Fox Sky bid set for further competition scrutiny
June 29, 2017
By Colin Mann
Karen Bradley, the UK Secretary of State for Culture, Media and Sport, has said she is minded to refer the bid by Fox to acquire the remaining shares in Sky that it does not already own to the Competition and Markets Authority (CMA), but will take representations until July 14th before making her final decision.
In a Statement, Sky said it would continue to engage with the process as the Secretary of State reaches her final decision. In the meantime, it welcomed Ofcom’s decision that Sky would continue to be a fit and proper holder of its broadcast licences under full ownership of Fox and would continue to operate its business as usual.
On March 16th, Bradley issued a European intervention notice, which asked Ofcom to report on two public interest considerations around Fox’s plans.
Specifically, Ofcom was asked to consider whether there would be sufficient plurality of persons with control of the media enterprises; and whether the parties would have genuine commitment to the attainment in relation to broadcasting of standards objectives.
Ofcom’s report finds that the proposed transaction raises public interest concerns relating to media plurality.
It identifies a risk of increased influence by members of the Murdoch Family Trust over the UK news agenda and the political process, with its unique presence on radio, television, in print and online.
Ofcom’s report says that it considers that these concerns may justify a reference by the Secretary of State to the Competition and Markets Authority.
Ofcom also has an ongoing duty to be satisfied that broadcasting licensees are fit and proper holders of a licence. This means that it can assess a licensee at any time, on its own initiative, as well as being able to respond to concerns raised by third parties.
It announced announced on March 6th 2017 that it would assess Sky’s fitness and properness to hold broadcasting licences in the event of this change of control, and do so within the same timeframe as completing the public interest report.
Ofcom has considered allegations of sexual and racial harassment at Fox News that are extremely serious and disturbing. “It seems clear that there were significant failings of the corporate culture at Fox News. In order to have a concern about fitness and properness, we would need to see evidence of misconduct in the parent company, Fox. However, we have no clear evidence that senior executives at Fox were aware of misconduct before it was escalated to them in July 2016, after which action was taken,” said Ofcom.
Ofcom has concluded that the overall evidence available to date does not provide a reasonable basis for it to conclude that, if Sky were 100 per cent owned and controlled by Fox, it would not be a fit and proper holder of broadcast licences. Its assessment finds that Sky would remain a fit and proper licence holder in the event of the merger.
As fitness and properness is an ongoing duty, it can re-examine our position if new evidence comes to light.
On the basis of Ofcom’s assessment, Bradley told the House of Commons that she is minded to refer to a Phase 2 investigation on the grounds of media plurality. She added that the parties have until 14 July to make representations before she reaches a final decision.
In her Statement to MPs, Bradley said that on the question of whether the merger gives rise to public interest concerns in relation to media plurality, Ofcom’s report was unambiguous.
It concludes, “The transaction raises public interest concerns as a result of the risk of increased influence by members of the Murdoch Family Trust over the UK news agenda and the political process, with its unique presence on radio, television, in print and online. We consider that the plurality concerns may justify the Secretary of State making a reference to the Competition and Markets Authority”.
“On the basis of Ofcom’s assessment, I confirm that I am minded-to refer to a Phase 2 investigation on the grounds of media plurality,” she said.
“The reasoning and evidence on which Ofcom’s recommendation is based are persuasive. The proposed entity would have the third largest total reach of any news provider – lower only than the BBC and ITN – and would, uniquely, span news coverage on television, radio, in newspapers and online,” she noted.
Ofcom’s report states that the proposed transaction would give the Murdoch Family Trust material influence over news providers with a significant presence across all key platforms.
“This potentially raises public interest concerns because, in Ofcom’s view, the transaction may increase members of the Murdoch Family Trust’s ability to influence the overall news agenda and their ability to influence the political process and it may also result in the perception of increased influence. These are clear grounds whereby a referral to a Phase 2 investigation is warranted – so that is what I am minded-to do,” she stated.
“There, is, however, a statutory process that I must follow. I am required by legislation to allow the parties the opportunity to make representations to me on this position before I reach a final decision. I will now do that and have given them until Friday 14 July to respond,” she advised.
Bradley said that the second question concerned whether after the merger the relevant media enterprises would have a genuine commitment to broadcasting standards. “Ofcom is unequivocal,” she reported.
It concludes, “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 licences 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 that may justify a reference by the Secretary of State to the Competition and Markets Authority”.
Ofcom’s approach sought to measure commitment to broadcasting standards by reference to breaches of regulatory codes. It found that Fox’s compliance with the UK’s Broadcasting Code is in line with comparable broadcasters. Nor did Fox’s compliance record in relation to overseas broadcast jurisdictions (where Ofcom’s analysis focused largely on the EU) give cause for concern.
Bradley also asked Ofcom to consider the effect of any failure of corporate governance on this public interest consideration. Ofcom did this in the context of its separate assessment of whether Fox and Sky would remain fit and proper to hold broadcast licenses following the transaction. It concluded that behaviours alleged at Fox News in the US amount to ‘significant corporate failures’. However, these did not in its view demonstrate that the merged company would lack a genuine commitment to broadcasting standards.
“In reaching a view I have to be guided only by the evidence before me. As such – based on the Ofcom report – I am currently minded-not-to-refer to a Phase 2 investigation in relation to a genuine commitment to broadcasting standards,” she advised.
As required by legislation, she is giving the parties an opportunity to make representations in relation to media plurality grounds – where she is minded to refer for a phase two investigation by the CMA. “In the interests of transparency and ensuring all the evidence has been considered, I will also invite wider representations on the question of commitment to broadcasting standards – where I am currently minded-not to refer for a phase two investigation,” she explained.
Parties responding to the consultation should not simply duplicate any representations previously made to Ofcom. Instead, responses should be limited to setting out any new and substantial evidence and any comment on Ofcom’s assessment.
“While there are strong feelings among both supporters and opponents of this merger, in this quasi judicial process, my decisions can only be influenced by facts, not opinions – and by the quality of evidence, not who shouts the loudest,” she advised.
The invitation to make representations will close on Friday 14th July and can be found on the DCMS website.
Bradley also advised that under the process set out in the Enterprise Act, it is open to the parties to propose undertakings in lieu of a reference to the CMA for a more detailed investigation. In other words, the parties may seek to avoid a Phase 2 reference by proposing remedies to address the public interest concerns that have provisionally been identified.
“The decision as to whether or not to accept undertakings in lieu is for the Secretary of State alone. However – and somewhat unusually – the parties proposed a set of undertakings to Ofcom and Ofcom commented on them in its report. The proposed undertakings centred around Fox maintaining the editorial independence of Sky News by establishing a separate Editorial Board – with a majority of independent members – to oversee the appointment of the Head of Sky News and any changes to Sky News Editorial Guidelines. They also include a commitment to maintain Sky branded news for five years with spending at least at similar levels to now,” revealed Bradley.
Ofcom’s view was that these remedies would mitigate the – serious – media plurality public interest concerns. They also suggested that the remedies could be further strengthened.
“The parties last week – without prejudice to my decision today, of which they only learned this morning – formally submitted undertakings in largely the same terms to me,” advised Bradley. “In accordance with the legislation, if I still intend to refer the merger after having considered representations from the parties, I am required to consider whether or not these remedies are appropriate,” she added.
“Given the parties have offered these undertakings, and Ofcom have commented on them, I have taken an initial view. I can confirm that I have, today, written to the parties indicating that I am minded-not-to accept the undertakings that have been offered.”
While Ofcom suggests that they mitigate its concerns, it is for the Secretary of State to decide whether they sufficiently mitigate – or ideally fully remedy – what are serious public interest considerations.
“I note that Ofcom’s report says ‘we recognise that behavioural undertakings can be difficult to monitor and enforced and that there are areas in which the proposed undertakings could be strengthened.’ It cites questions regarding ‘the ongoing arrangements for the appointment of the independent members of the Sky News Editorial Board and the period of Fox’s commitment to maintaining its investment in Sky News’. I also note the guidance of the Competition and Markets Authority which – in the context of competition cases, says that UILs are appropriate where the remedies are ‘clear cut… effective and capable of ready implementation’ and that, in ordinary cases, it is ‘highly unlikely to accept behavioural remedies at phase 1’,” she continued.
She has given the parties 10 working days – until Friday 14th July – to make representations on the minded-to decisions she has reached. “If I receive further offers of undertakings as part of those representations, I will keep the House informed on how I intend to structure the statutory process I must follow when considering them,” she advised.