Murdoch’s New Sky Try Counts on Changed Empire, Brexit Effect

Updated on
  • Critics of News Corp. 2010 bid call for scrutiny of new offer
  • News Corp. split followed scandal over U.K. phone hacking

Rupert Murdoch

Photographer: Jonathan Alcorn/Bloomberg

The last time Rupert Murdoch tried to take over European pay-television provider Sky Plc, his company’s missteps scuttled the deal. Six years later, as the tycoon makes another attempt, he’s counting on changes that have reshaped his media empire and U.K. politics as well to smooth the way.

Since 2010, Murdoch’s News Corp. has split into two companies, one of which owns its U.K. newspapers while the other is bidding to combine Sky with its television and movie holdings. The paper at the center of a scandal over phone hacking has long been shut down. The U.K. has a new government after voting to leave the European Union, and the media landscape has fragmented.

“I’m betting in favor of the transaction achieving full regulatory approval by the middle of next year,” media analyst Claire Enders said in an interview, saying the companies involved have changed “beyond recognition.”

Prime Minister Theresa May has been eager to promote investment in the U.K. in the wake of the Brexit vote. While taking aim at perceived corporate excesses such as spiraling executive pay, she has welcomed overseas takeovers of British companies, including a deal by Japan’s SoftBank Group Corp. to buy chip designer ARM Holdings Plc.

For a timeline of the phone-hacking scandal, click here

Yet critics of the 85-year-old Murdoch’s previous attempt to buy Sky lined up quickly to call on May to scrutinize the new agreement carefully. Memories of the phone-hacking scandal, which shook Murdoch’s empire and exposed the seamier side of British journalism, remain fresh. Any move to concentrate media ownership could raise concerns about “plurality” -- diversity in the provision of news and entertainment.

“The way Theresa May’s government deals with this is a test of their independence from the influence of large proprietors,” said Vince Cable, who as business secretary under former Prime Minister David Cameron referred the previous takeover plan to regulators. “This poses a genuine threat to media plurality in the U.K., just as the bid six years ago did.”

Those concerns were prompted by Murdoch’s control of three of the U.K.’s largest newspapers -- the Times, the Sun and the News of the World, all of which were owned by News Corp. By taking full control of Sky he would have brought the country’s biggest pay-TV provider under the same umbrella.

But Murdoch shut down the News of the World in 2011 following an outcry over the disclosure that its reporters had listened in on voice messages left on the phones of celebrities and a teenage murder victim, Milly Dowler. Rebekah Brooks, chief executive officer of News Corp.’s U.K. news division, was charged with phone hacking and later found not guilty.

Rupert Murdoch and his son James, then chairman of Sky and News Corp.’s international CEO, were hauled into Parliamentary hearings along with Brooks. Their performance resulted in a committee’s report finding that Rupert Murdoch was “not a fit person to exercise the stewardship of a major international company.”

James Murdoch stepped down as Sky chairman in 2012, returning to the role earlier this year.

“Given the likely concentration of further media power in the hands of a single company, it is right that the fit-and-proper test should be applied by Ofcom if the deal is approved by Sky shareholders,” Labour lawmaker Tom Watson, who drafted parts of the Parliamentary committee’s report criticizing Murdoch, said via e-mail Friday.

Ofcom, the U.K.’s media and telecommunications regulator, declined to comment.

In 2013 Murdoch split News Corp. in two, with the company that kept its name owning the remaining papers while 21st Century Fox would run the television and entertainment operations. Fox has reached a preliminary deal to acquire full control of Sky, in which it is already the largest shareholder, for 11.2 billion pounds ($14.1 billion), the companies said Friday.

Media Ownership

Even though Murdoch still controls News Corp. and Fox, the separation could address the U.K.’s rules on media plurality, Liberum analyst Ian Whittaker said in a note. The regulations aim to prevent any single owner from exerting inordinate influence over the news.

Before Rupert Murdoch dropped his previous bid for Sky in 2011, the government proposed spinning off Sky’s news division into a separate company to preserve editorial diversity. Since then, newspaper circulation has plunged and digital outlets have proliferated, radically altering the media landscape.

Culture Secretary Karen Bradley will have to decide whether to ask regulators if the deal raises public-interest concerns. Britain’s Department for Culture, Media and Sport won’t make any official comment at this stage because the issue is sensitive, a person familiar with the government’s thinking said, asking not to be identified.

“Those obviously remain serious issues which I have no doubt Ofcom will want to take into account,” former Culture Secretary John Whittingdale said in an interview.