New Bill O'Reilly Bombshell Puts Murdochs on Hot Seat

Jason LaVeris/FilmMagic
From left: Lachlan, Rupert and James Murdoch

Every new tidbit involving sexual misconduct at the conglomerate’s Fox News cash-cow could impact a Sky transaction.

After a flurry of newspaper reports led to the firing of Roger Ailes and Bill O’Reilly over sexual harassment claims stretched over many years at the Fox News Channel, the Murdochs may have thought they could begin to slowly put the issue behind them and focus on a pet project of theirs: the acquisition of the 61 percent of European satellite TV firm Sky that 21st Century Fox doesn’t already own.

So a New York Times revelation that O’Reilly had agreed in January to pay former Fox News contributor Lis Wiehl a whopping $32 million to settle claims he harassed her via unwanted advances and suggestive emails couldn’t have come at a more inconvenient time, many observers say.

While it’s “inconceivable,” as one analyst put it, that CEO James Murdoch would be damaged by Saturday’s lengthy story in the Times that has been echoed throughout the news media since, European regulators have yet to approve the Sky transaction and every new tidbit involving sexual misconduct at the conglomerate’s Fox News cash cow inches them closer to squashing the transaction.

“This only matters as it relates to the Sky acquisition. Sky is nicely accretive and clarifies capital allocation plans — bullish items for investors,” says Steven Birenberg of Northlake Capital Management.

Not only is a takeover of Sky seen as important to 86-year-old Rupert Murdoch’s legacy, but it would also represent a coup for James Murdoch and co-executive chairman Lachlan Murdoch, as it could lead to tremendous growth opportunities.

The Sky service, after all, not only reaches 56 million homes in Europe, but is also a prolific content business with rights to sports, including the NFL and various soccer leagues, and as a producer of original TV shows: three of the Top 5 shows on Sky 1 in the U.K. were Sky originals in 2015, for example.

Part of the conglomerate’s endgame strategy, says Brian Wieser of Pivotal Research, is to make Sky’s Netflix-like product in Europe a worldwide service that could compete even in the U.S. where Netflix easily dominates all other streamers of premium content.

“They don’t want to build a service like that from scratch,” says Wieser. “Do not underestimate the importance of this deal to the Murdoch family.”

Two months ago, 21st Century Fox pulled the plug on Fox News in the U.K. where Sky had carried it for a decade. While the company said it was due to lackluster ratings, speculation was that the real reason was to curry favor with regulators who weren’t impressed with the conservative political bent of Fox News and whose favor is needed if the Sky merger is to go through.

“Ultimately, the Murdochs would like to combine Sky News with Fox News. They’re not going to say that out loud, but they want a proper CNN competitor globally,” says Wieser.

O’Reilly has denied the allegations against him and called Saturday’s story in the Times a “smear piece” against him. Fox News notes that when it signed O’Reilly to a four-year, $25 million a year contract in February it was stipulated that he could be fired if new information emerged about harassment claims. The company dismissed O’Reilly several months prior to the Times story Saturday, though the piece damaged 21st Century Fox. Nevertheless, given the Competition and Markets Authority by spring is expected to bless the Sky transaction or recommend it be halted, the culture at Fox News can be a determining factor.

“This is not a small deal,” says Wieser. “It won’t take a lot to push the Sky deal over the edge. The littlest thing could make this deal a non-deal. The fact they gave O’Reilly a new contract this year begs the question as to why Fox didn’t dig deeper. What else was left unprobed?”

In a lengthy statement, 21st Century Fox said, in part, that it “has taken concerted action to transform Fox News, including installing new leaders, overhauling management and on-air talent, expanding training, and increasing the channels through which employees can report harassment or discrimination. These changes come from the top, with Lachlan and James Murdoch personally leading the effort to promote civility and respect on the job, while maintaining the company’s long-held commitment to a diverse, inclusive and creative workplace.”

But no matter what Fox News does or does not do, an American progressive watchdog group called Media Matters for America will be lobbying against the Sky transaction as it judges any improvements there as too little, too late.

“The Sky deal should not go through and I don’t think it will because of what has been born out by the Times,” says Media Matters President Angelo Carusone. “James needs to be held accountable. What the hell was he doing in the summer of 2016 through the beginning of 2017? He’d have known about Ailes and he was renegotiating with O’Reilly. He had no idea about any of this? That’s being very charitable."