British creative industries in a world that's changed faster than many could have imagined. Paul, many thanks. Cheers, Nick. And that is a lot for today. Do get in touch with your thoughts. Sky and ITV together.

19:23Is it the future of broadcasting or perhaps a deal done just a bit too late? Let us know why at sky.uk. We're back tomorrow.

19:38How 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.