Sky, the British satellite television giant, has been a most elusive crown jewel for the Murdoch family.
The last time a company led by Rupert Murdoch tried to acquire Sky, it was News Corporation, and the deal was abandoned amid a phone hacking scandal. Now, Murdoch, the executive co-chairman of 21st Century Fox, and his sons James and Lachlan are again vying for control of the 60.9 per cent of Sky shares that 21st Century Fox does not already own.
And again there are calls for British regulators to consider a scandal, this one involving sex harassment allegations at Fox News Channel in the US that led to the ousters of Roger Ailes, the network’s longtime chairman, and Bill O’Reilly, its top star.
Britain postponed its regulatory review of 21st Century Fox’s proposal to take full control of Sky until after the country’s general election in June. The regulator, the Office of Communications, or Ofcom, is reviewing the potential effects of the potential acquisition on competition in the media industry and also assessing whether the combined company would be “fit and proper” to hold a broadcasting licence.
The government cited a shifting political timetable as the reason for the delay. Prime Minister Theresa May issued a surprise call for early elections to be held June 8. When a general election approaches, officials enter a period known as purdah, during which they avoid announcements that risk influencing the outcome of the coming vote.
But the sexual harassment scandal at Fox News has cast a shadow over the British review, and vice versa. Critics of the Murdochs have been eager to draw the connection.
In a letter to Ofcom last week, Lisa Bloom, a lawyer representing Wendy Walsh, one of O’Reilly’s accusers, wrote that “the similarities between the current harassment scandal and the phone-hacking scandal reveal the company’s approach to business and management — a lack of oversight, intervention, and decency.”
In its own letter to Ofcom, Color of Change, an activist group that promotes racial justice, called 21st Century Fox “a company with a deep-seated culture of systemic racial and sexual abuse.”
Claire Enders, founder of Enders Analysis, a media and telecom industry research company in London, said it was “inconceivable” that O’Reilly’s departure was unconnected to the scrutiny surrounding the takeover.
“I am sure that Ofcom has asked questions about every single misconduct issue anywhere in the world, and above all in the US,” she said.
Enders and other analysts believe the deal will ultimately be approved, but it is also clear that Sky is an asset the Murdochs do not want to risk losing out on a second time. That appears to be particularly true of James Murdoch, who is the chief executive of 21st Century Fox and the chairman of Sky.
“It will set up his future as a chief executive officer,” Enders said.
Sky is both a giant cable and broadband provider in Britain and a producer of shows like ‘The Young Pope’, the Jude Law vehicle that Sky developed with HBO and Canal+. It has divisions in Italy and Germany and deals with Britain’s Premier League and the Bundesliga soccer league in Germany. Its Sky Atlantic channel has rights to US hits like ‘Game of Thrones’.
From a business perspective, the timing of the deal is good.
Sky has a reasonable valuation, and it has become highly profitable. It also has direct experience with consumers that 21st Century Fox lacks, as a provider of cable and broadband services and through NowTV, its rival to Netflix. That expertise is valuable at a time when many consumers are abandoning bundled cable offerings.
“A generic problem for a lot of media companies everywhere, in the UK or the US, is, how do you crack the direct-to-consumer nut?” said Thomas Singlehurst, an analyst at Citigroup. “And here is a company that has been doing it very successfully, and that’s part of the consideration alongside the cheap valuation, the weak sterling, and the fact that the group just throws off a lot of cash.”
Singlehurst said he expected that the government would ultimately approve the deal.
“At the end of the day, you do have to have proper evidence of something that has gone wrong, and that evidence has to have been provided definitively one way or the other, most likely in a court of law,” he said.
With the fit-and-proper test, Ofcom is trying to determine whether the people who would be running the company are fit to do so. While relatively rare, the test is familiar to the Murdochs. The last such review by Ofcom began in 2011, and also examined the fitness of Sky, then called British Sky Broadcasting, amid a bid by News Corporation to acquire full control of the company.
News Corporation has since split into two companies, including 21st Century Fox. Sky ultimately passed the review, but James Murdoch was criticised in Ofcom’s report for mishandling the hacking matter, and the proposed acquisition was abandoned.
Ofcom, which is independent, will provide its latest report to Karen Bradley, the British minister for culture, media and sport, who will decide whether to abide by its recommendations. Bradley, who previously called for the competition review to be completed by May 16, said in a statement that she was extending the deadline to June 20 “given the proximity of this decision to the forthcoming general election.”
It is not even certain that the review of the pending Sky deal would encompass actions that have taken place in the US.
“We’ve been listening to a range of views around what we should consider relevant to the current ‘fit and proper test’,” said Joe Smithies, a spokesman for Ofcom.
Speaking generally, Smithies added: “We have an ongoing duty to be satisfied that holders of our broadcasting licences are fit and proper, and that duty is a legal obligation from the Broadcasting Act, and it’s something we take very seriously.
“In considering whether any licensee is fit and proper, we would take into account any relevant misconduct of those who manage and control a broadcast licensee,” he said.
Tom Watson, the deputy leader of the opposition Labour Party, said in a statement that it was “important that full and proper process is followed in the assessment of this bid.”
“I have consistently argued Ofcom must consider the serious and systemic corporate governance failures at Fox as part of its inquiry into whether the company should be allowed to take full control of Sky,” he added.
A spokeswoman for 21st Century Fox pointed to previous statements by the company. One said the company was “confident that the proposed transaction will be approved following a thorough review process”; a second said that the company “takes its regulatory and compliance obligations very seriously. We have a strong record of compliance in all our markets, including in the UK.”
— New York Times News Service
