Sky's £1.6bn takeover of ITV's broadcasting arm is expected to come with a £2bn commitment to spend on the FTSE 250 group's remaining studios business, a guarantee designed to keep Coronation Street and other staples on air for at least five years.
Sky, owned by US media giant Comcast, has been spinning off ITV's media and entertainment arm, its linear channels and streaming service ITVX, since last year. After months of haggling over fine points, the two sides now appear to be close, and people familiar with the talks expect an announcement in the first week of July. The companies first confirmed they were in preliminary talks about a £1.6 billion deal earlier this year.
ITV Studios, which generated more than half of the group's £4.1 billion revenue last year, is not part of the transaction and will remain listed on the London Stock Exchange. Much of the discussion has opened up resources to cleanly separate the various arms of ITV.
ITV traces its history back to 1955, when it was launched to break the BBC's dominance of British television. Today its manufacturing side includes a number of individual companies. Their clients include rival broadcasters and international broadcasters, but they also have contracts with ITV and ITVX worth hundreds of millions of pounds a year.
It is understood that, under the terms now on the table, Sky has agreed to make £2 billion from ITV Studios over five years once the deal ends, making the production business stronger under it as a private public company. The deal will include deals for ITV's biggest hits, including Love Island and I'm A Celebrity… It will also secure the immediate future of soaps Coronation Street and Emmerdale.
Coronation Street remains the country's most-watched soap, attracting an estimated four million viewers, according to ratings agency Barb. However, a decade ago, an audience of eight million was unusual, and some in the industry are quietly worried about the long-term direction of the show.
The deal is expected to see ITV Studios buy Love Productions, producer of The Great British Bake Off, from Sky. At the current multiples of the manufacturing sector, that business would be worth around £200 million.
Dame Carolyn McCall, ITV's long-serving chief executive, is expected to remain in the studio business at least until the deal closes.
The Competition and Markets Authority (CMA) and communications watchdog Ofcom will both review the deal, a process that could take months. Not so long ago, a merger between Sky and ITV would have been almost unthinkable given their combined access to all British broadcasting. In 2008, the competition regulator ordered Sky to reduce its 17.9% stake in ITV to less than 7.5%.
Sky and ITV, however, are confident they can persuade regulators that the landscape has changed. Their main argument is that the relevant competition is no longer other broadcasters but digital giants, chief among them Google's YouTube, which now dominates the advertising market. That change has already changed the way airtime is sold, with three major broadcasters recently teaming up to allow smaller firms to buy TV advertising by the minute.
Sky is expected to be dependent on funding from Flint Global, the consultancy firm until recently led by James Purnell, Labor prime minister Andy Burnham's nominee.
Ofcom is also likely to examine concerns over Sky News owner ITV taking over 40% of ITN, the company behind ITV News, Channel 4 News and 5 News.
Comcast acquired Sky in 2018 for $39 billion. The first years were difficult, and in 2022 Comcast was forced to write down the value of Sky by $8.6 billion.
Sky, led by its US chief Dana Strong, believes buying ITV will strengthen its position. There are costs to be shared, and ITV can offer a free shop window for Sky subscription products. The group, which plans to bring free-to-air sports to British screens through ITV, wants to build a top three commercial broadcaster in the UK, an ambition which is in direct opposition to the American broadcasters ITV has long wanted to fight.
ITV and Sky declined to comment.
