Sky continues to surprise the market with its latest move, acquiring Amstrad, the UK set-top box supplier. Given Sky's continued financial success, it would be dangerous to bet against the benefits of this acquisition, but it certainly seems to be a curious move.
James Murdoch claims that the acquisition "accelerates supply chain improvement and will help us to drive innovation and efficiency for the benefit of our customers". And BSkyB states: "The acquisition of Amstrad will provide Sky with an in-house design and development capability, which Sky believes will deliver significant operational and financial benefits and enable the Sky Group to source some of its products directly from specialist electronics manufacturers"
Which suggests Sky believes it can manage the set-top box supply chain effectively, even though it has little experience as a manufacturer. And that owning Amstrad, rather than having it as a partner, will improve its current innovation process.
Both of these arguments seem tenuous at best. Pay TV companies rarely own the manufacturing of their devices (Echostar would be an obvious exception), preferring instead to encourage competition between a limited number of preferred suppliers. The successful ones certainly do take a close interest in design and technology, but Sky has already done this extremely successfully over the years. And Sky is hardly lacking in innovation credentials. It has led the market, in the UK at least, in launching PVRs, HDTV and broadband downloads (and has also had its failures, such as the Gnome radio).
So what benefits could Amstrad add? It is hardly a company known for its technological innovation, whatever Sir Alan would like us to think about the emailer. A clue may lie in the Apprentice star's comments: "Now I have to start thinking about my team of loyal staff, many of whom have been with me for many years". Don't shout it too loudly, but Sir Alan is getting tired. 60 years of "hustling" and it's time to move on. It's not like he can't afford to put his feet up for a bit.
Sky may well get some benefit from integrating Amstrad's technical staff into its innovation teams, but it seems unlikely that this alone can justify the purchase. I suspect that Sir Alan, as usual, as done the deal at just the right time, and called in one or two favours from his old friends at Sky. There is a strategic challenge for any company when 75% of revenues come from one customer. With Amstrad now so dependent on Sky, Sugar probably figures the writing is finally on the wall for his electronics empire.
Back in the mists of time, when Sky was a near-bankrupt broadcasting upstart, few remember now that it was Amstrad that helped save what was to become the best pay TV company in the world. The company's ability to source sophisticated consumer electronics and deliver them to consumers in volume at rock-bottom prices was a key factor in getting Sky off the ground. The Murdoch family will think that £125m is a small price to pay in return.