The coming bidding war for Sky

Why does everyone want to buy Sky PLC?

The British broadcaster now has three huge international suitors: 21st Century Fox, Disney (through their bid for Fox), and Comcast, whose bid was formalised today.

For 21st Century Fox and Rupert Murdoch in particular, the bid is emotional as well as commercial. He set up the precursor to Sky in 1989 and it nearly bankrupted him. It is a business he has seen bloom and grow.

In 2010-11, his family bid for full control, but called it off because of the phone-hacking scandal. It was always unfinished business. The family’s latest bid for full control has been stuck in the regulatory quagmire for well over a year, to their frustration.

What unites these three companies is above all, of course, immutable commercial logic. The case for acquisition is partly about Sky’s model, and partly about the structural changes in the industry.

The entrance of massive technology companies to the media content business – above all Netflix – has meant a huge influx of cash and an explosion in consumer choice. Together with smartphone technology, this has shifted behaviour from linear TV, which is restricted by schedules, to streaming, which allows viewers to watch what they want when they want.

Apple are moving into content in a big way. Some people think the company would be smarter just to buy a content giant – like Comcast, Disney, or Fox, for example – but Apple doesn’t seem to be the acquiring kind when it comes to television-style Media. And in any case, that might face regulatory obstacles, so they want to do it their own way.

Amazon has launched itself upon content in an expensive fashion. That’s where you mostly find Jeremy Clarkson driving new cars these days. Facebook is doing ever more in content creation, and its Facebook Watch initiative and long-rumoured interest in live Sport suggest aggressive intent.

All of this means the competition for eyeballs is ferocious and unprecedented. Some eyeballs are still at the end of pipes, or distribution channels if you like; and around 23 million pairs of European eyeballs belong to Sky customers.

The disruption-driven consolidation in Media today is, as I have often written on this page, about the creators of content coming together with the owners of those pipes.

A juicy prospect

The other side to this is that Sky is a very attractive business right now.

Those 23 million customers are a juicy prospect. The main thing is that the fundamentals of the company seem well placed to exploit the opportunities of the next few years. Crucially, those customers pay subscriptions for Sky content. Sky has data on them, and can tailor its services accordingly; moreover, it means that although it makes money from advertising, it is not dependent on advertising alone.

If you are a Media business dependent on advertising alone right now, you watch with horror as Facebook and Google gobble up ever more advertising dollars. This is one reason Adam Crozier, the former Chief Executive of ITV, tried to diversify that business by buying production capabilities. He wanted to reduce the vulnerability inherent in being solely dependent on advertising.

Sky offers a broad service of high-quality content, has innovated well to improve its mobile platform, and has a lot of loyal customers in Europe – a market the likes of Comcast and Disney really want to crack. Above all, it knows its customers, because it takes money from them.

This is why, while many traditional Media flail among the vicissitudes of the ad market, the company that nearly bankrupted Murdoch is today inviting him to enter a bidding war for it.

If you’re interested in issues such as these, please follow me on Twitter or Facebook; and also please subscribe to The Media Show podcast from Radio 4. I’m grateful for all constructive feedback. Thanks.

Mark Sorryberg 1, Congress 0 – for now

Many of us could probably lay claim to a split personality, but few people are as blatant about it as Mark Zuckerberg.

Facebook doesn’t have one CEO – it has two.

There’s Mark Zuckerberg, the Ultimate Millennial. He wears t-shirt and jeans, is a Harvard dropout, happiest in New York and San Francisco, who talks a good game about connecting the world. He’s an engineer and geek who built perhaps the most remarkable network in human history, innovating his way to astronomical wealth. This guy is shy, but has a public persona that accommodates it.

Then there’s a chap I call Mark Sorryberg – the Big Tech Villain. He wears an ill-fitting suit, squirms when in Washington, is blamed for damaging all we hold dear – from rigging elections (“He’s killing democracy”!) to promoting extremism (“He’s unweaving society”!) and not paying enough tax (“He’s screwing the poor”!). This guy is so shy he comes across as awkward and uncomfortable when he should be projecting authority.

As the excellent Zeynep Tufekci wrote in an entertaining blast for Wired, we’ve seen a lot of this second character since the company was founded. In fact, over the past fourteen years, “sorry” seems to have been the easiest word for Facebook’s leader.

In 2006, after the launch of News Feed annoyed users, Sorryberg wrote in a blog: “This was a big mistake on our part, and I’m sorry for it.” In 2007, failures in the Beacon advertising system prompted another grovelling blog: “We simply did a bad job… and I apologise for it.” As Tufekci notes, by 2008, all of his blogs for Facebook were in effect apologies, and we saw several other examples even before he said about the Cambridge Analytica leak to CNN: “I’m really sorry this happened”.

So Mark Sorryberg is a familiar figure by now. He was on display in Washington this week, following the biggest crisis in the history of his company. There were several open goals in front of his interrogators, and opportunities to make him squirm and wriggle were not in short supply.

Yet, for the most part, they missed. After nearly 10 hours of grilling, Facebook is – for now – a richer company, Zuckerberg’s authority as CEO is re-asserted, and the potential disaster this week might have been was averted. These are all very short-term interpretations. There could be big trouble ahead. But the lawmakers fluffed it.

Ineffective questioning

The format didn’t help. For non-partisan reasons that are laudable in principle but ludicrous in practice, each lawmaker was given a maximum of 5 minutes on Tuesday and 4 minutes on Wednesday. You simply cannot build pressure, interrogate answers, or pursue a line of inquiry in the way necessary over such a short time.

But the representatives didn’t help themselves. In his allotted time, Senator Roy Blunt first told a boring story about his business cards, then gave a shout out to his 13 year-old son Charlie who is “dedicated to Instagram… [and] he’d want to be sure that I mentioned that while I was here”, which was sweet.

I’ve transcribed what followed.

Blunt: “Do you collect user data through cross-device tracking.”

Sorryberg: “Er, Senator, I believe we do link people’s accounts between devices in order to make sure that their Facebook and Instagram and their other experiences can be synced between devices.

Blunt: “And that would also include off-line data? Data that is tracking, that is not necessarily linked to Facebook but linked to one… some device they went through Facebook on?”

Sorryberg: “Senator, I want to make sure we get this right. So I want to have my team follow up with you on that afterwards.

Blunt: “That doesn’t seem that complicated to me. You understand this better than I do. But maybe you can explain to me why that’s complicated. Do you track devices that an individual who uses Facebook…has… that is connected to the device they use for their Facebook connection but not necessarily connected to Facebook?”

Sorryberg: “I’m not, I’m not sure [of] the answer to that question.”

Blunt: “Really.”

Sorryberg: “Yes”.

A work of literature that penultimate question was not. I don’t understand it, Zuckerberg didn’t understand it – and Blunt definitely didn’t understand it. He seemed poorly briefed, despite the gravity of the occasion.

Unfortunately, it was emblematic of the meandering, ineffective mode that dominated Tuesday. Wednesday’s interrogation was better, but still not as good as it should have been, not least because there were many questions that weren’t asked. The Facebook CEO’s weaknesses weren’t really exploited.

For instance, he should have been pushed harder on how hard it is to retrieve data that has fallen into the wrong hands. He should have been pushed harder about Facebook’s reaction to news that The Observer newspaper was publishing a story on the subject. His claims that something awry may have been going on at Cambridge University – vigorously denied by the institution – deserved more of a probing.

And the long history of errors at the company, plus its initial denial that there had been a data “breach” when it came to Cambridge Analytica, were worthy of a mauling that was never heard.

First do no harm

Given the scale of the recent controversy, and the courtroom theatrics of these cross-examinations, there was much to fear for Facebook this week. It was Zuckerberg’s first time getting grilled by the Senate and Congress, and his awkwardness in such public arenas was clear for all to see.

His facial expressions garnered comment on social media – but it was his body language and garb, over which he exercises more control, that struck me. On Tuesday, Zuckerberg’s tie knot was chunky and loose; and his halting responses and nervous smiles didn’t project much authority.

But he maintained his composure and politeness throughout. Investors gave a clear enough verdict: the two days added $26bn, or 6 per cent, to the company’s value.

There is some gridlock in Congress, and America’s politicians have a range of very big problems on their plate. That means that for the time being, the regulatory threat to Facebook – though of course they would say they welcome the chance to work with regulators – comes from Brussels and GDPR, rather than Washington.

In terms of new law or regulation, the question is: what kind? One of the great intellectual challenges in this field is in devising regulations that can keep pace with technological innovation: a very hard task. It is wrong to think, for instance, that you can just import the kind of regulation that Ofcom do for broadcasters, and apply it to video content on social media platforms.

The interrogation to come

While this week has not been the disaster for Facebook that many anticipated, and some wanted, the medium-term threats certainly haven’t gone away. And events of recent months have fundamentally changed the level of scrutiny the company is getting, while making perhaps hundreds of millions of users aware of the trade-off between their free use of Facebook and the digital footprint they leave behind.

As my esteemed colleague Dave Lee has noted, there are plenty of deferred questions that the CEO and his team will need to address. And the demands of British regulators that he gives evidence here, too, won’t quieten any time soon.

In particular, perhaps Congress members who realise this week was a missed opportunity will invite their guest back to clarify several of the points he made. If they are smart, they should see this as the beginning of a process, rather than the end.

But in adopting his apologetic posture with an efficacy his interrogators sadly lacked, Mark Sorryberg got one over America’s lawmakers when they should have scored an easy win. If he came to Britain, he wouldn’t get such an easy ride – which is the main reason he probably won’t.

Facebook’s biggest challenge yet

This might be the biggest crisis Facebook has faced since its founding, and the company’s initial response has not helped.

The proposed departure of the company’s data security chief, Alex Stamos, has spread anxiety through the company internationally, and it is being reported that this opened up already significant divisions within the company about just how transparent it should be.

The leadership question goes higher, however, to Mark Zuckerberg. When it was first suggested that Russia may have used the platform to interfere in the 2016 election, Zuckerberg initially described that as a “pretty crazy idea”. Months later he recanted, and announced a raft of measures to address the viral spread of disinformation.

This time, following the dogged and undercover reporting of Channel 4 News, The Observer and The New York Times, Facebook has responded with the bold assertion that tens of millions of people having their data scraped and passed on to a third party does not constitute a data breach.

  • US consumer watchdog ‘probes Facebook’
  • How to protect your Facebook data

    Both Facebook and Cambridge Analytica deny any wrongdoing or breaking the law.

    And therein lies the rub. If this indeed isn’t a data breach; if it doesn’t strike these companies as a cause for alarm; and if what has happened is legal, then that might be the very reason that Facebook’s users – all two billion of them – should be worried.

    A message to sell

    Facebook has grown dizzyingly rich by operating what is in effect a mass surveillance tool. Most users have no idea just how much social media companies know about them. The business model that has made Facebook very rich is based on the quality of that data. Facebook uses that data to sell your attention to advertisers. Advertisers use smart messaging to influence behaviour, and try to get us to buy their products.

    As Hugo Rifkind wrote in The Times, what has happened now is that Facebook, the biggest and most powerful social media platform, has gone from selling mere products to selling politics, too. Political operatives, whether they be from democracies or not, also want to use smart messaging to influence behaviour, in order to get us to vote for a particular candidate, or to undermine a consensus and degrade the truth.

    A smart corporate response from Facebook would grant that the remarkable innovations and technology that have created its news feed, an often addictive and for now free product, are now being exploited for goals that are not always socially desirable.

    Instead the company’s instinct was to alight on a technicality, and say this was no data breach, despite the fact that it suspended the accounts of Cambridge Analytica and its whistleblower, Chris Wylie. Now at last the company is stepping into gear, calling a meeting of all staff to address concerns and answer questions.

    Several different investigations on both sides of the Atlantic are now underway. Mark Zuckerberg may not want to appear before the DCMS Select Committee, but he will have to make a public pronouncement soon enough. Blog posts alone won’t do.

    Open and connected?

    It must never be forgotten that, with all the zeal that has become customary in the world of superstar tech firms, Facebook executives talk about their company in missionary terms. We’re on a mission, they say, to make the world more open and connected.

    There is a tension, then, between the liberal inclinations of some Facebook staff – though of course the company as a whole is politically neutral – and the fact that a British company on whose board Steve Bannon sits may have used the platform to help President Trump gain office. Of course, Cambridge Analytica’s power could be wildly over-stated, and we don’t yet know sufficient detail on Russian misbehaviour on the platform.

    There is a tension between the globalist outlook of a company that hires supremely clever graduates from around the world, and the more nationalist tendencies of the current White House administration.

    And there is a tension between the self-declared mission to champion openness, and the fact that Mark Zuckerberg, for reasons still unclear, seemed to be unavailable for comment as lawmakers demanded to hear from him.

    At some point, these tensions become unbearable. A month ago ago, I said Facebook may have peaked, in influence if not in wealth. I wonder if Alex Stamos’s departure will persuade some staff there of this thesis.

Facebook’s biggest challenge yet

This might be the biggest crisis Facebook has faced since its founding, and the company’s initial response has not helped.

The proposed departure of the company’s data security chief, Alex Stamos, has spread anxiety through the company internationally, and it is being reported that this opened up already significant divisions within the company about just how transparent it should be.

The leadership question goes higher, however, to Mark Zuckerberg. When it was first suggested that Russia may have used the platform to interfere in the 2016 election, Zuckerberg initially described that as a “pretty crazy idea”. Months later he recanted, and announced a raft of measures to address the viral spread of disinformation.

This time, following the dogged and undercover reporting of Channel 4 News, The Observer and The New York Times, Facebook has responded with the bold assertion that tens of millions of people having their data scraped and passed on to a third party does not constitute a data breach.

  • US consumer watchdog ‘probes Facebook’
  • How to protect your Facebook data

    Both Facebook and Cambridge Analytica deny any wrongdoing or breaking the law.

    And therein lies the rub. If this indeed isn’t a data breach; if it doesn’t strike these companies as a cause for alarm; and if what has happened is legal, then that might be the very reason that Facebook’s users – all two billion of them – should be worried.

    A message to sell

    Facebook has grown dizzyingly rich by operating what is in effect a mass surveillance tool. Most users have no idea just how much social media companies know about them. The business model that has made Facebook very rich is based on the quality of that data. Facebook uses that data to sell your attention to advertisers. Advertisers use smart messaging to influence behaviour, and try to get us to buy their products.

    As Hugo Rifkind wrote in The Times, what has happened now is that Facebook, the biggest and most powerful social media platform, has gone from selling mere products to selling politics, too. Political operatives, whether they be from democracies or not, also want to use smart messaging to influence behaviour, in order to get us to vote for a particular candidate, or to undermine a consensus and degrade the truth.

    A smart corporate response from Facebook would grant that the remarkable innovations and technology that have created its news feed, an often addictive and for now free product, are now being exploited for goals that are not always socially desirable.

    Instead the company’s instinct was to alight on a technicality, and say this was no data breach, despite the fact that it suspended the accounts of Cambridge Analytica and its whistleblower, Chris Wylie. Now at last the company is stepping into gear, calling a meeting of all staff to address concerns and answer questions.

    Several different investigations on both sides of the Atlantic are now underway. Mark Zuckerberg may not want to appear before the DCMS Select Committee, but he will have to make a public pronouncement soon enough. Blog posts alone won’t do.

    Open and connected?

    It must never be forgotten that, with all the zeal that has become customary in the world of superstar tech firms, Facebook executives talk about their company in missionary terms. We’re on a mission, they say, to make the world more open and connected.

    There is a tension, then, between the liberal inclinations of some Facebook staff – though of course the company as a whole is politically neutral – and the fact that a British company on whose board Steve Bannon sits may have used the platform to help President Trump gain office. Of course, Cambridge Analytica’s power could be wildly over-stated, and we don’t yet know sufficient detail on Russian misbehaviour on the platform.

    There is a tension between the globalist outlook of a company that hires supremely clever graduates from around the world, and the more nationalist tendencies of the current White House administration.

    And there is a tension between the self-declared mission to champion openness, and the fact that Mark Zuckerberg, for reasons still unclear, seemed to be unavailable for comment as lawmakers demanded to hear from him.

    At some point, these tensions become unbearable. A month ago ago, I said Facebook may have peaked, in influence if not in wealth. I wonder if Alex Stamos’s departure will persuade some staff there of this thesis.