Market Insight

Fox takeover of Sky referred to regulators by UK government

March 17, 2017

Tim Westcott Tim Westcott Director – Research and Analysis, Programming, IHS Markit

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The UK government has referred the agreed takeover of Sky by 21st Century Fox to regulators, citing possible media plurality and broadcasting standards concerns.

The UK’s Secretary of State for Culture, Media and Sport yesterday wrote to both companies to advise them that she has asked communications body Ofcom and the Competition and Markets Authority to report back to her by 17 May.

The media plurality issue relates to Sky's ownership of the Sky News channel and the newspaper and radio assets owned by News Corp, which formally split from 21st Century Fox in 2013 but shares a common shareholder in the Murdoch family. While the minister has stopped short of asking Ofcom to judge whether Fox is a 'fit and proper' proprietor of Sky, the regulator will be asked to assess whether the US company raised any concerns about compliance with broadcast standards under the 2003 Communications Act.

Firstly on 'the need... for there to be a sufficient plurality of persons with control of the media enterprises serving [the UK] audience' and secondly on 'the need for persons carrying on media enterprises, and for those with control of such enterprises, to have a genuine commitment to the attainment in relation to broadcasting of the standards objectives set out in section 319 of the Communications Act 2003 (“the commitment to broadcasting standards ground”).'

Fox, which effectively controls Sky via a 39% shareholding, made an offer to acquire 100% control of the European pay TV company in December last year. The companies agreed on a cash offer of £10.75 a share, valuing Sky at £11.7 billion ($14.5 billion) a few days after the negotiations were announced.

An earlier attempt by the then News Corp to acquire full control of Sky in 2011 was withdrawn amid a continuing enquiry into phone-hacking by UK newspapers owned by the company.

Our analysis

IHS Markit is still of the view that the merger is unlikely to be blocked by the UK government. The 2011 takeover was approved by the European Commission, and the News Corp newspapers - notably tabloid The Sun and national broadsheet The Times - are now housed in a separate company. Meanwhile, newspaper circulations have continued to decline and the rising popularity of online news sources mean that Fox/Sky will be even further away from exerting a dominant influence over information.

The 'broadcasting standards' concerns appears to be where Fox/Sky is more vulnerable. In an enquiry into Sky following the phone hacking scandal in 2012, Ofcom judged that Sky was fit and proper to hold a broadcast licence, but was critical of James Murdoch, who is now the chairman of Sky and chief executive of Fox.  Ofcom said that 'James Murdoch's conduct in various instances fell short of the standard to be expected of the chief executive officer and chairman..'

Meanwhile, competitors and opponents of Sky and Fox will have the opportunity to voice their own views about whey the merger should not be approved. Bradley revealed that since reporting that she was 'minded' to refer the deal on 3 March, she had received 700 representations, the 'vast majority' of which were in favour of referral. Concerns include the possibility of Sky News adopting a similar political slant to Fox News in the US, and the considerable weight that Sky/Fox will have in the acquisition of rights. Opponents have also noted the prominence of Sky News stories on popular websites like Yahoo News.


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