On 28 June, News Corporation split into two companies:
• 21st Century Fox will consist of the TV and entertainment assets: Cable Network Programming, Fox Filmed Entertainment, Television, Sky Italia, its 55% stake in Sky Deutschland and its 39% stake in BSkyB.
• New News Corp will consist of the publishing assets (Dow Jones, The Sun and Times/Sunday Times, the New York Post, News America Marketing Group, the Australian newspapers and Harper Collins), as well as Fox Sports Australia, the digital education business Amplify, a 61.6% stake in digital property business REA Group Limited and a 50% stake in Australian pay-TV operator Foxtel.

The split partly reflects industry trends. Over the last five years, a number of media conglomerates, including McGraw-Hill and Time Warner, have separated low growth, low multiple publishing assets from higher growth parts of the businesses in order to optimise valuations and management focus.

This report provides a breakdown of the divisions within the two new companies and analyses their growth prospects.

Germany’s fixed line market is in state of flux as Liberty Global and Vodafone, the third and fourth largest players respectively, are reportedly engaged in a bidding war for Kabel Deutschland (currently number two).

The Vodafone bid would offer the most direct cost synergies, but this would be at greater execution risk. The Liberty bid would finally reunify most of the German cable sector, but would consequently need stronger undertakings to get anti-trust clearance.

Either merger would create a strong number two triple play operator, increasing competitive pressure on Deutsche Telekom and Sky Deutschland.

Sky Deutschland is reaping the benefits of its re-launch using BSkyB’s model, with an improving content offering and quality of user experience, plus a favourable environment for household consumption in Germany.

2012 results came in very close to our forecasts and we predict that Sky Deutschland will break even at EBITDA level in 2013 and turn cash flow positive in 2015.

The competitive context is benign and the horizon is clear until the next Bundesliga auction in 2016. But, in the meantime, cable, IPTV, FTA and OTT players are committed to widening their pay offers, which may put pressure on Sky’s subscriber growth and content costs.

The European Court of Justice (ECJ) judgment in the Portsmouth pub landlady case looks to have opened the door to legitimising the private or domestic use of decoders to watch premium sports and other pay-TV content outside the territories for which they were licensed

The outcome could prove to be a significant commercial opportunity for Sky to expand its overseas distribution among residential customers, but an extra test for the Football Association Premier League (PL) as it designs the next round of contracts with a view to at least maintaining current revenues

The ECJ judgment is more ambiguous over the question of public screenings for commercial purposes against the wishes of the right holders and the conclusion appears some way off

Sky’s revamped model has delivered a sharp reduction in churn and higher gross additions, accelerating subscriber growth. Rising high definition take-up is sustaining the increase in average revenue per user

Business prospects are improving on stronger private consumption and a carriage deal for HD versions of German commercial channels

Our forecasts have been revised upwards and we now expect faster improvement in cash flow, though it will still be negative in 2013