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July 12, 2011
News Corporation's bid to buy the 61 per cent of BSkyB it does not own has, after all, been referred to the Competition Commission (CC) after News Corporation withdrew its undertaking to sell off Sky News. The latest twist in the long-running takeover saga is expected to delay any deal for six months or longer, giving News Corporation breathing space while media and government hysteria continues over phone-hacking allegations surrounding its UK newspaper division, News International. The Secretary of State for Culture, Olympics, Media and Sport, Jeremy Hunt, immediately referred the takeover to the CC, which will launch an enquiry into the impact of the BSkyB takeover on media plurality.
The government go-ahead for the deal was expected to be a formality. However, new revelations about the extent of phone-hacking carried out at News International from about 2006 onwards are emerging by the day, leaving the organisation under fire by other media, politicians and (with the revelation that victims of hacking included not only celebrities but also the families of crime victims and soldiers who died in Iraq and Afghanistan) the public. A Metropolitan Police investigation, opened in January, is ongoing.
The phone-hacking scandal has also triggered a new threat to the deal - a judgement about whether News Corporation and News International are 'fit and proper' to hold broadcasting licences. Ofcom said it is 'closely monitoring' criminal and civil investigations... 'in particular the investigations by the relevant authorities into alleged unlawful activities'. Even if management is cleared of any wrongdoing - allegations include invasion of privacy and bribery of police to obtain stories - the 'fit and proper' opinion will mean, at best, more delay. The worst case would mean that News Corporation would have to divest from BSkyB altogether.
The referral to the CC, which News Corp was hoping to avoid, could work to the company's advantage as it will allow time for the current hostile climate to the organisation, and its chairman Rupert Murdoch, to subside. Having sacrificed the News of the World, which accounted for 30 per cent of Sunday newspaper sales in May, selling an average of 2.7m copies, the company has at a stroke reduced its share of UK newspaper circulation and weakened the case that a merged News International/BSkyB would affect media plurality in the UK.
Speculation is also swirling around whether News Corporation, after the closure of its best-selling newspaper will take further drastic actions to reorganise its embattled business. The sale of more of its UK newspapers - which might make business sense given their low profitability - would all but ensure a favourable outcome for the CC enquiry. It still seems highly unlikely that News Corporation would divest from BSkyB unless the crisis reaches unmanageable proportions. BSkyB generated £752m in operating profit on £4.8bn in sales in the nine months to 31 March, up 13 per cent year-on-year. Furthermore, Murdoch came close to bankrupting his entire empire in the early days of Sky TV to keep the loss-making satellite broadcaster afloat, and it remains among the company's most prized assets.
With this in mind, the move to trigger the CC enquiry is a smart one. Forcing a CC investigation allows the UK government, itself embroiled in the scandal through one-time employment of a former News of the World editor and accusations of bias, to be seen to be carrying out due process. It also moves a great deal of the responsibility for the deal away from members of the Conservative cabinet. For Ofcom to declare the management of a $33bn media empire not 'fit and proper' would be be an extraordinary development that seems beyond consideration.
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