Fox/Sky: more twists and turns

The 21st Century Fox bid to buy the 61% of Sky it doesn’t own has provoked a formidable level of opposition. Will that count when push comes to shove?

David Elstein
16 November 2017

Culture Secretary Karen Bradley in the House of Commons, explains she intends to refer 21st Century Fox's £11.7 billion bid for Sky to the competition regulator for further investigation, September 2017.Press Association image. All rights reserved.Who would want to be a media regulator? The whole idea of cross-media regulation is bedevilled by confusion. The 2002 Enterprise Act had built into it two separate definitions of “sufficient plurality” (the condition that needed to be protected to avoid a media merger being blocked): plurality of viewpoints in relation to newspapers, and plurality of ownership in relation to “media enterprises” (the legal definition of broadcasters).

Why was this? There was a simple explanation: newspapers regularly present viewpoints, but broadcasters are regulated in the UK, with providers of news and current affairs content required to observe “due impartiality” and “due accuracy”, under the terms of Ofcom’s Broadcasting Code. They are not allowed to express their own views, except in very narrow circumstances (so the BBC is allowed to defend its funding mechanism on its own channels). It follows that, legally, there could not be a plurality of viewpoints in broadcasting. What is required is a sufficiency of the number of owners: a definition seen as a surrogate for plurality where viewpoints as such are banned.

This muddle has been further confused by Ofcom, which has introduced into consideration a version of “viewpoints in broadcasting”: it argues that the absence of any definition of an appropriate news agenda means that a would-be purchaser of a media enterprise could be blocked for fear of their manipulating the agenda of a news service.

As I will show later, this concept is a mirage, but that has not stopped Ofcom smuggling the phrase “sufficient plurality of viewpoints in media enterprises” into the assessment process for the Fox/Sky bid, with the CMA now following suit.

This week, the CMA has published a transcript of its first “expert round table” on the bid: that on media plurality (another on broadcasting standards will follow shortly). I was part of the first group of “experts”, and found the 3-hour session extremely interesting.

The review by the Competition and Markets Authority (the UK’s senior competition regulator) is what is known as stage 2 of the inquiry into this proposed merger, triggered by Secretary of State for Culture, Media and Sport, Karen Bradley, in September, after several months of scrutiny by the media regulator, Ofcom, whose inquiry was requested by Bradley, using her powers under the 2002 Act – media plurality being the only part of competition oversight of UK transactions of this size not reserved for the EU authorities.

Ofcom had recommended a reference to the CMA on the grounds of the bid possibly being against the public interest in terms of media plurality, but had cleared the bid on another possible test: the extent of Fox’s commitment to high broadcasting standards.

Nonetheless, Ms Bradley decided to refer the bid on those grounds, too – an unusual exercise of her discretion, given that the CMA’s threshold for blocking the transaction at this second stage is that it would be likely to harm the public interest (the Ofcom threshold at the first stage was simply that it might have that effect). If the bid had not crossed a low threshold test, why would it be deemed to cross a higher one?

Opponents of the bid simply complained that Ofcom had not done its job properly, effectively inviting the CMA to declare the UK media regulator incompetent.

Perhaps Ms Bradley has calculated that these opponents will only give up on the broadcasting standards front if a six-month investigation by the CMA (rather than the shorter Ofcom process) settles beyond further argument the issue of whether Fox can be trusted as the owner of Sky News.

The CMA operates with a high degree of transparency: submissions to it are published on its website, along with the round table transcripts. For serious students of these matters, perhaps the first port of call is the issues statement the CMA published in October. And perhaps the two most notable passages in this document are the “theories of harm” postulated: a reduction in the number of “viewpoints” within media enterprises, and/or an abuse of ownership of Sky News so as to influence unduly (however that is measured) public opinion. Essentially, the CMA is relying upon two misconceptions fostered by Ofcom. Essentially, the CMA is relying upon two misconceptions fostered by Ofcom.

The first, in relation to “viewpoints”, assumes that Sky News might, after the transaction, adopt the viewpoints of one or more of the newspapers in which the Murdoch Family Trust (hereafter MFT) has a 39% interest (through NewsCorp). As any first year media student could tell the CMA, this is a particularly silly hypothesis.

The NewsCorp newspapers have different editorial attitudes to different subjects. The Sunday Times is pro-Brexit; The Times is anti-Brexit. Even if Sky News adopted one or the other “viewpoint” (which, of course, it is not allowed to do, as it would lead to suspension of its broadcast licence), in what measurable way would that constitute a reduction of the number of viewpoints available to the UK audience?

The whole speculation is typical of the media illiteracy displayed by Ofcom. The Times and Sunday Times carry editorial columns from a very wide range of contributors – from the left and the right, from Leavers and Remainers, from climate change campaigners and climate change sceptics, from former advisors to Tony Blair, John Major, David Cameron and from other assorted political figures – in short, from multiple “viewpoints”. If Sky News were to invite any of these regular columnists to become a regular broadcaster (assuming they had any broadcasting skills), there would, even theoretically, only be a reduction in the number of viewpoints available to the UK audience if Sky News currently had a viewpoint (which it is not allowed to have!) and abandoned it. This is beyond parody.

As it happens, a regular presenter on Sky News is Ian King, a former economics editor of The Times, and a regular columnist for The Sunday Times is Adam Boulton, former political editor of Sky News and still a regular presenter there. Can Ofcom tell us if this has led to a measurable reduction in viewpoints available to the UK public? This is all nonsense, and the theory of harm based on a reduction of the number of viewpoints has no conceivable value.

The alternative theory of harm – stemming from a possible lack of commitment by Fox to UK broadcasting standards – relates to what critics call the Foxification of Sky News: a deliberate transformation of the current service into a version of Fox News.

Put aside the fact that the MFT has had multiple opportunities to convert Sky News to an imitation of Fox News, but has never done so; that it has actually broadcast Fox News in the UK for more than a dozen years (to tiny audiences, and to zero economic effect) before abandoning it this autumn; and that Sky News is much admired in the UK, whereas Fox News is much reviled: what is the evidence that Rupert Murdoch or the MFT nurse an ambition that is at such odds with their business interests?

10 years ago, during a visit by a House of Lords media committee delegation, including Steve Barnett, Professor at Westminster University, Murdoch made a throwaway remark that he would have liked to make Sky News more like Fox News, but that “his people in the UK” would not listen to him. In all solemnity, this remark was trotted out at the expert round table I attended (you can find it in the transcript) by two people who should know better, the estimable Stewart Purvis and Suzanne Franks.

Anyone who was worked at any senior level at Sky (I did four years as Head of Programming) will tell you that no-one survives who opposes something that Rupert Murdoch really wants to do: several chief executives who have fallen by the wayside will testify to that. If, ten years after apparently stating his preferences, he still hasn’t changed Sky News, it is surely more likely that he knows it would be a mistake than that he has been thwarted for a decade.

Stewart went on to offer the CMA team his own “theory of Murdoch”: the establishment of a right-of-centre broadsheet newspaper, alongside a raucous popular tabloid and an opinionated news channel – a pattern he identified in the US and in Australia, and now potentially in the UK. Alice Enders (of Enders Analysis) gently deflated this conceit, pointing out that Sky in the UK is a family-friendly platform business, very different from Fox News in the US, which is primarily dependent on advertising revenue (you can read what she said in the transcript).

She omitted to point out that Murdoch’s “popular tabloid” in the US is read by 0.2% of US adults – it is not even the most popular tabloid in New York (its sole circulation centre), and has zero political influence. It is impossible to take such a flimsy “theory” seriously, but opponents of the bid have no reason to hold back any objection.

Inevitably, the supposed intention to Foxify Sky News turns up in the extensive Avaaz dossier that can be found on the CMA website, along with virtually every other fact or rumour that might serve to discredit Fox and the Murdochs (however irrelevant to the issues involved in the transaction). Even a daft edition of Panorama, which surmised that a company indirectly connected with Murdoch – NDS – did something to undermine ITV Digital many years ago is solemnly cited (ITV Digital was effectively bankrupt at the time, and even if NDS had done what was alleged, it would have made virtually no difference to ITV Digital’s fate, which had been sealed before it launched when UK regulators barred Sky from joining the venture).

Avaaz seems convinced that a bunch of payments by Fox News executives and presenters to settle lawsuits alleging sexual misbehaviour should be grounds for Fox itself to be declared not “fit and proper” to operate Ofcom broadcast licences in the UK.

Yet on those grounds, the BBC would have lost all its broadcasting licences long ago: its own internal inquiry established that up to 100 women and children had been abused, assaulted or raped over a period of four decades on BBC premises by presenters hired by the BBC to make BBC programmes. Anything that happened at Fox News (whether or not tolerated by management) pales into insignificance by comparison.

Oddly, one of the Fox corporate scandals barely mentioned in evidence by Avaaz was the massive overpayment by Rupert Murdoch for his daughter’s production company, which led to a lawsuit from Fox shareholders, an abject apology from the non-Murdoch directors of Fox for failing to resist the deal, a promise to reform corporate governance procedures, and the payment of hundreds of millions of dollars to shareholders in compensation.

Perhaps this was skirted round because the impressively substantial Avaaz dossier depends upon a fragile theory: that the MFT, through its 39% shareholding, has complete control of Fox (and is therefore responsible for all its documented wrongdoings), but that Fox, despite its 39% shareholding, does not have complete control of Sky (because, if it did, the merger would make no difference and there is no basis for opposing it).

Even the Secretary of State, in her response to the Ofcom findings, managed to fumble this point, arguing that the MFT only had 15% control of Sky (39% of Fox’s 39%). This made no sense. If 39% gave the MFT effective control of Fox, that control would not be diluted when the Fox shareholding in Sky was exercised. So Avaaz have to theorise that 39% control of Sky is somehow very different from 39% control of Fox: not easy.


Campaigners from Avaaz dressed as Prime Minister Theresa May and Rupert Murdoch take part in a demonstration outside the Houses of Parliament, London, June, 2017. Dominic Lipinski/Press Association. All rights reserved Of course, the CMA could settle these issues very easily. It is a criminal offence to give false evidence to a CMA investigation. All the CMA has to do is to ask Sky management to identify a) the number of times in the last ten years that Fox or the MFT has tried to influence the editorial policy of Sky News; and b) the three most important issues on which the Fox directors on the Sky board have argued for a strategy that the board as a whole opposed and declined to implement. At last we would have a definitive answer to these fascinating questions!  

Another Ofcom misconception

It is time to examine the second of Ofcom’s misconceptions: that potential manipulation of the news agenda might subvert the provisions of the Broadcasting Code. How Ofcom arrived at this notion stems from two separate developments.

The first has been the advent of news services originating in foreign countries (and sometimes controlled by foreign governments) which have secured Ofcom licences to broadcast in the UK. As quickly became apparent, it proved impossible to hold these non-UK originated services to the same standards as those applied to domestic news providers.

Ofcom finessed the issue by defining the “due” in “due impartiality” as – effectively – “judged against the context of the way in which news is reported in the originating country”. So the likes of Al Jazeera, RT and Fox News were given much greater latitude than might be accorded to Sky News – a not wholly unreasonable approach, if we think how Sky News itself might be judged by, say, Russian regulators.

Of course, these overseas services still from time to time fell foul of the Ofcom broadcasting code, either by displaying blatant bias, or through inaccuracy, or – as happened more than once with Fox News before the service closed in September – through a failure to edit out for UK transmission segments of advocacy or opinion which had been included in the original domestic feed without breaking any domestic broadcast rules.

Opponents of the transaction argue that the MFT might push Sky News in the direction of the services originated overseas, exploiting the latitude that Ofcom appears to allow these non-domestic channels. What this fear ignores is that Ofcom has been consistent in its treatment of each group of channels, domestic and non-domestic, and there is no sign of that changing. Moreover, if Ofcom were to allow Sky News to change direction, the problem would surely lie with the legislation and the regulator: why should the CMA be expected to solve that problem, especially pre-emptively?

Ofcom has tried to by-pass its uncertainty as to how to enforce its broadcasting code by raising a second issue, that of news agendas, and turning them into a proxy for “viewpoints”. All news organisations have news agendas. Input news editors have resources to deploy, and must make decisions about where to allocate them. Some resources are pre-allocated. All domestic UK TV news channels have one or more bureaux in the United States, so stories emanating from there will always take precedence over stories from Asia, South and Central America, Canada, much of Europe and most of Africa.

Output news editors will also have choices to make. The main correspondents at their disposal will have their own preferences as to what they want to cover, and then there will be “breaking” stories that require decisions: do we rely on coverage by agencies (PA, AP, AFP, Reuters, etc) or do we supplement or even replace that coverage?

What is clearly false is any idea of a “tabula rasa”, or a “natural” or “automatic” news agenda. News bulletins in different countries will have very different running orders, and may overlap only at the margins, if at all. News bulletins from public service broadcasters in the same country will also have significant differences, thus begging the question as to how anyone would know when a news agenda was being “manipulated” as opposed to being set and managed by the broadcaster’s news staff.

In an exercise that the CMA could easily replicate from a dozen university media departments during its current investigation, I decided to monitor the main news bulletins of the BBC, ITV and Channel 4 for the fifteen weekday evenings after the first round table on October 23. The detail can be found in this link.

Averaged across the three weeks, 70% of all news items (42% of news bulletin transmission time) consisted of stories only one of the three news broadcasters deemed worthy of including in the top stories of the day. On only 5 of the 15 days did the three bulletins lead with the same story; on 4 days they each led with a completely different story.

Experience tells us that newspapers frequently differ as to which story to lead with on any day, sometimes because they do not agree on which story is most important, and sometimes because they wish to give prominence to a story on which they have an angle of special  interest to their readers. So not only should it not surprise us that TV news broadcasters also differ as to their news agendas: it is arguably valuable for the democratic process to have such disagreement.

That the three clients of ITN (ITV, Channel 4 and Five) look for distinctiveness in their news output, and that a single news supplier feels able to oblige, is probably a strength of the system. Indeed, perversely, it might be argued that a domestic news service whose news agenda was a mirror-image of that of Channel 4 News (clearly left of centre) might increase the number of viewpoints available to UK audiences.

The fact remains that, provided an Ofcom-licensed news service observes the rules regarding due impartiality and accuracy in individual news stories, it would be extraordinarily hard to identify a news agenda which was actually transgressive (indeed, if it were demonstrably transgressive, it would presumably be open to sanction). It follows that any assessment of the Fox bid that relies upon a theory of harm positing abuse of the news agenda is fatally flawed. Any assessment of the Fox bid that relies upon a theory of harm positing abuse of the news agenda is fatally flawed.

It is, of course, imaginable that the opposite might be argued: given the difficulty of proving any harm resulting from manipulation of the news agenda,  perhaps any transaction that runs such a danger should be banned, even if the feared outcome happens neither to be illegal nor contrary to the broadcast code. How such a policy could be pursued without our competition regime falling into disrepute is hard to see.

So the CMA’s second “theory of harm” is essentially speculative: that the MFT harbours a desire to manipulate the news agenda; that any evidence to the contrary (however substantial) must be ignored; that the MFT currently lacks the ability to carry out its assumed ambitions; that the transaction will confer such ability on the MFT; and that Ofcom, the 2003 Act and the Broadcasting Code are powerless to prevent the feared manipulation – in other words, that such behaviour would be legal and code-compliant.

Impossible irony

Given the difficulty of demonstrating that a news service had manipulated the news agenda (assuming it had indeed consciously done so), the further difficulty of demonstrating that such manipulation differed in kind and seriousness from the continual variations in news agendas, and the problem of deciding whether to penalise such a manipulation (assuming it could be demonstrated), the CMA must surely abandon this “theory of harm”; otherwise, the same theoretical objection could be raised to prevent any change of ownership of any media asset that includes a news service.

If such a wholly insupportable approach to merger policy were to be adopted by the CMA, the inevitable result would surely be that any possible transaction would be preceded by a closure of the news asset, if that were in the power of one of the merger parties. That such a merger policy might be adopted in the name of sustaining media plurality is surely an impossible irony to embrace.

Yet that is precisely the situation that now prevails. In a brief response to the CMA’s statement of issues, the directors representing the 61% non-Fox Sky shareholders have made crystal clear that the CMA cannot assume the continued existence of Sky News absent the proposed transaction. If the continuation of Sky News were to inhibit the current, or other, valuable transaction that the 61% wished to pursue, the 61% would ensure removal of the inhibition.

Some observers have mistaken this threat as emanating from the Murdochs: they, of course, have nothing to do with it (unless you take the view that they already control the 61%, in which case there can be no point in resisting the merger). As it happens, the representatives of the 61% made the identical threat in 2010, but did not pursue it, because the 2010 NewsCorp bid was withdrawn, not rejected.

A second mistake would be to treat this threat as empty, on the assumption that the news service delivers so much brand value to Sky (even if at significant cost). The fact is that Sky News has always been an indulgence driven by Rupert Murdoch’s attachment to the service: an attachment not felt by the 61%.

In the expert round table – as readers of the transcript can verify – I warned the CMA that the Murdochs might eventually lose patience with their UK critics, and UK regulatory procedures, and close Sky News, given how little credit they are given for launching the service, financing it (especially after the creation of a 24-hour BBC news service rendered it permanently unprofitable) and maintaining its high standards. After all, if this gift horse is constantly having its mouth examined, perhaps it would be better to remove the cause of resentment (I should have included in my comments to the CMA that in 2010 it was the 61% who threatened closure of Sky News, not the Murdochs).

Behavioural remedy

What does all this mean? The CMA is effectively being told that, if it blocks the merger because it might damage media plurality (on the narrow grounds of it causing a technical reduction of plurality, and thereby leaving “insufficient” plurality in the provision of news) or damage the quality of Sky News (the primary fear of those claiming Fox is not fully committed to UK broadcasting standards), then Sky News will be sold or closed, and the merger re-instated, with no further bar to its implementation left standing.  

In terms of the current process, the CMA could attempt to impose what is called a behavioural remedy on the MFT, in the form of written promises guaranteeing the editorial independence of Sky News. These were already volunteered to Ofcom by the merger parties in stage 1 of the investigation, but were rejected as inadequate by Karen Bradley at the end of that stage.

The parties are under no obligation to repeat those promises at stage 2, let alone accept more onerous obligations, should the CMA request them. The advantage for them of the note from the Sky 61% is that the prospect of imminent closure of Sky News – clearly not a desirable outcome for the CMA – makes it easier for the parties to decline, if now sought, any behavioural remedy, thereby leaving the CMA with two choices: clearing the bid, and saving Sky News (leaving to the continuing oversight of Ofcom the task of dealing with any subsequent changes, if any, to the output of Sky News); or making divestment of Sky News (the only structural remedy seemingly available to the CMA) a condition of the merger.

As the prospect of a sale of Sky News is remote (it loses tens of millions of pounds a year, and would anyway only be sold without the brand name), that essentially invites the Sky 61% to close Sky News and await a new offer from Fox.

Twists in the tale

What are the likelihoods here? It seems almost certain that the merger will go ahead, one way or another, during the course of 2018. Whether Sky News survives the process is effectively up to the CMA. As in 2010/11, the die-hard opponents of the merger will have to be satisfied with their pound of flesh, in that a closure will at least deprive the MFT of the chance to ruin Sky News (though there is nothing to stop Fox, after the merger, from applying to Ofcom for a licence for a news service, perhaps even using the Sky brand).

Curiously, professional investors seem to doubt this outcome, perhaps because they have seen so many obstacles thrown in the way of the deal that they expect some as-yet-unforeseen event to derail it. Otherwise, the prospect of a guaranteed 20%+ capital gain in barely 8 months would make Sky shares at their present price seem an irresistible bargain.    

Another twist in the tale is the report that Disney approached Fox recently with a view to buying much of their content business – the movie studio, TV production, the entertainment channels and – yes – the 39% of Sky, leaving behind the sports and news channels.

In theory, such a transaction would provide the Murdochs with enough cash to re-unite those remaining channels with the print businesses in NewsCorp (owners of the UK newspapers), and perhaps even take the whole entity private again (the MFT owns 39% of the publicly listed NewsCorp).

Reportedly, Disney bid a lot less than might have interested Fox, and the issue has been parked, but those who theorised that this somehow changed the dynamic of the Sky bid are probably wrong: if Disney bought the Sky stake, they would certainly want to complete the deal, and would be entirely relaxed about closing Sky News if that became a requirement.

The CMA will publish its preliminary findings in mid-December, no doubt triggering another wave of submissions and arguments, with their timetable calling for a recommendation one way or another by mid-March. If it clears the deal, the chances of Avaaz and other opponents mounting a judicial challenge will be low, and completion of the transaction by June remains possible. If the CMA rejects the deal, the merger parties will not bother with any appeal, but will simply close Sky News and re-start the process, this time with no option for political intervention.

That might add another three months to the timetable: what cannot be predicted is whether Sky News will survive beyond that time. Even the CMA panel – wholly independent, and with no political dimension – may find it hard to ignore the sheer volume and passion of the opposition arguments, and give the bid a green light, unencumbered by conditions. If it does, the ball would be back in Ms Bradley’s court: it is hard to see her rejecting the CMA’s verdict, and becoming personally responsible for closing Sky News. But she has surprised us before.

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