News Corp's Buyout of BSkyB - Essay Example

? Case Study Case Study News Corp's buyout of BSkyB The news flung into print and electronic media on November 4, that the News Corp has offeredto buy remaining 61 percent of BSkyB. News Corporation is owned by media mogul Keith Rupert Murdoch who already owns almost 39 percent of the equity in BSkyB. It will be pertinent to take a note of Rupert Murdoch's British operations, which started a way back in 1969 when the Mirror group wanted to relinquish from its mid-market daily newspaper The Sun. It is precisely at this time when Murdoch acquired it and made it thumping success with the passage of time by selling three million copies per day. Murdoch's control on the print media of UK became more prominent when he acquired The Times and The Sunday Times from Canadian publisher. During the time Murdoch's UK based satellite network Sky television was making huge losses which compelled him to agree for a merger with British Satellite Broadcasting in 1990. The merged company came to be known as BSkyB which is now considered to be the most dominating company in the British pay-TV market. When seen in the above perspective, the news of proposed buyout of BSkyB by Murdoch’s News Corp has far-reaching implications as it may facilitate a near monopolistic control to Murdoch on print and electronic media of UK. The point to be noted here is that BBC and other competing media groups have raised their opposition to the deal. It is not surprising that Business Secretary Vince Cable had to bow down on public uproar and ask Ofcom to investigate the matter on the media plurality issues that may arise after this proposed takeover by News Corp. European Union’s antitrust competition regulator also plunged into action to investigate the matter on the grounds of competition. It will be worthwhile to go through some of the important developments that have taken place in the last few months regarding this complete control and take over issue of News Corp. (Prodhan, Georgina et al 2010) The European Commission The European Commission gave its report in the third week of December, 2010 approving the proposed acquisition of BSkyB by News Corporation. The commission in its report concluded that the said transaction of complete control of BSkyB by News Corp is not going to hinder the competition in the European Economic Area (EEA). Its findings were only restricted to the competition aspects and has nothing to do with the proposed investigation carried out by UK regulatory body on media plurality aspect to protect legitimate interest of British nationals. It is pertinent to note here that media plurality assessment and competition assessment are two different areas of investigation. The Competition assessment mainly focuses on whether consumer would be facing any hike in the pricing structures or any forced featureless offerings. On the other hand, the issues related to the media plurality are concerned with the role played by media in relation to the democratic fabric of the various institutions and further their capacity to influence them in their own interests, which may be in the long run detrimental to the health of country. The European Union’s antitrust commission’s main findings are listed as per the following. 1. BSkyB and News Corp are in competition with each other to a limited extent as they are active in different markets in the UK and the Ireland. 2. The commission is of the view that the proposed transaction is not likely to improve substantially BSkyB's existing share of the market in the supply of basic pay-TV channels. 3. Both the parties have a small combined market share in TV advertising hence not going to affect the balancing act in competition concerns. 4. The Commission also investigated the possibility of offering mixed bundles of subscriptions for its print and online versions along with satellite pay channels. The commission is of the view that it will not be possible for the vast majority of newspapers' on line editions are currently free of charge and this equation is not likely to change in the near future. The commission thus does not see any competition concerns in the publishing sector due to this transaction. 5. The commission was also of the view that this buyout is not likely to increase News Corp’s clout in tying the advertisements in their favour in print and broadcasting media due to lack of sufficient marketing power. On investigating the concern whether News Corp would be able to halt their competitors in accessing or limiting the access to premium movie content; the commission opined that News Corp do not have enough market power to garner the majority broadcasting rights for premium segment movies as their competitors have sufficient avenues to retain several other suppliers to provide them with similar content. The commission was of the opinion that it is not likely to alter status quo on premium stuff, which is already under investigation by British competition commission under the direction of UK regulatory authority Ofcom. 6. The concern that proposed buyout would exclude the competitors of News Corp from having BSkyB's pay-TV offering in the licensing of premium movie stuff and TV programmes; the commission is of the view that said portion forms a very small part of Sky's bouquet and that BSkyB would have all the reasons to receive content from News Corp's competitors for its major objective will always be to have the most attractive retail offerings. (Mergers: Commission 2010) With the EU ruling now in favour of News Corp, it remains to be seen how the regulatory authority of UK decides on plurality aspects and investigating the matter whether it gives too much power to Murdoch over British media. Murdoch and Media Ownership in UK Media ownership has always been a point of debate in UK. One man or his companies holding a large portion of print and broadcasting media is certainly an issue for the masses in general and for politicians in particular. When such a person takes a deep interest in nation’s politics and tries influencing the general elections; he becomes a cynosure of all eyes. It is a fact that Murdoch was allowed to take over The Times and Sunday Times newspapers by Margaret Thatcher’s government some 30 years ago without a necessity to refer it to the Monopolies and Mergers Commission (MMC) even though at that time he already owned the print publications namely the News of the World and the Sun. The reason given by the then secretary of State for Trade, John Biffen that these two papers were on the verge of closing and if the matters were referred to the MMC then it could have been a death knell for both the newspapers because of the likely delay in the matter. The same thing was repeated in 1990, when his loss making Sky TV got merged into another loss-making unit the British Satellite Broadcasting without being referred to MMC. The reason was given then that if not allowed to be merged, both the entities will have to down the shutters. It should not be forgotten that BSB was awarded the license from an Independent Broadcasting Authority and there was no rationality in allowing a merger without any formal investigation. Some of the developments that happened in the recent past can be described as per the following. When BSkyB purchased a 17.9 percent stake in ITV, the office of fair Trading advised the Department of Trade and Industry to conduct a full competition enquiry. After a long procedure the Competition Commission ordered BSkyB to reduce its shareholding. Investigations were ordered on filing the complaints by Virgin and BT that BSkyB’s dominant position in the pay TV market is harming their business interests. Political analyst see some deep thinking in acquiring 100 percent stake in BSkyB for Murdoch was already holding a position of chairman in BSkyB with almost 39 percent stake in the entity which was as good as giving him the full control on the company. Pay TV continues to grow in size and BSkyB has already got a huge market share with almost 10 million subscribers in the UK and Ireland with revenues of almost ?5.9bn compared to ?1.9bn of ITV and ?3.6bn of BBC. Rival parties such as Daily Telegraph, BBC, BT and Daily Mail wrote to Vince Cable, Business Secretary, urging him to direct the media regulators to initiate investigation as this buyout could have grave consequences for media plurality. The decision in this regard was handed over to the Culture and Media Secretary Jeremy Hunt; however, he is supposed to be advised by Ofcom. (Douglas, Torin) Then the news arrived on March 3, 2011 that News Corporation has been given a go ahead for complete buyout of BSkyB without the government referring the case to Competition Commission. The quick developments that have taken place can be enumerated as per the following. 1. Culture Secretary Jeremy Hunt said he is not in favour of offering the takeover to Competition Commission; however, Ofcom earlier suggested of having the deal investigated by the Commission. “Ofcom assured me that News Corp's undertaking addressed its concerns about media plurality", this is what now said by Hunt in the plurality matter. (Rupert Murdoch BSkyB…) 2. European Union has already given their verdict that there is absolutely no reason to oppose the deal on competition grounds. 3. Modifying their earlier offer, News Corp are taking steps to spin off Sky News as a separate channel to convey the message that it will have less control in a new outfit. 4. Labour party has expressed apprehensions on this that whether Sky News will be truly independent. (Rupert Murdoch to dispose…) News Corporations’ Fresh Proposals Besides, News Corp has now come out with some new proposals. A. Sky News after hiving off would have an independent non-executive chairman and directors. B. In another offering, News Corp has proposed the shares in Sky News be given to existing shareholders with their own holding limiting to 39 percent. C. News Corp will not be increasing its shareholding until at least 10 years without the government permission. (Rupert Murdoch…) The moot question that is being raised from some quarters is that whether News Corp will exert influence from outside despite its perennial commitment to restore BSkyB as an independent unit. The companies such as Associated Newspapers, BT, Guardian Media Group, Telegraph Media have taken a critical stand by writing all MPs that the decision taken by Hunt not to refer the takeover matter to Competition Commission is not justified. They have expressed their views that under the new arrangements News Corporations will have increased control over Sky News as it does not have sufficient stream of funds to remain truly independent. (UK gov't…) Why Referral to Competition Commission is required? Having gone through the case in detail with its past back ground, existing status and the likely future implications and also having examined various issues involved in the proposed buyout deal, it can be said that this is not merely a business deal. Also, it should not be forgotten that News Corp has many other interests in other countries too such as Wall Street Journal, 20th century Fox film studios, Fox broadcast, Cable networks, Pay channels in Asia. The proposed buyout can have serious implications in the long run. Print and broadcasting media can greatly influence the political outcomes, particularly when they reach to a state of polarization. Media is known as one of the important pillar of democratic institutions. Murdoch who is known as media magnet in common parlance can certainly twist the political game in his favour at the most critical and opportune time in the future and jeopardize the democratic setup. Precisely for this reason, regulatory bodies are formed who regulate the market and various players through the measures of check and balances and safeguard the interests of nation and its citizens. The rationale for establishing regulatory institution is to provide non-discriminatory treatment to all players in the liberalized market. Baldwin and Cave (1999) has defined state regulations as “The force of law is used to prohibit certain forms of conduct or to demand some positive actions or to lay down conditions for entry into a sector.” (Baldwin and Cave, p 35) Conclusion At this juncture, it is not clear that under what rationale minister of culture, Jeremy Hunt, has refrained from referring the matter to the Competition Commission for detailed investigation. Assurances given by Murdoch and News Corp to the government on plurality grounds surely do not create sufficient grounds for not referring the matter to the regulatory body such as Competition Commission, which has been formed under the act promulgated by the parliament. Competition Commission is an independent body and can go deep into the matter and investigate the things through their expert hands to arrive at the right remedial measures that can satisfy all those who are concerned. It gives more credibility to the government if the final verdict in such matters are kept in the hands of regulatory bodies like Competition Commission that helps strengthen not only the democratic fabric of the nation but also justifies the formation of such institutions for which they have been created. References: 1. Prodhan, Georgina; Sandle Paul. Ofcom intervenes in News Corp's proposed BSkyB buyout [Online] Available at http://uk.reuters.com/article/2010/11/04/uk-bskyb-newscorp-intervention-idUKTRE6A31IA20101104?pageNumber=2 [Accessed 4 April 2011] 2. (Mergers: Commission 2010) [Online] Available at http://europa.eu/rapid/pressReleasesAction.do?reference=IP/10/1767 [Accessed 4 April 2011] 3. Douglas, Torin. Analysis: Murdoch and media ownership in UK. [Online] Available at http://www.bbc.co.uk/news/uk-12062176 [Accessed 4 April 2011] 4. Rupert Murdoch to dispose of Sky News for bid approval [Online] Available at http://www.bbc.co.uk/news/business-12627703 [Accessed 4 April 2011] 5. Rupert Murdoch BSkyB takeover gets government go-ahead [Online] Available at http://www.bbc.co.uk/news/business-12631875 [Accessed 4 April 2011] 6. UK gov't criticised over News Corp-BSkyB deal [Online] Available at http://uk.finance.yahoo.com/news/UK-gov-criticised-News-Corp-targetukfocus-337795300.html?x=0&.v=1 [Accessed 4 April 2011] 7. Baldwin, Rob; Cave, Martin. Understanding Regulation, 1999. P.35 and chapter 4. Read More