The ongoing fate of “French YouTube” Daily Motion has been a soap opera for several years, highlighting the country’s ambivalent attitude to enterprise and start-ups in particular. Vivendi has tabled an offer of $274 million, but that might still not be the final chapter, if as rumors suggest, it is also planning a bid for Sky that could well be over 100 times as big.
Sky’s stock price makes it worth $27 billion, but a significant premium for a takeover would push that to well over $40 billion. Sky has only recently become a coherent takeover target following consolidation in 2014 when BSkyB of the UK bought nearly all of Sky Deutschland and Sky Italia, to become Sky Plc, finally achieving Rupert Murdoch’s long-held ambition of combining his European TV interests in a single business. Sky now has 20 million customers across five countries, the UK, Ireland, Germany, Austria and Italy, while Vivendi has about 15 million in France, Poland, Africa and Vietnam. A combined Vivendi/Sky group would by some distance be Europe’s largest pay TV operator, ahead of Liberty Global with almost 22 million video customers.
Like Vodafone, Vivendi is cash rich after a number of non-core asset disposals, including its stake in French telecoms group SFR and video games company Activision Blizzard. Vivendi now has around $16.3 billion in cash after it completes its latest disposals, but may struggle to put up enough for Sky. Investors have been objecting that the acquisition would make Vivendi too exposed to pay TV and especially satellite at a time when competition from fixed network services is increasing. But the counter argument is that Sky has a coherent strategy for loosening its dependence on satellite, through expanded hybrid and OTT services built around a formidable content arsenal. It is the content and the subscriber base rather than the platform that Vivendi is interested in.
A Sky takeover would put a new gloss on Daily Motion if Vivendi’s bid for that also proved successful. Until now Daily Motion has struggled to escape the straightjacket imposed on it by the French government in its ill-conceived strategy to preserve the country’s cultural integrity by rebuffing all foreign takeover bids. The impact has been both to stunt Daily Motion’s growth and diminish its value, while discouraging entrepreneurs from coming to France. It has also led to an exodus in home grown entrepreneurial talent to countries such as the UK and to an extent Germany, as well as the US and Far East, where there is more encouragement and support for emerging ventures. Yet in spite of the negative culture for smaller businesses in particular France has continued to produce a steady stream of successful start-ups in the video and broadcasting business, like encoding vendor Ateme.
The problems tend to come when start-ups try to move to the next level, which often requires at least pooling equity and resources with foreign partners. Daily Motion began very brightly after its launch in 2005 and gave YouTube an early run for its money, although then failed to keep pace through being largely confined to its native France. Nevertheless in gaining 120 million monthly visitors and becoming Europe’s largest video website, it had done well enough to attract the attention of Yahoo, which tabled an offer of $300 million for a majority stake in April 2013. That would have provided a window into the global market, but the move was blocked by the French government, short sighted because the extra investment could have made it a stronger competitor against YouTube. For Yahoo it has incidentally had the effect of refocusing effort more on the VoD sector, but there too it is having a hard time making up much ground, given that not only Netflix, but others like Hulu and Amazon are already well established there.
The Yahoo saga was then repeated this year when Hong Kong based media and telecoms group PCCW entered discussions with Dailymotion’s current majority owner Orange, about buying the platform with a view to making it a major competitor against YouTube in Asian markets. But that too was effectively blocked by the French government, which still has a 25% stake. PCCW this week issued a statement: “An environment where policies appear to favor a French or European solution is discouraging for international business participation. We will therefore withdraw from our discussions with Dailymotion and its current owners.”
At least a Vivendi buy would be palatable to the French government but would not do that much as it stands to expand Daily Motion’s reach or appeal beyond French language markets. It could be a different story in the event of a merger between Vivendi and Sky, which could propel Daily Motion into the UK, German and Italian markets. It is more likely that for Daily Motion the chance of becoming a significant global or even regional force has now gone, irrespective of what happens between Vivendi and Sky.