ITV, Sky reshape UK TV landscape with $3 billion deal

Comcast’s Sky has agreed to buy the broadcast channels and streaming service of ITV, creating a UK champion to compete with global players YouTube, Netflix, Amazon and Disney.

Sky CEO Dana Strong said the 1.6 billion pound ($A3.07 billion) ‌deal, announced on Monday and confirming a Reuters story, was a “defining moment” in broadcasting in the United Kingdom.

The combination of the UK’s biggest free-to-air commercial broadcaster, home of Coronation Street, and pay-TV company Sky would have been unthinkable just a few years ago but the rise of ‌YouTube and the streaming giants has left traditional companies exposed.

Regulators and MPs will now decide if they accept the companies’ argument that the radical change warrants more flexibility in how deals are assessed.

The merger of the public service channels of ITV and the leading pay-TV business of Sky, founded by Rupert Murdoch in 1989, would account for more than 70 per cent of the UK television advertising market, including contracts for third party broadcasters, analysts have said.

Strong said the deal would deliver “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,” she ‌said.

ITV chief executive Carolyn ‌McCall said the combination of ITV’s channels ⁠and streamer ITVX with Sky would benefit viewers and advertisers.

“At a time of really rapid change in viewer behaviour and growing competition from US ​streamers for both audiences and advertisers, this deal strengthens British content investment,” she told reporters.

Shares in ITV traded up 1.2 per cent to 83 pence on Monday.

ITV will remain a public service broadcaster, safeguarded by its licence that lasts until 2034, with commitments in news and original content.

In return, it has a prominent position on TVs and access to protected programming like the football World Cup.

Both companies expect the deal to face a lengthy antitrust review and public interest tests.

To satisfy concerns, Sky may have to relinquish third-party ad sales contracts, for example for Paramount-owned Channel 5.

News will be a focus for regulators and MPs. 

Sky has rolling news service Sky News while ITV has bulletins made ⁠by news provider ITN and its own regional news programs.

Giao Pacey, partner at law firm Simkins, said the ‌deal was “less like opportunistic consolidation ​and more like an acknowledgement of market reality”.

He said the real story would be the regulatory process. 

“The commercial logic may be straightforward, but obtaining the necessary approvals will be considerably more challenging,” Pacey said.

Strong said Sky would commit to ​Sky News beyond ‌2029, in line with guarantees made by Comcast, and Sky News and ITV News would remain distinct.

“We’re quite excited about ITV regional news specifically and the ability for us to make that more visible,” she said.

ITV ​will retain 20 per cent of ITN while another 20 per cent stake will transfer to Sky.

Strong said there would be some job losses but the majority of 200 million pound in synergy savings would come from marketing, technology and non-UK content.

The combined company will reach more than 20 million households.

But at a time when traditional television is losing audiences to streaming and YouTube, particularly amongst 16-24 year olds, the companies will argue they need ​to ​merge to compete.

ITV has for years struggled with a tough ​ad market, and its shares have lost 36 per cent over the last five years.

The deal will leave ITV ‌as a standalone production business, making shows for the combined ITV-Sky, such as Love Island, as well as other broadcasters and streamers globally, such as Rivals made for Disney and The Reluctant Traveller for Apple TV.

The merged company has committed to spend a minimum of 2.1 billion pounds with ITV Studios over 2028-2032.

ITV will receive 1.2 billion pounds in cash  and in an earn-out agreement will get up to 200 million pounds dependent on its advertising performance in the 2027 financial year.

It will give about 950 million pounds to shareholders.

ITV will also get Love Productions, maker of The Great British Bake Off, which will join the remaining ITV Studios business.