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Factbox - Murdoch's Sky deal: the political and regulatory hurdles
December 13, 2016 / 5:09 PM / in 7 months

Factbox - Murdoch's Sky deal: the political and regulatory hurdles

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LONDON (Reuters) - Rupert Murdoch's Twenty-First Century Fox (FOXA.O) is racing to agree the final terms of a $14 billion (11.03 billion pound) takeover of European pay-TV company Sky (SKYB.L), triggering what is likely to be the start of a politically charged regulatory process.

The media mogul failed in a 2010/11 attempt to buy the 61 percent of Sky that his group did not already own when a phone-hacking scandal at his News of the World tabloid derailed the bid and reignited claims he held too much influence in Britain.

Below is an outline of the regulatory and political hurdles that a successful bid would need to overcome.

First Steps

If the terms are agreed, the British Secretary of State for Media, Karen Bradley, will have 10 days to decide whether the case triggers public interest concerns. Analysts and commercial lawyers expect Bradley to ask media regulator Ofcom to examine whether the deal would damage media plurality in Britain.

The European Commission will also be notified to see whether the deal could hinder competition. The Commission approved the deal last time it was proposed in 2010/11. Since then Sky has acquired Sky Italia and Sky Deutschland.

All-Conquering Murdoch

In 2011 critics balked at the prospect of Murdoch combining his Sun and Times newspapers with Sky's award-winning and politically neutral Sky News, forcing him to draw up a plan to put the rolling news channel into a separate company - a proposal that was accepted by officials at the time.

Since then the 85-year-old has split his group into two separately listed companies - with News Corp (NWSA.O) housing the newspapers and Fox the home of his TV business.

Critics will argue that Murdoch and his two sons James and Lachlan still run both firms. But Howard Cartlidge, head of EU and competition law at DWF, said Murdoch's move to split his two businesses had effectively created the same structure as the original plan to spin off Sky News.

"This is still the country's second-biggest commercial broadcaster being taken over by a company that has family ownership connections to the biggest newspaper publisher.

"There is still something to look at, but my sense is it would get cleared after an initial investigation."

Critics had warned in 2010 that Murdoch could integrate the newsrooms of his newspapers and Sky News, but the division between the two firms would prevent this now.

Broadcasters in Britain also have to abide by rules of "due impartiality and due accuracy" when providing news, meaning Sky News could not go down the path of Murdoch's Fox News channel in the United States and pursue a particular political agenda.

It's a New World

Murdoch executives will argue that the media landscape has changed enormously since they last bid for Sky in 2010, with social media and online news sites such as the Huffington Post, VICE and BuzzFeed all adding to the range of sources available.

Circulation figures for Murdoch's papers have also fallen in that time, with the Sun tabloid's circulation down about 44 percent and the Times down around 13 percent.

But there is no exact science behind how a regulator measures the provision of news, and in 2015 Ofcom said it considered social media sites such as Facebook to be aggregators of news, not sources, when measuring media plurality.

"It's difficult because, how do you measure it?" said a senior competition lawyer in London, asking not to be named due to company policy.

"How do you empirically evaluate and compare five minutes reading the newspaper with five minutes looking at Facebook or five minutes watching the News at Ten (TV bulletin)? It is about influence and credibility and it raises new questions."

Are They Fit and Proper?

As part of its role, Ofcom must ensure that holders of broadcast licences are "fit and proper" - and some politicians and campaigners have questioned whether Murdoch and his family fit the bill since the phone-hacking scandal exploded in 2011.

Murdoch has held a unique position in Britain in years gone by, with former prime ministers such as Tony Blair and David Cameron lining up to secure the blessing of the media mogul and the backing of his newspapers. Critics say this has given him too much say over public and political life in Britain.

The phone-hacking scandal prompted Ofcom to investigate whether Sky was still a fit and proper broadcast licensee due to its links to James and Rupert Murdoch. James Murdoch was at the time a former CEO and chairman of Sky while Rupert Murdoch was linked due to his role at biggest shareholder News Corp.

While it found that James Murdoch "repeatedly fell short of the conduct to be expected of him" during his time running News Corp's newspaper business, it did not conclude that he had deliberately engaged in any wrongdoing.

Sky was found to be fit and proper. The test is an ongoing requirement facing all broadcast licensees, and lawyers said they did not expect it to feature in any new Ofcom probe.

"Not being fit and proper means being a criminal or a dictatorial regime," said DWF's Cartlidge.

Political Persuasion

British Prime Minister Theresa May will be aware of the need to stick strictly to the rules if her government has to scrutinise the bid. But her government has also been championing foreign takeovers of British firms after the June Brexit vote as a sign that the "country is open for business".

Fox has already alluded to this, saying a deal for Sky would reinforce Britain's standing as a top global hub for content generation and technological innovation.

A person familiar with the situation said Fox was also weighing whether to commit to a pledge over jobs and investment, an approach that helped Japan's SoftBank (9984.T) win political backing in its bid to buy tech firm ARM.

Sky, which has 22 million customers, says it supports 130,000 jobs across its five European markets of Britain, Ireland, Germany, Italy and Austria, investing 5.2 billion pounds ($6.6 billion) in content a year.

($1 = 0.7859 pounds)

Editing by Pravin Char

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