UK: Rupert Murdoch Reaches For The Sky... At The Expense Of Sky News

Last Updated: 9 March 2011
Article by Robert Vidal, Natasha Kirk, Louisa Penny and Stephen Whitfield

The Secretary of State for Culture, Olympics, Media and Sport has decided not to refer the proposed acquisition of BSkyB by News Corporation to the Competition Commission and considers that a "spin-off" of Sky News will be sufficient to negate the concerns raised by Ofcom in relation to public interest and media plurality

A consultation period has opened and all comments must be received by 21 March 2011.

Background

On 3 November 2010, News Corporation ("News Corp") announced to the European Commission that it intended to acquire the 61% of BSkyB that it did not already own. The day after this, the UK Government intervened and required Ofcom to investigate the deal and determine whether it would undermine media plurality in the UK.

At the end of December 2010, Ofcom advised that there was a need for a fuller review by the Competition Commission, as the evidence suggested that the acquisition may be expected to operate against the public interest and lead to a lack of plurality of persons providing news and current affairs on a cross-media basis in the UK. The Culture Secretary, Jeremy Hunt, has since spent considerable time examining the issue and since the end of January, he has been locked in discussions with News Corp, trying to determine whether undertakings would be sufficient to counteract the concerns outlined by Ofcom. The parties have announced that they have successfully negotiated undertakings that could appease both Ofcom and the Government. Rather then referring the acquisition to the Competition Commission for further scrutiny, Mr Hunt has, somewhat controversially, opted to allow News Corp to "spin off" Sky News as an independent public limited company. These undertakings will now be market tested and third parties have been invited to comment on their effectiveness in light of the concerns raised by Ofcom. All comments must be received by 21 March 2011.

Mr Hunt's Decision

The green light for the merger of News Corp and BSkyB is subject to a "spin-off" of Sky News, as a new independent company whose shares will be distributed among existing BSkyB shareholders in proportion to their current pre-merger shareholdings. This would mean that News Corp would retain a 39.1% holding in Sky News as the undertakings are designed to ensure "that shareholdings in Sky News would remain unchanged, and indeed offer it more independence from News Corp than it currently has".

Further, Mr Hunt's decision also restricts the board level make-up of the "spin-off" company. In order to prevent the British media landscape from being dominated by one editorial line (News Corp also control The Sun, News of the World, Times and Sunday Times newspapers) and in order to address Ofcom's concerns about media plurality, Sky News' board is required to consist of a majority of independent directors, including an independent chairperson and a corporate governance and editorial committee made up of independent directors.

News Corp would not be permitted to increase its holdings in Sky News in the next ten years without prior approval by the Secretary of State. Equally, Sky News would be given financial support for ten years and a seven year renewable brand licensing agreement in order to ensure its financial viability.

Implications

The immediate implications of the non-referral are clear. Interested third parties will be able to comment on the suggested undertakings, and any comments will be considered as part of the assessment of their sufficiency and effectiveness. Thereafter the merger will be allowed to go ahead – subject to the requirements outlined above.

Assuming BSkyB accept News Corp's bid, the merged entity's behaviour will be subject to scrutiny going forward. Future acquisitions will be carefully considered to ensure media plurality is maintained, especially in relation to the news media and indeed more generally, as a company that is not only the UK's largest satellite broadcaster but one that is also the owner of four national newspapers having significant power in a variety of media markets.

It may be that a swift conclusion to this saga will follow Mr Hunt's decision not to refer it to the Competition Commission; however, one question will remain - given the close financial and commercial arrangements are the measures put forward by Mr. Hunt likely to be effective in ensuring the independence of Sky News? Many would regard the measures introduced to safeguard the editorial independence of the Times newspaper, at the time of its take over by News Corp, as a failure.

We would be happy to provide advice on, or assist with, submitting written comments in response to the Government's consultation. This is a perfect opportunity for media broadcasters, television, radio and newspaper enterprises, media rights organisations, production companies and any other party that may be affected by the merger to voice any concerns they may have about the sufficiency of the remedies that have been suggested.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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