Eight months after Sky and ITV first announced they were in talks over a potential merger, the UK broadcasters this morning announced that they have agreed terms for the deal. The transaction will see Sky acquire ITV’s Media & Entertainment division for a total consideration of up to £1.6 billion. The sum comprises £1.2 billion in cash and up to £0.2 billion in performance-related earn-out, while ITV will also acquire Sky-owned company Love Productions (which makes The Great British Bake Off) as part of the deal.
The Comcast-owned company cited the evolution of the UK media market and competition from streaming giants as factors shaping the merger, which is expected to create the UK’s largest commercial broadcaster, taking a sizeable share of TV ad revenues.
“The proposed transaction brings together two of the UK’s most trusted, recognisable and complementary media organisations to create a stronger media business with the reach and capabilities to sustain investment in great British programming, strengthen trusted news and deliver more for audiences,” Sky said in the announcement. “The UK media market is undergoing a profound and rapid transformation, and as competition for audiences intensifies, scale matters more than ever in order to compete with global streaming giants and YouTube in the UK.”
The companies gave no timeframe for completion of the deal, which is subject to customary conditions and regulatory approvals. And given the potential scale of the business, the UK’s Competition and Markets Authority (CMA) is sure to want a closer look at the ramifications of this acquisition. But as Sky acknowledged, the commercial TV market is being reshaped by international streaming services and even YouTube, and in that context the merged entity could be viewed as necessary for the UK broadcasters to maintain a foothold in the evolving media market.
Investing in streaming
Finalising the terms of the deal has proven to be a lengthy process, reportedly due to complexities in disentangling the various parts of ITV’s 70-year-old business. But the commercial public service broadcaster (PSB) consistently shared that the deal was progressing when asked about the negotiations on earnings calls, without confirming terms that were finally revealed this morning.
The companies announced that ITV’s channels and the ITVX streaming service will remain free-to-air, while continuing to meet its PSB commitments in full. The broadcasters’ respective news networks, ITV News and Sky News, will also remain “distinct editorial voices”. And on completion of the deal, Sky will enter a £2.1 billion content supply agreement over five years with ITV Studios, the distribution arm not included in the merger.
Meanwhile the businesses suggested that the merger will help improve the streaming experience through technology investments. The broadcasters noted that the combined entity would account for around 20 percent of all in-home viewing in the UK, creating a “commercial streaming champion” for the UK. “The combined business will have the resources and technology capabilities to compete more effectively with global media and technology companies in the UK, creating a scaled alternative UK-based platform for advertisers,” according to the companies.
The transaction is also expected to generate approximately £200 million in annual cost synergies, with most of these achieved “through efficiencies in marketing, technology platforms and non-UK content.” These total savings are projected to be delivered by the end of the third year after the close of the transaction.
“This is a defining moment for British media and an opportunity to build a stronger future for two of the UK’s most loved and trusted brands,” said Sky Group CEO Dana Strong. “We have huge respect for the transformation the ITV team has delivered, particularly its successful move into streaming through ITVX, which has brought fantastic British content to millions of viewers across the UK. Bringing Sky and ITV Media & Entertainment together combines the very best of free-to-air television, pay TV and streaming, ensuring viewers across the UK continue to enjoy outstanding British programming in a rapidly changing world. ITV will remain a public service broadcaster at the heart of British life, and we’re excited about the future we can build together.”
“ITV has successfully evolved in a rapidly changing media landscape – launching, and scaling, ITVX and developing ITV Studios into a major force in the global content market,” added ITV CEO Carolyn McCall. “This transaction builds on that momentum to deliver clear, tangible value for shareholders. At the same time, through the commitments made by Sky, the combined ITV M&E / Sky business will continue to deliver everything about ITV that our viewers and advertisers love and value and our people are hugely proud of – making programmes that reflect and shape society, bringing people together for shared experiences and having the quality, diversity and plurality that are the hallmarks of our contribution to the UK’s creative industries.”
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