CMA provisionally declares Fox/Sky deal to be against the public interest due to media plurality concerns, but does this spell the end of the acquisition?

Background

The CMA's provisional finding comes just over a year after 21st Century Fox formally made its £11.7 billion bid for full control of Sky, a company in which it already owns a 39% stake. While the proposed acquisition has been unconditionally cleared by the European Commission on competition grounds, the UK's Secretary of State for Culture, Media and Sport decided to intervene in order to protect two legitimate interests: (i) the need for sufficient plurality of persons controlling media enterprises; and (ii) the need for those persons to have a genuine commitment to broadcasting standards. Find a more detailed discussion of these two considerations here.

By way of context, the Murdoch Family Trust ("MFT") is the largest shareholder of each of 21st Century Fox and News Corporation ("News Corp"). News Corp owns News UK and Ireland Limited (formerly known as News International), which publishes a number of newspapers including The Times, The Sunday Times and The Sun and also owns a number of UK radio networks (such as TalkSport).

Commentary

In its provisional findings report, the CMA emphasised the importance of media plurality, which "goes to the heart of our democratic process". The CMA was tasked with determining whether the plurality of persons with control of media companies would be sufficient after the proposed acquisition. This involved an assessment of the extent of control exercisable by the MFT over Sky, and in particular Sky News (the only UK-focused commercial 24-hour news channel) post-transaction and over News Corp currently, as well as the impact on existing plurality of persons controlling media enterprises that serve a UK audience.

The CMA has voiced its particular concern that, as a result of the acquisition, Sky News' independence could be reduced if there is increased editorial alignment with the other companies controlled by the MFT, which could in turn have a negative impact on the diversity of viewpoints across the news and current affairs content of those media enterprises. It is also concerned that, post-acquisition, the MFT would hold too much influence over public opinion and the political agenda. As part of its investigation, the CMA assessed the availability, consumption and impact of the viewpoints over which the MFT has (/would have) control and its level of influence over public opinion. More widely, it went on to consider other media enterprises that put across alternative viewpoints and the extent to which those other news sources could lessen the impact of any increase in influence of the MFT. In this context, the CMA considered news consumption across four main platforms: TV, radio, newspapers and online (including traditional news organisations, "online-only" providers such as The Independent and "intermediaries" such as Facebook that aggregate content from other sources).

While the CMA found there will still be a significant number of news sources available post-acquisition, Sky News and News Corp have a substantial combined reach, such that nearly one in three people access news on one of their platforms (meaning they would have the third largest reach behind the BBC and ITN). Together, they also account for a significant portion of consumption (i.e. the amount of time a member of the public spends reading/watching/listening to a news source) across the four platforms mentioned above. The CMA concluded that there would be a "material reduction" in media plurality as a result of the acquisition.

The CMA also found that the MFT currently enjoys significant influence over the political agenda and public opinion thanks to its control of News Corp newspapers (which also have a substantial online presence). The CMA noted that it had taken account of the findings of the Leveson Inquiry in terms of the relationship between the press and politicians and the influence of the Murdoch family through the MFT. As a result of the acquisition, the MFT would have increased control over news sources on all four platforms, which in the CMA's view could intensify the MFT's influence. This cross-platform presence would be unique. Despite the fact that the merged entity would not have the largest share of overall news consumption (that position is held by the BBC), it would have an unrivalled spread across the platforms. As a consequence, the CMA has provisionally found that the MFT's increased control over Sky (and Sky News specifically) would allow the MFT to exercise "materially greater" influence over public opinion and the political agenda post-acquisition. The CMA went on to conclude that it is unlikely that other news sources would be able to lessen the effects of this increased influence (due to, for example, the difficulty in practice of growing a UK news provider).

As a result, the CMA provisionally concluded that the proposed acquisition could be expected to reduce media plurality to an insufficient level. It therefore determined that, on the balance of probabilities, the deal would operate against the public interest. Interestingly, the CMA also provisionally found that Sky, Fox and the MFT could be trusted to remain committed to the broadcasting standards objectives, which was the other legitimate interest that it had been asked to consider.

Despite this apparent set back, the market remains confident that the deal will complete. The CMA has produced a list of possible remedies, meaning the acquisition could still go ahead if the CMA's media plurality concerns can be alleviated. Possible remedies include the spin off or full divestiture of Sky News (which might prove difficult given it is loss-making and only caters to a relatively small audience). Alternatively, Sky News could be insulated from any influence of the MFT (which would involve an independent board etc.)

Complicating matters further, in December 2017, Fox announced a deal to sell certain assets to The Walt Disney Company, which would include its interests in Sky. Therefore, should the proposed Fox/Sky transaction go through, and the Disney sale is completed as planned, Disney would acquire full ownership of Sky. The Disney deal would, of course, be subject to a separate regulatory review. The CMA chose not to take account of the Disney deal in its assessment of the Fox/Sky acquisition, because there is currently too much uncertainty as to whether/when/how the Disney deal would complete. However, the CMA did note that its provisional concerns regarding media plurality would fall away if the Disney deal went ahead as planned.

Next steps

The CMA has invited any interested parties to comment on the possible remedies by no later than 6 February and on its provisional findings by no later than 13 February. We would expect a significant response to this consultation, given the volume of responses to previous calls for comments in this case. The CMA is then due to deliver its final report to the Secretary of State for Digital, Culture, Media and Sport by 1 May 2018.

Source

CMA's case page