Discovery Averts U.K. Blackout With Sky in Last-Minute Deal

(Bloomberg) -- Discovery Communications Inc. struck a last-minute deal to keep TLC, Animal Planet and 10 other channels from going dark for 5.5 million Sky Plc TV customers in the U.K.

All of Discovery’s 12 channels will continue to be available to Sky customers, including its flagship Discovery Channel, Eurosport and DMAX, and the Discovery Channel will continue to be available on NOW TV in the UK. Those networks would have become unavailable in the first seconds of Feb. 1 if the two companies didn’t agree on new terms granting Sky rights to Discovery’s programming.

Shares of Discovery rose as much as 2.5 percent after the announcement, and closed up 1.3 percent to $28.35 at the close of trading in New York Tuesday. Sky, which is being acquired by Rupert Murdoch’s 21st Century Fox Inc., was little changed at 1,003 pence Wednesday in London.

“People were worried about Discovery losing its biggest contract in the U.K.,” said Ian Whittaker, a media analyst at Liberum Capital in London. “They would have lost carriage fees and their advertisers would have had less reach.”

The agreement includes Discovery’s four pay-TV channels in Germany: Discovery Channel, Eurosport 1 HD, Eurosport 2 HD and Eurosport 360 HD, according to Discovery. Sky, a leading European pay-TV company, provides satellite-TV service to 21.8 million customers across the U.K., Ireland, Italy, Germany and Austria.

“We have reached a new agreement that guarantees Sky’s customers access to Discovery’s wide range of channels and programs for years to come,” said Susanna Dinnage, managing director of Discovery Networks UK in a statement. “Our fans’ voices were heard loud and clear.”

While the two companies settled their dispute, they still couldn’t agree on who was forced to compromise. In a statement, Sky said the deal “has been concluded on the right terms after Discovery accepted the proposal we gave them over a week ago.”

A Discovery spokesman responded by saying the agreement was “meaningfully better” than the former one as well as Sky’s proposal.

“Furthermore, our new arrangement enables us to control our destiny in more ways, with even more opportunities to invest and launch channels and consumer services,” Discovery said in a statement.

Murdoch’s Plan

Disputes between TV networks and distributors are common, and they occasionally reach a stalemate as both sides try to negotiate better deals. Discovery, on a growth spurt in Europe, has been demanding more money in fees from distributors like Sky to counter a loss of subscribers and stalled advertising growth in the U.S.

Part of Discovery’s push is an expanding investment in Eurosport, a home to darts tournaments and other less-popular contests that the company is trying to transform into a significant sports destination. Early next year, Eurosport will carry the 2018 Winter Olympics, the first of four Olympic games for which it has acquired European TV rights.

While Discovery is a supplier to Sky, its networks also compete with Fox networks including Fox UK and National Geographic Channel. The pending Sky-Fox deal, which would unite Murdoch’s television business across two continents, has added some intrigue to the negotiations, as Sky belittled Discovery’s portfolio of linear-only channels “where viewing is falling.”

To contact the reporters on this story: Rebecca Penty in London at rpenty@bloomberg.net, Joe Mayes in London at jmayes9@bloomberg.net, Gerry Smith in New York at gsmith233@bloomberg.net. To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Crayton Harrison at tharrison5@bloomberg.net.