Remember when Rupert Murdoch was planning worldwide media domination via a chain of satellite broadcasters? Well now, according to Macquarie Research Equities, the satellite is old hat and Rupert’s trying to exit the space station.

The MRE view is up on the Egoli site, running off a Wall Street Journal report that Murdoch is trying to do a deal with Telecom Italia to either sell or merge his Sky Italia unit. Reports Macquarie:

Telecom Italia has repeatedly stressed its talks with Mr. Murdoch are about content.” However, “He may now sell the whole thing for around €6bn”, the WSJ says. The reports flags the possibility of a new company which merges a part of TI with Sky, for a company capped at € EUR 25bn – a sort of Foxtel, Italian style.

Macquarie has an outperform recommendation on News Corp, believing it has a valuation of $30.67 to $36.48. The market values Sky Italia around €3-5 billion, so €6 billion deal would lift News’s valuation by $1 a share, so MRE now thinks the top end of its range is now conservative.

Of course the history of News Corp over the past decade is littered with analysts proclaiming that it to be worth more than the market ever confirms. The interesting thing about this research is what it says about the satellite model:

For NWS, it is another step toward disengagement with the pure satellite pay TV business – one which has been extremely profitable in the delivery of a oneway TV signal, but which now faces increasing competition from the bundled offering of cable.

It is for this reason that BSkyB in the UK has committed £400m towards rolling out DSLAMs, so that the program offering of Sky can be part of the package that includes two-way internet, as well as telephony – the triple play.

In MRE’s view, Murdoch perceives that unless he pursues this route, the satellite platforms (Sky Italia, BskyB, DirecTV) will be increasingly sidelined as the cable companies load up their cable with more and more products, including entertainment (through IPTV, as well as their own pay TV services).

Finally, satellite TV as a product may be priced out of the market by customers offered a cheaper interactive package with just one bill….

In a serious comment on the speed at which technology is moving, satellite TV has gone from being leading edge (in 1990) to a technology on which the sun is setting in 2006 – just 16 years.

Peter Fray

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