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Culture, Media and Sport Secretary Matt Hancock arriving in Downing Street, London, for the first Cabinet meeting following the reshuffle, January 9. Stefan Rousseau/Press Association. All rights reserved.The initial verdict of the Competition and Markets Authority (CMA) on the Fox/Sky deal was delayed by a month, as it was snowed
under with submissions arguing that the deal should be blocked, primarily on the
grounds that Fox’s many problems in the US showed it was not genuinely
committed to high standards in broadcasting.

The
opportunity to flood the CMA with anti-Fox material was provided by Karen
Bradley, then Secretary of State for Culture, Digital, Media and Sport (and
recently switched to Northern Ireland). She over-rode the Ofcom conclusion that
there was no need to refer the merger to the CMA on broadcasting quality
grounds. If that was a gamble – designed to nail down firmly the issue of
whether Fox (as controlled by the Murdoch Family Trust, or MFT) was fit and
proper to own Sky News – it certainly worked. The CMA endorsed the Ofcom
verdict, largely by working through the available material in the same way as
Ofcom had done.

This was no
surprise: it is very rare for one competition authority to squelch another, and
the CMA has chosen to remain as close to Ofcom as possible in its approach to
the issues. So it was also no surprise that it ruled against the merger on
media plurality grounds, thereby backing up an Ofcom judgment that was
deficient in all kinds of ways.

Side-stepping basic media plurality
tests

I set out in
a letter to Karen Bradley the crass errors committed by Ofcom, and forwarded a
copy to the CMA. That they have slavishly repeated those errors confirms that
our regulatory processes are deeply inadequate. Even the most basic and
straightforward tests of media plurality – seemingly obligatory in Ofcom’s investigation
of the bid, but inexplicably omitted – have again been side-stepped by the CMA.

Instead of
measuring actual consumption of news and current affairs – which is not that
difficult, and for which I demonstrated the methodology in an article for the
Journal of Applied Journalism and Media Studies five years ago – the CMA has
opted to focus primarily on two metrics selected by Ofcom, despite their being
both misleading and unreliable. As I told the CMA in a face to face meeting
about the drawbacks of these metrics, we must conclude that the CMA is far more
committed to supporting its fellow regulator than in investigating the actual
significance of the proposed transaction. We must
conclude that the CMA is far more committed to supporting its fellow regulator
than in investigating the actual significance of the proposed transaction.

Reach

The first
metric is reach. Reach is notoriously unreliable as a measure of influence. A news
outlet can “reach” millions of consumers, but if they only spend a few seconds
with that outlet, the impact is insignificant. Ofcom and the CMA were very
impressed by the “fact” that one measure of online activity found that 29
million people “read” The Sun online. But such “scores” are extracted from
surveys covering as few as 40 respondents. No one knows if those “readers”
spent any time at all with the material, let alone any significant time, let
alone that anything they might have read constituted news (as opposed to
horoscopes, gardening advice, racing tips and crossword puzzles).

Certainly,
the owners of The Sun (News UK, owned by NewsCorp, itself 39% owned by the MFT,
and effectively controlled by the Murdochs) are almost entirely unable to monetize
this supposed readership. The measurable daily readership of The Sun newspaper
is about 3.8 million people, with the recognized industry readership research
organisation estimating that online readership enlarges that by about 10%. 

In fact, all News UK newspapers combined (The Sun, The Sun on Sunday,
The Times and The Sunday Times) account for less than 5% of actual news
consumption by UK adults, including their online versions. The BBC accounts for
over 60%. For the record, the average UK adult spends less than two minutes a
day reading Murdoch newspapers, and watches Sky News (part of Sky plc, owned
39% by Fox, which itself is owned 39% by the MFT) for less than a minute a day.
The BBC accounts for over 60% of actual news
consumption by UK adults. For the record, the average UK adult spends less than
two minutes a day reading Murdoch newspapers.

The CMA
compounds its erroneous reliance on reach data by claiming that the Daily Mail
Group’s “reach” is barely half (17%) the combined reach of News UK and Sky News
(31%), which gives it grounds – so it claims – for taking seriously the
“threat” to media plurality that might arise from the merger (in solidifying a
pre-existing third place, far behind the BBC and ITN, which might in normal
circumstances not be seen as grounds for intervention).

But the
Daily Mail score is a serious underestimate: for reasons never explained, Ofcom
(and now the CMA) excluded local and regional news sources from the calculation
of significance, as if those sources – which carry national and international
news as well as local and regional items – were irrelevant.

Perhaps the
Ofcom board never reads the Yorkshire Post, or imagines that the Daily Star has
much more significance than The Scotsman or the Western Mail. If the Daily Mail
Group’s regional newspapers were included (News UK has none – there’s a clue as
to why this category was excluded), its reach would be around 30%: Metro alone
would add about 8%.

The
artificial and prejudicial exclusion of regional and local news consumption
allows the CMA to repeat Ofcom’s tendentious claim that a combination of News
UK and Sky would give the MFT “unique” access to “all four” distribution media:
newspapers, television, radio and online. If we – as a full consideration of
the matter requires – include local and regional television, radio and
newspapers, then we have seven platforms, with the BBC dominating all five in
which it is active, a combination of News UK and Sky active on four, and many
other news suppliers active on three.

Even the
“unique access to all four” media conceit is a calculated deception. The
benefit to News UK/Sky of the fourth platform – which is not available to the
BBC – is trivial: Kantar reported to Ofcom that just 1% of consumers of news
relied solely on newspapers (and even there News UK accounts for just 30% of
users). It is extremely hard to take such a flimsy and partial analysis
seriously, especially when the super-dominant position of the BBC – with a
vastly larger share of news consumption than Sky News and News UK combined – is
airily dismissed as unimportant, because of its “unique funding structure and
governance”.

Nowhere does
the CMA explain why the licence fee, or the existence of BBC Governors, the BBC
Trust or BBC non-executive directors, should make the BBC more likely to
observe rules on due accuracy and impartiality. The BBC’s Charter places great
emphasis on these values, but in practice the BBC is just as likely as any
major commercial broadcaster to face complaints to Ofcom on those grounds. Indeed,
successive internal reports have shown that the BBC’s reporting of key issues
like the EU and immigration has been biased. Successive
internal reports have shown that the BBC’s reporting of key issues like the EU
and immigration has been biased.

Owners
and viewpoints – who, which, what?    

The second
metric favoured by Ofcom and the CMA is the bespoke Kantar Research estimate of
“shares of references” in news outlets, which tries to track stories back to
their source, so as to establish influence. No other research organisation has
undertaken a comparable exercise, so the validity of the findings is at best
suggestive rather than conclusive (why the CMA believes it to be preferable to
measuring actual consumption remains a mystery: the best that the CMA can offer
is that the Kantar study is the “most detailed” piece of research available in
terms of establishing a “common currency” of consumption – but that is
demonstrably untrue).

The main
thrust of this particular Kantar exercise is actually unhelpful to the CMA
case: it shows, in particular, that far from the BBC being reliant on
newspapers for stories, newspapers source more stories from the BBC than the
BBC sources from them. The CMA claims that this research shows that Sky News
and News UK together “represent at least 10% of total news consumption” – but
fails to explain how News UK’s 3% and Sky News’ 6% as per Kantar add up to 10%
(let alone the “as much as 14%” that the CMA, following Ofcom again, imagine
the total might be).

All of this so-called
analysis is anyway based on a fundamental mis-reading of the relevant
legislation. The CMA – following on, again, from Ofcom – constantly refers to
“viewpoints” in television and radio news. The legislation is quite clear: the
requirement in newspapers is for there to be a sufficiency of viewpoints
available to consumers in all parts of the UK, but with media enterprises
engaged in broadcasting the requirement is for a sufficiency of owners, not
“viewpoints”.

The reason
for this differentiation is that Ofcom-licensed broadcasters are not allowed to
offer their own “viewpoints” in news and current affairs programmes: they must
abide by the Broadcasting Code, which imposes a duty of due accuracy and
impartiality. The freedom enjoyed by newspapers to express political opinions
is explicitly denied to broadcasters.

It follows
that the entire line of reasoning in the CMA report is based on a false
assumption: that Sky News has a current “viewpoint”, and that if the MFN –
through its control of Fox – gained control of Sky News, it might “align” that
“viewpoint” with those of one or more of the newspapers published by News UK
(which is owned by NewsCorp, not by Fox, but in which the MFN also has a
controlling interest).

Oddly
enough, the CMA’s lurid imaginings do not run as far as worrying about
“alignment” of Sky News with The Wall Street Journal or any of the dozens of
local freesheets published by NewsCorp, such as those in Long Island or upstate
Queensland.  

The first
test of this false premise is easy: please, CMA, tell us what the current
“viewpoint” of Sky News is. There will, of course, be no answer to this: if the
CMA could detect such a “viewpoint”, it would be obliged to report Sky News to
Ofcom for breaching the Broadcasting Code, which forbids “viewpoints”.

Like Ofcom,
the CMA has tried to wriggle round this difficulty by claiming that different
broadcasters have different news agendas and different editorial lines: but
that is a banal observation and certainly does not mean they therefore have
“viewpoints”, let alone identifiable ones. Clearly, there is no single news
agenda that every single broadcaster follows, delivering stories in precisely
the same order, length and fashion. Editors decide what events or subjects are
of most importance in allocating their scarce resources and airtime, and even
the designated public service news programmes offer very different running
orders without in any way breaching Broadcasting Code requirements – these running orders do not constitute
“viewpoints”, otherwise Ofcom would be required to intervene.

The CMA
posits a situation where a story in The Sun might – after the transaction – be
“more influential” by also being carried by Sky News. But if it were broadcast
by the BBC, would it be similarly “more influential”? – and would such a
broadcast be indicative of “alignment” between News UK and the BBC? Of course
not. Indeed, currently the Sunday Times and Channel 4 are working on an
investigative feature involving former ministers allegedly taking paid advisory
jobs for foreign interests. Would that constitute Channel 4 making a Sunday
Times story “more influential” (or vice versa)? Or be evidence of “alignment”? Currently the Sunday Times and Channel 4 are working on
an investigative feature involving former ministers allegedly taking paid
advisory jobs for foreign interests. Would that 
… be evidence of “alignment”?

This crass
and ignorant approach to the way journalism works is simply embarrassing. It
also ignores the fact that the Murdoch newspapers encompass a wide array of
opinions, often deliberately clashing. Can the CMA identify the stories in the
four UK Murdoch newspapers which exemplify the Murdoch “viewpoint”? Just as
Ofcom foolishly speculated on whether a Fox-owned Sky News might use News UK
journalists to push unidentifiable MFN “viewpoints”, so the CMA report wonders
whether the transaction would allow the MFT to induce Sky News to “push certain
stories and downplay others”. But this is entirely speculative.

If the news
agenda at Sky News were to change – now or in the future – how would we know?
What difference would it make? Would that change be compliant with the
Broadcasting Code? If not, presumably Ofcom could intervene. If it was
code-compliant, what would be the problem?

Fox control

Over the 30
years that Sky News has been on air, during which time the MFT-controlled
NewsCorp has had 100% ownership for some years, and 50% ownership for other
years, can the CMA point to any examples of attempted influence on the news
agenda for Sky News? The clear implication of the CMA approach is that, if that
news agenda were to change, in a measurable fashion, even if such change were
perfectly legal and code-compliant, it would be contrary to the public interest
if it happened under Fox control – even if it were impossible to demonstrate
any “alignment” with News UK “viewpoints” (whatever they might be) – but not if
it happened under anyone else’s control.

Despite the
glaring weaknesses in its argument, the CMA nonetheless concludes that the
proposed transaction “may be expected to result in an insufficient plurality of
persons with control of media enterprises”. Yet nowhere does the CMA attempt to
define what a “sufficient plurality” would be. If there were 100 such
enterprises, and a merger reduced that number to 99, would that result in “an
insufficient plurality”? When Northern and Shell bought Channel 5, or when News
UK bought The Wireless Group, in both cases resulting in a measurable reduction
in the “plurality of persons with control of media enterprises”, was there any
intervention? Did either acquisition result in “an insufficient plurality”.
This is a verdict with no attempt at an argument.

The CMA
compounds its errors by postulating that it is unlikely that any other
cross-platform news provider could emerge if this transaction were allowed. Yet
Trinity Mirror is currently planning to buy Northern and Shell, the publishers
of Express Newspapers (presumably thereby radically re-positioning their
editorial stance, but nobody seems concerned about that); Trinity Mirror has a
major position in local newspapers, and has previously owned a TV channel;
Northern and Shell previously owned Channel 5; and there is nothing to stop the
enlarged group buying one of the major commercial radio operations – so a cross-platform
provider almost as large as News UK and Sky News combined is certainly
imaginable (other than by the CMA). Trinity Mirror
is currently planning to buy Northern and Shell, the publishers of Express
Newspapers (presumably thereby radically re-positioning their editorial stance,
but nobody seems concerned about that).

That jump in the share price

To give
credit where it is due, the CMA report does provide an exhaustive set of
possible remedies which might persuade it to advise the Secretary of State (now
Matt Hancock) to approve the Fox/Sky merger. Indeed, it was the range of
options listed, and the assumption that somewhere along the line the CMA and
Fox could strike a deal, that presumably triggered the 25p jump in the Sky
share price the day the report was published.

The remedies
paper starts, however, with the option of straight prohibition of the deal as
“a comprehensive solution” to the imagined problem, and one posing “relatively
few risks”. This is a particularly daft assessment. The majority shareholders
of Sky have already made clear that, if closing Sky News would remove an
obstacle to the planned transaction, they were willing to do that. As even the
CMA recognizes that such closure would be the worst possible outcome in terms
of media plurality, it is hard to understand why such an explicit warning, in
writing to Ofcom, should be ignored.

The CMA
correctly notes that such a closure is not permitted in the midst of the
regulatory process (which is why it has not yet happened), and opines that the
continued supply of Sky News should not be an inhibition to the current Disney
bid to buy most of Fox (including its holding in Sky, whether 39% or 100%) –
indeed, the CMA says that ownership of Sky News by Disney would allow its media
plurality concerns to “fall away”.

But this
lazy logic misses the point. Fox cannot know for certain that the Disney bid
will pass regulatory muster in the US. If the current Fox bid for Sky were
blocked, the obvious course of action would be for Sky News to be closed
immediately, and a renewed bid for Sky then to be launched (as soon as the
Takeover Panel rules allow), this time with no risk of regulatory intervention.
Indeed, given the length of time the current process is likely to take, Fox
might be better advised to abandon the bid now, allow the majority shareholders
in Sky to close Sky News, and then re-instate the bid, with a predictable
timetable, unaffected by politicians or regulators. Fox
might be better advised to abandon the bid now, allow the majority shareholders
in Sky to close Sky News, and then re-instate the bid, with a predictable
timetable.

Paradoxically,
there would be nothing to stop Sky News being re-launched after Fox completed the purchase of Sky: the only time the regulatory machinery can be invoked is in the course
of a transaction. Indeed, one of the advantages of this course of action would
be that all the remedies considered in the CMA paper could be ignored in the
context of a re-launch.

Remedies

These
remedies fall into two categories: structural and behavioural. A structural
remedy removes Sky News from the Sky business, either by a sale or by a
spin-off process. It was just such a remedy that Ofcom negotiated with the
Murdochs in 2011 in order to push through their previous bid for Sky (which
they then abandoned in the aftermath of the Milly Dowler revelations).

However,
Ofcom has now recognized (as I argued in 2011) that, not only is there little
prospect of an actual sale of a loss-making news channel, but that operational
independence is too risky in the medium to long term. That is why it
recommended a behavioural remedy (ring-fencing the editorial independence of
Sky News within a Fox-owned Sky) in its report last year on the transaction.

Karen Bradley
rejected as inadequate the tentative formula suggested by Ofcom, presumably on
the assumption that a CMA process would induce Fox to offer greater guarantees
of independence (for instance, by eliminating all Fox representatives from the
proposed Sky News editorial board, and offering longer-term financial
commitments). The CMA paper canvasses some options, but also manages to
undercut them – perhaps inadvertently – by noting two issues that will not be
resolved by any remedy.

The first is
that Sky will still remain by far the largest customer for Sky News. Even if
the budget for the news service were guaranteed, along with its EPG slot, room
would remain for Fox to put pressure on Sky News editorially (in the world of
the fevered imagination of the CMA, where the MFT is still trying to “align”
Sky News editorially with one or more of the newspapers it controls). That
pressure might be subtle: failure to promote the channel, or distribute it
internationally, or sell its airtime in a way that gives confidence of a
continuing existence. The CMA even floats the notion, in its report, of
“members of the Murdoch family” going “directly to editorial staff” to give
“clear expression” of their views – which, of course, would by-pass all the
elaborate firewalls discussed in the remedies paper as a means of preserving
editorial independence.

One notion
floated is that Fox might sell Sky News directly to Disney now, in advance of
completing the rest of the Disney transaction. At one level, this might remove
concerns about Fox involvement in the channel. But as Disney has no interest in
Sky News as such, it is hard to see why it would engage in the kind of
fail-safe discussions with Fox that would be needed to guard against the
possibility of the full Disney bid being blocked or dropped before the end of
2019.

More
ominously, the CMA also notes that the Disney deal would leave Fox as the
second largest shareholder in Disney (even at the 5% level), with a possibility
of a Murdoch joining the Disney board.

It would
seem that the Disney transaction does not allow all the CMA concerns to fall away. Indeed, if I were Bob Iger –
Disney’s CEO – reading this report, I would urge the Murdochs to shut the
channel down now, to avoid any danger of his bid for Fox being sucked into the
UK’s regulatory grasp: there are enough problems in the US.

Political resistance

Of course,
if the Murdochs had had any sense, they would have closed Sky News before
launching the current bid. They were ill-advised in imagining that the split that
they executed five years ago, between NewsCorp (owning the UK newspaper
company) and Fox (owning the entertainment assets, including the Sky
shareholding), would eliminate the political resistance that bogged down the
last bid.

This bid
still has months of hassle ahead of it: the current CMA consultation period,
the final CMA report (which may not be delivered by the promised May 1st
deadline), then a period for the Secretary of State to reflect, with a possible
further consultation on a potential remedy, and then further iterations of that
process. The opponents of the bid have nothing to lose in dragging the process
out indefinitely.

Fox has said
it will continue to engage with the CMA: but it is easy to see why abandoning
the bid has its attractions, especially as any remedy agreed with the Secretary
of State to get the deal done would remain a political bone for Murdoch’s
enemies to gnaw on for years to come, whereas closing and then re-launching Sky
News would eliminate all of that headache. Ominously, asked the direct question
at this week’s announcement of Sky’s (excellent) results, CEO Jeremy Darroch
explicitly acknowledged that Sky News was less important in brand terms now
than when Sky launched 30 years ago.

Fox has
already announced it will pay a special dividend to non-Fox Sky shareholders as
the penalty for failing to close the transaction in 2017. Another penalty for
abandoning the bid would be a small price to pay for eliminating a hostile
regulatory and political process, buying all of Sky without having to make any
regulatory concessions, and smoothing the way to the planned Disney deal, by not
re-launching Sky News till after that deal is completed. In theory, Disney
should be quite relaxed about dealing with the UK’s Mickey Mouse regulators: but
if you can avoid the hassle altogether, why not?