Fox's Sky Deal: U.K. Regulator Cites "Risk of Increased Influence" of Murdoch Family in Review

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From left: Fox's Lachlan, Rupert and James Murdoch

Ofcom also mentions "significant corporate failure" at Fox News and discusses the proposed deal's fallout on Sky News.

U.K. media regulator Ofcom on Thursday published its report analyzing the fallout of the planned 21st Century Fox deal for pay TV giant Sky, as well as a separate report that concluded that Sky would remain a "fit and proper" U.K. TV license holder.

The reports led U.K. culture secretary Karen Bradley to conclude she was "minded" to recommend an extended review by the Competition and Markets Authority (CMA).

Ofcom's regulatory review focused on two public interest issue, namely the deal's effects on U.K. media plurality given that Rupert Murdoch controls Fox and newspaper company News Corp, which owns The Times and The Sun, as well as Sky's editorial output and standards. 

In a separate but overlapping report, Ofcom also looked at why Sky would remain a "fit and proper" license holder under full Fox ownership, which included an analysis of recent lawsuits against Fox News. 

Below, The Hollywood Reporter highlights some of Ofcom's key findings.

Murdoch Family Influence

"We have considered the influence of the Murdoch Family Trust over Fox, Sky and News Corp," Ofcom wrote. "While Fox and News Corp are separate companies, the Murdoch Family Trust has material influence across both companies."

It continued: "The proposed transaction would give the Murdoch Family Trust material influence over news providers with a significant presence on television, radio, printed newspapers and online. It would bring the largest U.K.-wide newspaper group and one of only three significant providers of television news under the material influence of the Murdoch Family Trust. The transaction would also expand the reach of important online news sources influenced by the Murdoch Family Trust."

The Ofcom report also said: "The transaction may increase the ability of members of the Murdoch Family Trust to influence the overall news agenda. There is a risk that members of the Murdoch Family Trust may seek to coordinate the editorial policy of news outlets under their influence by omitting certain news stories, highlighting others or using the same commentators in their newspapers and on television news. This type of coordination could weaken the editorial independence of Sky News and so give members of the Murdoch Family Trust greater influence over public opinion."

Market Power

"The combined Fox/Sky and News Corp would have the third-largest total reach of any news provider," Ofcom said in its report. "Across all platforms, news sources from Fox/Sky and News Corp would be used by three in 10 adults (31 percent). This reach is lower than the BBC’s (77 percent) or ITN’s (39 percent) but significantly higher than that that of the next biggest provider, Daily Mail and General Trust (DMGT) (17 percent)."

It also highlighted: "Fox/Sky and News Corp would also account for a large share of the news that the public consume. It would provide 10 percent of the U.K.’s news across all platforms, using Ofcom’s bespoke ‘share of reference’ metric, which measures the share of news consumption of individual providers. This share is behind that of the BBC (42 percent), in line with ITN (11 percent), and significantly ahead the next biggest provider, DMGT (4 percent)."

Sky News

"Sky News is a trusted voice for those who use it. We are more concerned about a transaction involving Sky News than we would be for a news provider with lower levels of trust," Ofcom said.

Editorial Standards and Fox News

"Fox’s and Sky’s compliance with Ofcom’s Broadcasting Code is in line with that of comparable broadcasters," Ofcom concluded. "The number of breaches of the Broadcasting Code by Fox is not exceptional when compared to Sky or similar broadcasters. Fox's compliance record in relation to overseas broadcast jurisdictions does not give cause for concern."

Ofcom further wrote that it has "significant concerns about the procedures that Fox News has in place to ensure compliance with our broadcasting code. We found that Fox News did not have adequate procedures in place to ensure compliance with our rules. Fox has put in place a new compliance process for Fox News with effect from [May 15, 2017]."

It concluded: "Corporate governance concerns do not raise issues about genuine commitment to broadcasting standards. The Secretary of State also asked us to consider the effect of any failures of corporate governance on this public interest consideration. We have considered alleged corporate governance failures in the context of our separate assessment of whether Sky would remain fit and proper to hold broadcast licenses following the transaction. We have concluded that the behaviors alleged at Fox News amount to significant corporate failure, however, the overall evidence available to date does not provide a reasonable basis to conclude that if Sky were 100 percent owned and controlled by Fox, they would not be fit and proper to hold broadcast licenses."

Conclusions

"In respect of the plurality consideration, the transaction raises public interest concerns as a result of the risk of increased influence by members of the Murdoch Family Trust over the U.K. news agenda and the political process, with its unique presence on radio, television, in print and online," Ofcom concluded. "We consider that the plurality concerns may justify the Secretary of State making a reference to the Competition and Markets Authority."

It continued: "In light of Fox’s and Sky’s broadcast compliance records, and taking account of our separate assessment of whether Sky remains fit and proper to hold broadcast licenses following the transaction, we do not consider that the merged entity would lack a genuine commitment to the attainment of broadcasting standards. Therefore, we consider that there are no broadcasting standards concerns which may justify a reference by the Secretary of State to the Competition and Markets Authority."

And Ofcom wrote: "We consider that the proposed undertakings offered by Fox to maintain the editorial independence of Sky News mitigate the media plurality concerns. We recognize that behavioral undertakings can be difficult to monitor and enforce and that there are areas, in which the proposed undertakings could be strengthened. The Secretary of State may accept the proposed undertakings if she considers that they are appropriate to prevent, remedy or mitigate the adverse effects arising from the plurality concerns."

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