News Corp’s BSkyB Deal to Grow Satellite Operations, Small Impact on Stock

News Corp (NASDAQ:NWS) is a media conglomerate that competes with New York Times (NYSE:NYT), Time Warner (NYSE:TWX), Disney (NYSE:DIS), Viacom (NYSE:VIA) and CBS (NYSE:CBS) in a variety of businesses ranging from broadcasting and cable networks to filmed entertainment and publishing.

Our price estimate for News Corp’s stock stands at $20.17, which is about 23% above the current market price. While News Corp’s value is primarily derived from its media networks, studios and publishing business, approximately 5% can be attributed to satellite-based pay-TV service (DBS).

The company is further looking to strengthen its satellite pay-TV service with the proposed acquisition of British Sky Broadcasting Group (BSkyB) where the company currently has an equity stake. News Corp has made a bid of close to $12 billion for acquiring remaining 61% and this could increase the value contribution that satellite pay-TV service brings to the company’s stock. ^[1]

News Corp engages in the satellite-based pay-TV business primarily through its subsidiary SKY Italia. SKY Italia distributes over 180 channels of basic, premium and pay-per-view programming services via satellite and broadband directly to subscribers in Italy. The company has a little under 5 million subscribers as of now which represents close to 30% of households in Italy. ^[2] We estimate that DBS services account for around 5% of News Corp’s stock value.

This chart shows News Corps subscriber base for its DBS service via SKY Italia.

Should the acquisition of BSkyB go through, there are concerns that News Corp might have too much influence on news sources threatening media plurality in the UK as it already owns major newspapers in the UK such as The Times, The Sun and Wall Street Journal Europe.

While this deal would expand News Corp’s presence in the UK and Europe and grow its satellite business, we do not feel it will impact the stock given DBS small contribution to its value.

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You can see the complete $20.17 Trefis price estimate for News Corp’s stock here.

1. News Corp.’s Bid Plan for BSkyB Should Face Independent Inquiry, Poll Says, Bloomberg, Dec 27 2010 [↩]
2. Based on estimated Italy population and assuming 4 members per household, Traffic Alliance, BCG Data for 2009 [↩]