Market Insight

News Corp takeover of BSkyB referred to regulators


News Corp's bid to take full control of BSkyB is to be investigated by regulators in the UK and the European Commission. The department for business, innovation and skills (BIS) this morning said it had asked communications regulator Ofcom to examine News Corp's proposal to acquire the shares in BSkyB it does not already own. Ofcom will submit a report on the implications of the takeover for media plurality by 31 December.

Meanwhile the European Commission will report its view on the competition implications by 8 December. The UK government's decision was made on the basis that, under the 2002 Enterprise Act, the takeover of BSkyB by News Corp's UK arm News International would effectively mean a merger of the two companies. BIS said it had made the decision on the basis of information and submissions received since the News Corp bid was launched in June.

News Corp owns 31 per cent of BSkyB through News International. Its offer to buy the remaining shares in BSkyB at 700p a share was turned down by non-executive directors, though only on the grounds of value. They indicated that they would recommend an offer if News Corp paid 800p a share.

Opponents of the takeover - including BBC director-general Mark Thompson - called for the business secretary Vince Cable to use his powers to block it outright, so his decision to refer the matter to Ofcom and the EC suggest it is not a clear-cut case. It may also suggest the coalition government elected earlier this year is reluctant to get on the wrong side of News International.

BSkyB's position of strength in the UK is clear. We estimate that its share of pay TV subscriptions in the UK was 66 per cent as of Q2 2010, while its share of pay TV revenues was 62 per cent in 2009. In terms of overall revenues, BSkyB is easily the largest player in the UK television market. We estimate its 2009 revenues at £5.6bn, compared to £4.4bn for the BBC and £1.1bn for ITV. The slump in the UK TV advertising market has only served to reinforce BSkyB's business model: while the three commercial public service broadcasters (ITV, Channel 4 and Channel 5) saw their revenues slip ten per cent year-on-year to £2.3bn last year, BSkyB's coffers swelled nine per cent.

News International does not have the same position in the newspaper market, although its stable includes the top-selling popular daily The Sun, which had an average circulation of over 3m in August, as well as Sunday titles The News of the World (2.9m) and The Sunday Times (1m). The Sun in particular is seen as a major factor in influencing public opinion in the UK. According to Audit Bureau of Circulation figures for August, News International's market share was 33 per cent for dailies and 38 per cent for Sunday titles.

While News International currently owns a minority of the shares in BSkyB, it has always been firmly in control of the company and very much the source of its strategic direction, so the real-world implications of a full take over would likely be minimal. Meanwhile the real focus of the merger - which would enable News Corp to operate its European satellite ventures as part of one corporate unit - is not the UK. In Germany, News Corp is increasingly involved in trying to make a success of Sky Deutschland, having managed to turn around Sky Italia in Italy.