Fox’s Sky Bid Hits Another Bump: UK Govt Raises New Concerns; Fox Responds

UPDATE, writethru with Fox response: Karen Bradley, the UK’s Secretary of State for Digital, Culture, Media and Sport, has told Parliament she is minded to refer 21st Century Fox’s £11.7B takeover bid for Sky to the Competition and Markets Authority for review on the grounds of media plurality and commitment to broadcasting standards.

This is the latest bump in the road for Rupert Murdoch’s attempt to buy the long-coveted 61% of pay-TV giant Sky that Fox does not already own.

Part of today’s decision was expected — that of a review of media plurality — while the broadcasting standards review came as something of a surprise. Sky shares dipped 4% on the news, then recovered by about half that.

In June, analysts told Deadline that the media plurality issue could be resolved if Fox made certain remedies or undertakings in lieu. In late August, Fox News went dark in the UK, citing a lack of commercial interest given low viewership.

In July, Bradley said she was still minded to refer the bid to the CMA on media plurality concerns, but not on the grounds of commitment to broadcasting standards. Ofcom had, in June, been unequivocal in its findings that a merged Fox and Sky would have a genuine commitment to broadcasting standards. But evidence received in early August then called the latter into question with further clarification sought.

The past few months have also seen pressure for a referral on the broadcasting standards issue, partly from campaign group Avaaz and also a group of high-profile MPs.

Fox responded today saying it was “disappointed that the Secretary of State has chosen not to follow the unequivocal advice of the independent regulator, which is the expert body tasked with enforcing the Broadcast Code. As the correspondence between DCMS and Ofcom makes clear, we do not believe that there are grounds for the Secretary of State to change her previous position.”

It continued, “21CF has engaged with the regulatory process relating to this transaction since the outset and will continue to do so… We are surprised that after independent regulatory scrutiny and advice, and over four months to examine the case, the Secretary of State is still unable to form an opinion. We urge the Secretary of State to take a final decision quickly.” (See full Fox statement below).

In her decision today, Bradley said, “I am committed to transparency and openness in this process and have been clear my decisions can only be influenced by facts, not opinions — and by the evidence, not who shouts the loudest.”

Taking account of all relevant representations and Ofcom’s advice, Bradley said she has “written to the parties to inform them I am now minded to refer the merger to the CMA on the grounds of genuine commitment to broadcasting standards.”

In its original report, Ofcom said it saw “no broadcasting standards concerns that may justify a reference.” It then clarified that “while we consider there are non-fanciful concerns, we do not consider that these are such as may justify a reference in relation to the broadcast standards public interest consideration.”

The existence of non-fanciful concerns means that — as a matter of law — the threshold for a reference on the broadcasting standards ground is met, Bradley said today.

Among specific concerns are that “Fox did not have adequate compliance procedures in place for the broadcast of Fox News in the UK and only took action to improve its approach to compliance after Ofcom expressed concerns.”

Third parties also raised concerns about what they termed the “Foxification” of Fox-owned news outlets internationally, Bradley said. “On the evidence before me I am not able to conclude that this raises non-fanciful concerns. However, I consider it important that entities which adopt controversial or partisan approaches to news and current affairs in other jurisdictions should, at the same time, have a genuine commitment to broadcasting standards here.”

On corporate governance, Ofcom did not find concerns that warrant a reference, but Bradley wants the concerns looked at by the CMA. “My proper concern is whether Fox will have a genuine commitment to attaining broadcasting standards objectives. However, I am not confident that weaknesses in Fox’s corporate governance arrangements are incapable of affecting compliance in the broadcasting standards context.”

Bradley’s decision remains “minded to” because she must allow the parties to make representations on the proposed decision. They have 10 working days to respond. After that, she will make a final decision “as promptly as I can.”

Competition reviews can take up to six months to complete, potentially putting a decision off until 2018. That could pose a problem for Fox: It’s on the hook to pay a £170M ($219M) dividend to Sky shareholders if the deal doesn’t close by the end of the year. Fox today said it now anticipates the transaction will close by June 30, 2018.

Fox CEO James Murdoch and co-chairman Lachlan Murdoch have said that delays in approving the deal would suggest that the UK is not as “open for business” as it claims to be.

Here’s today’s Fox response in full:

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