Wednesday 1 August 2007

Why did a satellite tv company want to buy a set top box company?

So Sir Alan Sugar has 'fired' his creation Amstrad for what has been reported to be £ 125m gbp -(around $ 260m usd) on a PE of about 6. I can see why he'd want out- Amstrad may be concerned about commoditisation and the threat from the Chinese entrants. But even the Ovuum analyst on the news last night was struggling to find a reason why Murdoch's Sky would want to buy them. In the Guardian piece various analysts provide rather weak justification about improved time-to-market, but it'd be hard to see that Sky is currently competing with Virgin media on that basis at the moment anyway.
Sky has had a reputation for being a canny buyer of set-top-boxes and is in a position to drive a hard bargain from its suppliers- surely it didn't need to own one just to get suppliers to do what it wants quickly.
The only reason I can think makes sense is that Sky's purchase is not to get their mits on this generation of product but because they are looking to the next. This might seem sort of obvious, my speculation however is that it's because they need to own the STB company. That would let them build their own "locked-down proprietary" set-top boxes, and might help Sky persuade Hollywood that it's really secure. At that point they might be able to get access to the kind of premium content that the AppleTV box carries. Better yet- they have a delivery channel via the satellite to send over high popularity High Definition content that'd struggle to get down the narrow ADSL pipe.
These kind of changes may seem tectonic to our portfolio companies, but that doesn't mean they're irrelevant.
NB the above is no more than a theory compounded on speculation- I have no actual knowledge of the situation or link with either company! If you know/think better (or can corroborate!) please do so below.