Market Watch

Government Strengthens Spun-Off Sky News Undertakings


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The UK government is sticking to its intention to clear the proposed complete takeover of BSkyB by its main shareholder, News Corporation. Following a consultation into his decision to approve the merger in March, the Secretary of State for Culture, Olympics, Media and Sport, Jeremy Hunt, has slightly toughened up the undertakings News Corp will be required to make in relation to the independent Newco venture which will manage Sky News.

Changes to the undertakings in lieu (UILs) include a requirement for all Sky News board meetings to include an independent director with senior-level experience of journalism; the appointment of a monitoring trustee to ensure compliance with the UILs; a requirement for BSkyB to cross-promote Sky News on its channels; Sky News articles of association to be approved by the Secretary of State.

Hunt approved News Corporation's offer to buy 61 per cent of BSkyB that it does not already own on condition that Sky News was spun off into a new, publicly-listed company with an independent board and chairman. News Corporation will be subject to a limitation of 39.1 per cent of the total votes of Newco. Sky News will have a seven-year branding agreement with and a 10-year carriage agreement with BSkyB.

The government said it received 40,000 responses to the consultation. These included comments opposing the takeover from major newspaper publishers Trinity Mirror, Guardian Media Group, Telegraph Media Group and Associated Newspapers. Some 38,465 responses were co-ordinated by online pressure group, Avaaz, which is threatening a judical review of the decision.

A further round of consultation on the revised UILs will run until next week (8 July).

Analysis
Tweaks to the way the independent Sky News is managed will do little to appease the opponents of the News Corp takeover of BSkyB. However, the government will hope that it has done enough to steer the deal through its regulatory phase, allowing the commercial phase to start. The outcome of this is by no means certain; BSkyB's independent shareholders turned down BSkyB's initial offer of 700p a share and BSkyB was trading this morning at 849p, so the cost of the deal for News Corp has dramatically increased.

The viability of an independent Sky News is another issue. The channel, which IHS Screen Digest estimates costs £47m a year to operate, will be largely dependent on the terms of its 10-year carriage deal with BSkyB and may continue to sell advertising though sales house Sky Media. Sky News is no longer the top-rated news channel: according to audience measurement company BARB, the average weekly reach of BBC News was 11.4m in Q1, compared to 6.6m for Sky News.

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