BSkyB Gets Ofcom Nod as Murdoch Hacking Response Faulted

British Sky Broadcasting Group Plc (BSY) gained approval to keep its broadcast license, a U.K. regulator ruled, while criticizing board member James Murdoch’s reaction to phone-hacking revelations at News Corp., which owns 39 percent of the country’s biggest pay-TV operator.

“We consider James Murdoch’s conduct, including his failure to initiate action on his own account on a number of occasions, to be both difficult to comprehend and ill-judged,” U.K. media watchdog Ofcom said today. In the wake of the scandal, News Corp. Deputy Chief Operating Officer James Murdoch resigned first as chairman of News Corp’s U.K. newspaper arm and then as chairman of BSkyB.

News Corp. has been trying to move past a hacking scandal that erupted last year after reports that one of its U.K. newspapers accessed the voice mail of politicians, celebrities and a murdered teenager. Ofcom’s decision allows BSkyB to distance itself from the scandal at News Corp. (NWSA), said Claire Enders, chief executive officer of Enders Analysis, which advises clients including the U.K. government.

“This is a very clear distancing of BSkyB and its corporate governance from James Murdoch,” she said. “I don’t think the issues of the alleged behavior, criminal or otherwise, are going to be going away.”

Dropped Bid

News Corp. was forced to abandon its 7.8 billion-pound ($12.6 billion) bid to take control of Isleworth, England-based BSkyB last year as British politicians attacked the company’s fitness amid allegations that its employees had hacked phones and computers and bribed public officials.

“After a lengthy review process, we are pleased that Ofcom has now reached its conclusion and we look forward to continuing to develop our business,” BSkyB said in a statement.

Murdoch, who had previously also been CEO of BSkyB, oversaw News Corp.’s newspaper group while the company repeatedly denied that widespread hacking had taken place.

News Corp. said today that while it appreciates the decision to allow BSkyB to keep its license, allegations that Murdoch failed in his duties as a director are not backed by evidence.

“James deserves credit for his role as chief executive, then chairman and now non-executive director, in leading Sky to an outstanding record as a broadcaster, including its excellent compliance record,” News Corp. said.

BSkyB Takeover

Ofcom began examining whether BSkyB was suitable to hold the licenses last year. Should further relevant evidence become available in the future, Ofcom would need to consider that evidence in order to fulfill its duty, it said today.

Still, Ofcom’s interest in News Corp.’s control over BSkyB, and the potential to reopen the investigation if more evidence comes to light, could make it more difficult for News Corp. to make another attempt at buying all of the British pay-TV operator, said Claudio Aspesi, a London-based analyst at Sanford C. Bernstein.

The investigations are dragging on, with former News Corp. executives not slated to go on trial until at least next year. Police probes into phone hacking and bribery could last for at least another three years, Metropolitan Police Service deputy assistant Sue Akers said this month.

“Sky can try and will argue that ultimately they should not be held responsible for what one individual shareholder may or may not have done, irrespective of the final outcome of the criminal investigations and trials,” Aspesi said. “There is no guarantee that it will not view a larger stake in Sky as a decision to try to take control.”

Digging Deeper

BSkyB rose 1.1 percent to 735 pence in London trading as of 1:21 p.m. News Corp. yesterday gained 1.7 percent to $24.88 in New York.

On March 14, James Murdoch told U.K. lawmakers he should have dug deeper to uncover the phone hacking at News Corp.’s U.K. publishing unit. Murdoch has since moved out of the U.K. to News Corp.’s headquarters in New York.

“I could have asked more questions, requested more documents and taken a more challenging and skeptical view of what I was told,” Murdoch said at the time.

Murdoch told lawmakers in November that News of the World Editor Colin Myler failed to tell him in 2008 that phone hacking at the now-defunct tabloid was common. Myler and the newspaper’s lawyer Tom Crone have repeatedly insisted that they discussed evidence with Murdoch and that they told Murdoch in 2008 about an e-mail that showed phone-hacking was more widespread than initially assumed.

Saturday E-Mail

Murdoch has said he didn’t read the e-mail, sent on a Saturday, because he was probably preoccupied with his two small children at home.

Ofcom said today that “the evidence available to date does not provide a reasonable basis to find that James Murdoch knew of widespread wrongdoing or criminality at News of the World” or that he “was complicit in a cover up.”

A majority of British lawmakers on a committee concluded earlier this year that News Corp. Chairman Rupert Murdoch was not “a fit person” to lead a major international company after News Corp. officials misled Parliament about the extent of phone hacking at the News of the World. The tabloid paper was closed because of the scandal.

Murdoch “turned a blind eye and exhibited willful blindness to what was going on in his companies,” the House of Commons Culture Committee said in a May report that split lawmakers along party lines on critical findings.

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To contact the reporter on this story: Amy Thomson in London at athomson6@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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