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Liberty Global plc. (LBTYA - Analyst Report), a leading cable MSO (multi service operator) in Europe, recently acquired an approximately 6.4% stake of ITV plc from British Sky Broadcasting Group plc. (BSkyB) for a total consideration of GBP481 million (around $824 million).

ITV is the largest commercial TV broadcaster in the U.K. with a program line-up which includes top-rated programs like “Downton Abbey” and “Got Talent”. BSkyB is partially controlled by the Fox Network of News Corp. (NWSA - Analyst Report).

In spite of a modest stake buy in ITV, the transaction signifies a strategic shift of Liberty Global’s business model. During the last 6 years, Liberty Global has been striving to extensively penetrate the European pay-TV industry with its bundled video, voice and Internet (data) services. The European markets are still relatively untapped for this unique triple-play offering.

However, growing popularity of online video streaming services and the evolving platform of Internet TV have changed the scenario radically. The market dynamics are gradually shifting toward content producers from cable TV operators as TV shows and films can be watched from mobile devices such as smartphones and tablets. Liberty Global currently carries a Zacks Rank #3 (Hold).

Since 2010, ITV has been focusing on investing more on contents and acquiring valuable production assets in order to offer an increased number of TV shows. This strategy has allowed ITV to reduce its dependence on volatile advertising revenues. In the U.K. ITV’s closest competitor is Channel 5, a subsidiary of  Viacom Inc. (VIAB - Analyst Report).

Liberty Global is also pursuing a systematic diversification in the content development segment besides steadily strengthening its foothold in the European pay-TV market. In May 2014, Liberty Global acquired TV content producer All3Media for $1 billion, in a partnership with Discovery Communications Inc. (DISCA - Analyst Report).

Importantly, BSkyB will utilize the proceeds from the ITV stake sell to acquire more pay-TV assets. In this context, the company is in talks to buy its parent Fox Network’s Italian and German businesses named Sky Italia and Sky Deutschland, respectively.

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