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Why Sky's the Limit for Comcast

While Wall Street and investors may not agree, Comcast views Sky as the ideal European complement to its American cable and content empire.

In twin conference calls with financial analysts on both sides of the Atlantic on Tuesday, Comcast Corp. (Nasdaq: CMCSA, CMCSK) executives laid out their case for making the stunning $31 billion bid for Sky earlier that morning. Lavishing praise on Sky, they said the British satellite TV giant offers a bevy of potential benefits for Comcast, including much larger scale (52 million customers globally); a big infusion of high-value content (Premier League, Sky Vision, Sky News); international diversification (UK, Italy, Germany and beyond) and additional technological wizardry (Q video platform, Now TV). (See Comcast Bids $31B to Steal Sky From Fox, Disney.)

"They have a pretty complete company," said Comcast Chairman and CEO Brian Roberts. "They’re also in an incredible and enviable position as a content aggregator, whether it's their own content that they create... or the premier content they deliver to their customers."

In fact, he likened the make-up of Sky to Comcast's own combination with NBC Universal, saying his management team believes Sky is "just more like Comcast and NBC Universal than any company we've seen."

Wall Street analysts don't necessarily share Roberts' enthusiasm. In a quick investors' note dashed off yesterday Craig Moffett, principal at MoffettNathanson LLC , argued that while Sky would provide additional distribution for NBCU content in Europe and European content for distribution in the US, it would tie Comcast to legacy satellite TV technology at a time when satellite TV services are suffering big losses to OTT video, at least in the US.

"Comcast will have to twist themselves into knots to explain why satellite distribution won't be just as obsolete in Europe as it already is in the US," Moffett wrote. "Notably, the word 'satellite' never even appears in the investor presentation that accompanies this morning's conference call, almost as if they were hoping no one notices."

Moffett also noted that Comcast's $31 billion offer, which is 16% higher than 21st Century Fox 's earlier takeover bid for Sky, fuels speculation Comcast might still try to outbid Walt Disney Co. (NYSE: DIS) for Fox's US assets. Other analysts worry Comcast's move likely will lead to a bidding war for Sky as well.

"Unfortunately, the bad outweighs the good," Moffett said, summing things up for critics.

Investors appear to agree with the negative assessment of the proposed deal. Comcast shares fell more than 5% in trading yesterday before levelling off at just below $37 by early this afternoon.

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Comcast executives took pains to counter at least some of those objections in their calls with analysts. They pointed out that Sky, unlike satellite TV operators DirecTV and Dish Network in the US, continues to expand its satellite TV customer base in the UK, Germany and Italy. For instance, Sky added about 365,000 new customers over the six-month period ended Dec. 31, unlike the big subscriber losses reported by its American counterparts.

"I think it's apples and oranges," Roberts said. "From our vantage point... there is no comparison to the satellite operators in the US."

Comcast officials noted Sky also is venturing into promising new markets with its video streaming service, Now TV. Sky recently disclosed plans to expand Now TV, which now has 2 million subscribers, to its first two out-of-market territories -- Spain and Switzerland.

"They're doing streaming out-of-market, which is something we're not doing today at Comcast," Roberts said, "so they'll bring some learnings there."

As might be expected, Comcast officials declined to say whether they'll engage in a bidding war with Fox over Sky. They also declined to discuss any potential new counter offer for Fox's US assets.

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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