Fox, Sky, Comcast, Disney: the endgame approaches

Before 2018 is out, Sky News will almost certainly be owned by one of three US media giants: Fox, Disney or Comcast. What can we learn from this protracted battle?

David Elstein
2 May 2018

Sky HD TV remote control. Chris Radburn/Press Association. All rights reserved.On May 1, the Competition and Markets Authority (CMA) sent its final report to the Secretary of State, Matt Hancock, on the proposed acquisition by 21st Century Fox (Fox) of the 61% of Sky plc it does not already own.

This bitterly contested acquisition has already spent 18 months in regulatory hell. The CMA verdict has not been published, and may not be revealed before Hancock reports to the House of Commons in mid-June with his own decision as to whether the bid has been cleared (and even that may require a final public consultation before being confirmed).

In the course of an inquiry by Ofcom, the media regulator, and two by the CMA, Fox has steadily enhanced its proposals for protecting the editorial and financial independence of Sky News – the key sticking point for the multiple opponents of the Fox bid, determined to prevent any possibility of Rupert Murdoch or his family extending their influence over UK media.

Not that any witness produced a single example, across 30 years, of the Murdoch family attempting to influence Sky News, whether their shareholding in Sky was 100%, 50% or (the current controlling) 39%. The issue has been essentially theoretical: what if?

Murdoch’s foes

A mass of evidence was offered, mostly from the US and Australia, casting doubt on Fox’s business and editorial behaviour: Fox News was seen as biased, racial and sexual discrimination were alleged, sexual abuse was itemised (as were previously secret settlements of lawsuits), corporate governance was weak, compliance processes inadequate, and so forth.

Much of the clamour came from long-term opponents of the Murdochs: The Guardian, The New York Times, politicians such as Ed Miliband and Vince Cable, and vociferous critics of past crimes and misdeeds – notably phone-hacking – such as Hacked Off and Avaaz.

The investigations fell under two headings: was Fox genuinely committed to observing high UK broadcasting standards, and would 100% Fox ownership of Sky run the risk of undermining media plurality to the detriment of the public interest?

On the first ground, both Ofcom and the CMA found no grounds for blocking the transaction (though Avaaz plans to challenge the Ofcom verdict through a judicial review: in my view, a challenge doomed to fail). But both were of the view that Sky News would need to be strongly ring-fenced with legally binding undertakings before they could feel confident that media plurality concerns could be allayed.

In the end, Fox came up with two options: a structure for Sky News that made it impossible for the Murdochs to have any influence (even as they guaranteed its finances for up to 15 years); or a sale of Sky News to Disney. Enders Analysis (whose excellent report on the issue has been made available to open Democracy readers at “Fox offers sale of Sky News to clear merger”) reckons that the CMA will plump for the Disney option as being clean and decisive. It seems to me that the CMA could approve both options, leaving it to the Secretary of State to express a preference. Either way, it is a racing certainty that the bid will, at long last, be cleared.

Comcast and broadcasting standards

In the meantime, the US cable company, Comcast (which also owns NBC and the Universal studio) has firmed up its intention to enter the bidding for Sky. The EU competition authorities will rule on the economic issues of the Comcast bid by the time Secretary Hancock pronounces on the Fox bid. However, there is a seemingly overwhelming case for Hancock to call for an Ofcom inquiry into the Comcast bid, at least on the grounds of whether Comcast is genuinely committed to high broadcasting standards (an intervention on grounds of media plurality seems less likely).

There is abundant material in the public arena about Comcast’s business and broadcasting behaviour, much of it echoing the charges made against Fox. The allegations range from abuse of dominant business positions, prevalence of sexual abuse within Comcast companies, race discrimination, gouging of cable customers (earning Comcast the soubriquet “Worst Company In America” from one consumer group), breaches of employment law and broadcast regulations, and breaches of promises to regulators (for instance, in provision of local programming).

After the careful and extensive investigation of similar charges made against Fox, it is hard to see how Hancock could not order at least a preliminary Ofcom inquiry into Comcast’s behaviour, unless he was willing to risk a judicial review. It costs him nothing, and potentially would allow him to seek behavioural undertakings from Comcast should that bid prevail against Fox (Comcast has already tried to match the guarantees with regard to Sky News offered by Fox, but have not yet fully done so: which might count against them, if regulatory approval turns out to be the decisive factor). 

Due impartiality

Meanwhile, Fox has commissioned a report on its Sky News undertakings from Ofcom’s first deputy chairman, and first chairman of its content board, Richard Hooper (peer-reviewed by another Ofcom veteran, Kip Meek). The ten-page document is available here and is well worth reading.

Hooper, like Enders Analysis, prefers the Disney route as “compelling and comprehensive in resolving all issues raised by the transaction”; but he shares my views that the alternative remedy, which combines behavioural and structural elements “would also sufficiently address the concerns raised by the CMA”.

That is entirely unsurprising. However, the Hooper paper is also worth reading for its strong criticism of Ofcom (and even more so the CMA) for suggesting that the Ofcom Broadcasting Code and the 2003 Communications Act did not provide Ofcom with sufficient powers to prevent breaches of the duty to observe due impartiality that is imposed on all Ofcom licence holders.

He cites a fine imposed on ITV in 2008 of £5.675 million for serious breaches of the Code: as far as Ofcom’s powers are concerned, he says, “£5.675 million would surely get the attention of shareholders were Sky News to breach the Broadcasting Code”.

I have written previously to express my dismay at Ofcom’s and the CMA’s utterly feeble approach to due impartiality in their respective reports. They feared that somehow the Murdochs might introduce their own opinions into Sky News programming without Ofcom being able to do anything about it (despite that being a clear breach of licence obligations, and illegal to boot). Even more bizarrely, they imagined this might happen without anyone noticing (begging the question as to how it could therefore be grounds for blocking the transaction).

It seems that neither regulator noticed that Sky News has for some time broadcast a weekly discussion programme entitle The Pledge, in which various strongly opinionated individuals debate current issues (the cast list includes Rachel Johnson, June Sarpong, Greg Dyke, Nick Ferrari and Carole Malone). Just because views are being expressed, within a reasonably balanced format, no-one would argue that Sky News is thereby in breach of its licence. Yet if Ferrari were to move from LBC (a radio station owned by Global Radio) to a station owned by News Corporation, would Ofcom intervene on the grounds that his “views” might coincide with those expressed in newspapers owned by NewsCorp (which is also 39% owned by the Murdochs)? Of course not. The entirely theoretical issues raised by Ofcom and the CMA were unworthy of a robust regulator.

Manipulating the news agenda

The other line of argument pursued by these regulators was that due impartiality could be undermined by manipulation of the news agenda. Again, one has to ask what the point of a regulator is if it cannot monitor the news agendas of its licensed broadcasters, assess them, and impose sanctions if it identifies abuse. Hooper rightly has no patience with this wimpishness.

He also draws attention to the increasing absurdity of the way we regulate broadcast media, whilst allowing the increasingly influential social media to convey views and outright lies to unsuspecting consumers. The Sunday Times this week called attention to a Swansea University study of thousands of Twitter accounts set up in Russia specifically for the purpose of influencing the last UK General Election (seemingly rather effectively, in being almost entirely devoted to boosting Corbyn and denigrating May).

Our broadcast media are tightly regulated and overseen during elections, to ensure not just accuracy but balance. That seems sensible: but then allowing free rein to social media only enhances their potential impact, with TV and radio so carefully and strictly neutered.

A worry used to be the relative freedom of newspapers to express views during elections: but research shows they had limited influence, partly because they had differing viewpoints, partly because readers ignored their coverage, and partly because readership of newspapers has been in near-terminal decline, compared with online offerings. Unless the UK feeds of Twitter and Facebook are shut down during elections – hard to imagine as a policy, let alone a deliverable one – we face the prospect of never again having a free election.

Hooper’s take on this is instructive: “energy and resources are going into this issue [media plurality and due impartiality] at a time when internet content providers including social media platforms are not sector-regulated at all in the UK. Given the power of the internet to influence opinions in a parliamentary democracy – a percentage of those opinions appearing sadly to be malign and harmful – the sector-regulated broadcasters...can fairly complain of unfair and uneven playing fields...are we in danger of fiddling while Rome burns?”

A knock-out bid

Much of the heat about the Fox bid for Sky has died down since Disney announced its intention to buy most of Fox, including Sky (should the Fox bid succeed). The Comcast bid would take the Murdochs out of the picture entirely. However, the way that bid is framed makes it vulnerable to a higher offer from Fox. Comcast’s £12-50 bid for each Sky share (it would be happy to stick with 50% plus 1 if Fox and other shareholders declined to sell at that price) is described as “non-dilutive” of profits, largely as a result of $500 million of putative annual cost savings.

Given that there is virtually no overlap between Sky and Comcast’s existing businesses, it is hard to see where those savings might be achieved. However, if Fox – for whom Sky is absolutely a strategic asset – were to bid, say, 15% above the £12-50 (which works out at £14-30), Comcast shareholders would start asking why ownership of Sky is worth diluting their dividend flow.

Fox will clearly not win this contest with its original £10-75 per share offer. A knock-out bid whilst Comcast is still dealing with regulatory issues looks like the right strategy. Six months ago, in a previous article, I suggested that Sky shares at just over £9 looked under-valued.

Where is that substantial overhaul?

Campaigners against the original Fox bid will duly claim a victory at the end of this process: the future of Sky News will be guaranteed, and the Murdochs – by choice and by force – will have no say over its output. However, that process has been exposed as far too political in its nature, far too complex and far too slow, whilst revealing the inadequacy and ineptitude of our regulators.

Those who bought Sky shares at the right price look likely to have a bumper payday. By contrast, those who once floated the notion that ITV plc might be bought by some deep-pocketed US media enterprise may have to think again: ITV is the UK’s second-biggest supplier of television news, and the hazards of a seemingly inevitable regulatory inquiry will surely put most buyers off. Ministers and regulators constantly tell us that our media plurality regime needs substantial overhaul. Given the flow of unintended consequences arising from the present regime, it is hard to argue with that view: so why are we still waiting?

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