Fox-Sky Deal: What Role Fox News Played in U.K. Call for Broader Review
The call for an in-depth review of the deal's impact on broadcasting standards, in addition to competition issues, adds "some degree of deal risk," says one analyst, while another still expects the deal to go through.
Fox News may not air in the U.K. anymore, but concerns related to the news network were among the reasons cited by British culture secretary Karen Bradley in explaining why she changed her mind on the next steps in the regulatory review of 21st Century Fox's planned deal to take full control of pay TV company Sky.
Instead of her initial plan to ask Britain's Competition and Markets Authority (CMA) to more closely analyze the deal's impact on competition only, Bradley had on Tuesday also called for a closer look at Fox's commitment to editorial standards, mentioning Fox News as one reason.
The conglomerate late last month abruptly stopped airing Fox News in the U.K., saying the long-running local feed was "not in our commercial interest" anymore. It cited the news network's small audience in Britain and its focus on the U.S.
Some observers at the time wondered if Fox's bid to buy the 61 percent stake in pay TV giant Sky that it doesn't already own played into the decision to shutter the Fox News U.K. feed. After all, despite its limited audience, Fox News often made headlines in the U.K., and media regulator Ofcom looked into several complaints against it and criticized the network for falling short of the U.K. TV code a few times.
Bradley mentioned new evidence and submissions from critics made over the summer that convinced her to push for an in-depth review of Fox's commitment to U.K. broadcasting standards based on past behavior. In doing so, she emphasized that she has the discretion to call for further scrutiny, also confirmed in her exchange with Ofcom, if potential public interest concerns are not "purely fanciful," even if Ofcom, as in this case, felt a more in-depth review wasn't warranted.
"The first concern was raised in Ofcom’s public interest report: that Fox did not have adequate compliance procedures in place for the broadcast of Fox News in the U.K. and only took action to improve its approach to compliance after Ofcom expressed concerns," Bradley told Parliament. In an exchange of letters with Ofcom, the latter confirmed it considered latest evidence and felt it raised "non-fanciful concerns," but said they were "not sufficiently serious" to warrant referral on these grounds to the CMA.
Referring to allegations of sexual and racial misconduct at Fox News, Ofcom wrote to Bradley: "There were alleged behaviors amounting to significant corporate failures which were very concerning. However, taking account of the nature of the failings, which did not occur in a broadcasting standards context, and the evidence before us of senior management efforts to rectify the situation, which included dismissal of those directly responsible, our judgment was that when taken together with the positive evidence of broadcast standards compliance, there were not concerns, which may justify a reference on grounds of the broadcast standards public interest consideration."
But Ofcom confirmed that Bradley could go against its advice, saying in another letter that it “recognizes that the legal threshold for referral is low [and] you may refer as secretary of state if there are any non-fanciful concerns."
Bradley did just that. "I consider that these non-fanciful concerns do warrant further consideration," she explained in Parliament. "The fact that Fox belatedly established such procedures does not ease my concerns, nor does Fox’s compliance history."
Bradley wrapped up her speech by further explaining her reasoning for going against Ofcom's advice and adding a closer review of the Fox-Sky deal's impact on broadcasting standards this way. "My proper concern is whether Fox will have a genuine commitment to attaining broadcasting standards objectives," she said. "However, I am not confident that weaknesses in Fox’s corporate governance arrangements are incapable of affecting compliance in the broadcasting standards context. I have outstanding non-fanciful concerns about these matters, and I am of the view that they should be further considered by the CMA."
Analysts said the additional review of the Sky deal's impact on broadcasting standards adds to the risks for Fox as it hopes to seal the deal.
"Although the referral on both [competition, or media plurality, and broadcasting standards] grounds will be reviewed during a simultaneous six-month period (and won't incrementally delay transaction review), the CMA 'standards' review does add some degree of deal risk," Telsey Advisory Group analyst Tom Eagan wrote in a report. "We are not concerned about Fox passing the media plurality test. The bigger concern is that additional actions occur related to Fox on-air talent and personnel during the CMA's six-month review process that impact their 'standards' assessment."
But Liberum Capital analyst Ian Whittaker was more optimistic. "The language from the culture secretary does not suggest this will be a major issue, and we still expect the deal to pass," he said. "The catalyst for her change of view here was the advice from media regulator Ofcom that, whereas before it was unequivocal that there was no need to refer the bid on broadcasting standards grounds, it now saw 'non-fanciful concerns' post-the representations from interested parties."
Whittaker also argued that Bradley's decision to push for a review of the Sky deal on broadcasting standards was not so much due to there being "a substantive issue." Instead, he said Bradley "wishes to cover herself from both a political angle ... and also legal" as the CMA's decision is less likely to be challenged successfully.
"Since it is likely that the CMA will refer back to Ofcom on these matters, it is hard to see, in the absence of any significant shift of opinion from Ofcom, why broadcasting standards will become a major factor" in the Sky deal review, Whittaker concluded.
Wells Fargo analyst Marci Ryvicker similarly wrote in a report: "We think this is more a political issue rather than a real question of Fox's commitment to broadcast standards." She called the expanded review "disappointing," but added: "We don't think Fox was surprised by today's statement. Nor do we think the Fox News 'issues' are really at play — Ms. Bradley is trying to disentangle herself from shouldering the responsibility of this deal, in our view."
In a sign that she may have succeeded in doing so, Tom Watson, the deputy leader of the opposition Labour Party, said Tuesday: "I think it’s the first time a minister in the current government has ever stood in the way of what the Murdochs want, and frankly not before time, so, well done."