Karen Bradley, the Secretary of State for Culture, Media and Sport, has said she is minded to refer the takeover bid by 21st Century Fox for Sky, the owner of Sky News, to the Competition and Markets Authority for an in-depth investigation.
She said this was because Ofcom, the broadcasting regulator, had told her the takeover would raise “material concerns” about media plurality in Britain.
Specifically, Ofcom had highlighted the ability the Murdoch Family Trust would have to “influence the overall news agenda” and “to influence the political process”.
The Murdoch Family Trust is a shareholder in both Fox, the international film and television giant behind hit shows such as The Simpsons and Modern Family, and in News Corporation, owner of The Sun, Britain’s biggest-selling newspaper.
Ms Bradley said: “These are clear grounds whereby a referral to a Phase 2 investigation is warranted – so that is what I am minded to do.”
Fox and Sky, along with other interested parties, will now have 10 working days – until July 14 – to make further representations to the Secretary of State.
News Corp and Sky together currently own three of the UK’s most significant media outlets, according to Ofcom’s data – Sky News, the Sky News website and The Sun.
The BBC alone owns seven of the most important 20 news providers, including two of the top three.
Ms Bradley said: “The reasoning and evidence on which Ofcom’s recommendation is based are persuasive.
“The proposed entity would have the third largest total reach of any news provider – lower only than the BBC and ITN – and would, uniquely, span news coverage on television, radio, in newspapers and online.”
The decision means a takeover of Sky is now unlikely to be completed by the end of the year as Fox had originally told its shareholders.
However, Ms Bradley said Ofcom had ruled that there were no public interest grounds for referring the proposed takeover to the CMA with regard to Fox’s commitment to adhere to UK broadcasting rules, or whether it would fail a so-called test over whether Fox was ‘fit and proper’, in the jargon, to hold a UK broadcasting licence.
Ms Bradley also revealed that Fox had given a number of commitments to address the public interest concerns flagged by Ofcom.
These included a promise to maintain the editorial independence of Sky News by establishing a separate editorial board, with a majority of independent members, to oversee the appointment of the head of Sky News and any changes to Sky News editorial guidelines.
She said Fox had also committed to maintain Sky-branded news for five years with spending “at least at similar levels to now”.
She said Ofcom had judged these remedies would mitigate media plurality concerns but that they could be further strengthened.
On that basis, Ms Bradley said, she was still minded to refer the deal to the CMA.
Shares of Sky rose by nearly 4% on the news to 991p – closing at 988p.
That remains a significant discount to the 1075p at which Sky shares would be valued under the takeover – indicating that investors think the likelihood of a takeover has increased but that there are still some regulatory risks to a deal going through.
21st Century Fox, the world’s fourth largest media company after Comcast, Disney and Time Warner, already owns a 39.1% stake in Sky.
It tabled a proposal just before Christmas to buy the remainder of the company for £11.7bn, valuing the whole of Sky at £18.5bn.
Ofcom was asked to investigate, under the 2002 Enterprise Act, whether the takeover was in the public interest on the grounds of media plurality and broadcasting standards.
The plurality issue concerned whether the Murdoch family, major shareholders in both News Corp and Fox, would emerge from a takeover with too large a share of the UK news market.
The broadcasting standards issue strand of the investigation was an assessment of Fox’s commitment to uphold UK broadcasting standards.
On the plurality issue, Fox is understood to have pointed out the changed circumstances of the UK media landscape since News Corp’s bid for Sky and highlighted how, due to the rapid proliferation of the internet, there is more choice and diversity in the news market than before.
Newspaper circulation has declined by almost two-fifths since 2010, while the rise of web-based news providers such as Buzzfeed, along with the way the likes of Google, Facebook and Twitter have changed the way people consume news, mean that the combined share of News Corp and Fox of the UK news market has fallen.
The ‘fit and proper’ issue is thought to have occupied more of Ofcom’s time.
The regulator received representations from critics of Fox, including Ed Miliband, the former Labour leader, and Sir Vince Cable, the former Business Secretary.
It also met in person Wendy Walsh, one of five women who claims to have suffered sexual harassment at the hands of Bill O’Reilly, a former star presenter on Fox News who was fired in April.
Ofcom said on this matter today: “We have concluded that the overall evidence available to date does not provide a reasonable basis for Ofcom to conclude that, if Sky were 100% owned and controlled by Fox, it would not be a fit and proper holder of broadcast licences.
“Our assessment finds that Sky would remain a fit and proper licence holder in the event of the merger.”
Sky has 22 million customers across the UK, the Republic of Ireland, Germany, Italy and Austria.
The European Commission has already given an unconditional green light to the takeover.
It completed its own separate review into the deal at the beginning of April and concluded it would raise no competition concerns.
Earlier this week, the Republic of Ireland also cleared the takeover, ruling that it would not result in insufficient plurality for any audience in the country.
Fox’s takeover bid for Sky is the latest in a series of big transactions in the sector during recent years amid a growing mood for consolidation in the face of mounting digital competition.
The biggest deal in the sector has seen AT&T, the US telecoms giant, agree to pay $85.4bn for Time Warner.
Other deals saw Comcast, the US cable giant, buy broadcaster NBC Universal in 2011 while Virgin Media, the UK cable operator, was bought for £15bn in 2013 by US cable tycoon John Malone’s Liberty Global.
Sky first received a takeover approach from News Corporation, the predecessor company to Fox, in June 2010.
That bid was also referred to Ofcom, which agreed to allow the deal to go through, provided Sky News was spun off into a separate company.
However, the following July, the bid was dropped following public anger at revelations that the News of the World had hacked the mobile phone of murdered teenager Milly Dowler.
News Corporation subsequently demerged into two businesses.
One, continuing under the name News Corporation, owns newspaper titles including the Wall Street Journal, The Australian, the New York Post, The Sun, The Times and the Sunday Times, the book publisher Harper Collins and some broadcasting assets, including commercial radio broadcaster Talk Radio.
The other company, 21st Century Fox, owns film and television assets around the world.
Its only UK assets at present are its existing 39.1% shareholding in Sky.
The Murdoch Family Trust owns the shareholdings in both companies of Rupert Murdoch, who is the executive co-chairman of Fox and executive chairman of News Corp.
Source: Sky News