(Recasts, adds analyst comment, updates shares)
July 19 (Reuters) - Comcast Corp dropped its $66-billion bid for Twenty-First Century Fox Inc's entertainment assets on Thursday and said it would press on with its bid for European broadcaster Sky Plc, which Fox partly owns.
Comcast's withdrawal is a concession to Walt Disney Co , which last month sweetened its offer for the Fox assets to $71.3 billion. It de-escalates one of the media industry's most high-profile confrontations, which pitted Comcast CEO Brian Roberts against Fox Executive Chairman Rupert Murdoch and Disney CEO Bob Iger.
Disney did not immediately reply to a request for comment.
However, it still leaves open a potential bidding war for Sky, which is 39-percent owned by Fox. Fox has also made an offer for the 61 percent of Sky it does not own, although Comcast is currently the highest bidder with a 14.75 pounds-per share-offer, worth $34 billion, for the London-listed pay TV group.
Shares of Comcast were up 3 percent in morning trading, as investors were relieved that the company did not follow Disney in a bidding war for the Fox entertainment assets. Walt Disney shares also rose, up 1.4 percent.
Fox shares, on the other hand, fell 1.7 percent and Sky was down 2.6 percent. One of the reasons Comcast dropped its bid for the Fox assets is because that bidding war was inflating the value of Sky, given its partial ownership by Fox, according to sources familiar with the company's thinking.
Based on Fox's partially ownership of Sky, Britain's takeover regulator last week set the floor for a new Disney bid at 14 pounds per share, which is below Comcast's latest bid. The regulator is set to revisit that decision on July 27, and Disney is waiting until then for its next move, according to the sources.
Immediately before the acquisition by Disney, Fox will separate the Fox Broadcasting network and stations, Fox News Channel, Fox Business Network, its sports channels FS1, FS2 and the Big Ten Network, into a newly-listed company that it will spin off to its shareholders.
Bernstein analysts said Disney's debt pile could now hamper its ability to take on Comcast with a new bid for Sky, partly because it will need to invest even more to launch a successful direct-to-consumer streaming platform.
Comcast also decided to drop its bid for the Fox assets because it was concerned the price was becoming too high, even as its banks had authorized a potential increase and were ready to finance a new bid, according to the sources.
Comcast was also worried about how much revenue it would lose in divesting some of the Fox assets to appease U.S. antitrust regulators, according to the sources. Beyond Fox's regional sports networks, the Fox deal would complicate Comcast's investment in TV streaming service Hulu, of which it is a partial owner, alongside Comcast, Fox and Warner Media Group, now owned by AT&T.
LACK OF BIG ACQUISITION TARGETS
The bidding between Comcast and Disney is part of a bigger battle being waged in the entertainment industry as the world's media giants splash out tens of billions of dollars on deals to be able to compete with Netflix Inc and Amazon.com Inc .
While an acquisition of Britain's Sky, a broadcaster of sports, films and TV shows to 23 million homes across Europe, would significantly diversify Comcast's business overseas, it would do little to give it scale outside its core U.S. market.
Comcast was drawn into a bidding war for Fox because of the scarcity of big media assets up for sale, given that the industry is dominated by powerful families and personalities reluctant to cede control. CBS Corp and Viacom Inc , for example, are tightly controlled by the Redstone family.
However, smaller media companies could become acquisition targets. Lions Gate Entertainment Corp rose 5 percent on investor speculation it could become an acquisition target. Sony Pictures Entertainment Inc and MGM Studios Inc are also seen as potential targets.
Comcast first made an offer for the Fox entertainment assets last November, but Fox decided to go with Disney, even if its bid was lower, because it believed a deal with Comcast would not win antitrust approval. The U.S. Department of Justice last month greenlit Disney's deal with Fox. (Reporting by Munsif Vengattil, additional reporting by Sheila Dang; Editing by Bill Rigby and Nick Zieminski)