The complicated politics holding up Rupert Murdoch's Sky deal

Who is Rupert Murdoch?
Who is Rupert Murdoch?

There's a question floating among the British political and media figures. Are Rupert Murdoch's dreams of owning all of Sky plc falling apart?

In a surprising blow for Murdoch's company 21st Century Fox, the U.K. Secretary of State for Culture, Media and Sport Karen Bradley announced earlier this week that she is asking the British Competition and Markets Authority to investigate whether Fox's fully controlling Sky plc, with its business in satellite broadcasting, on-demand media, broadband and telephone, would comply with the country's broadcasting standards.

The investigation into the broadcasting standards was a surprise to many 21st Century Fox and British media observers, who only expected Bradley to ask for an investigation into how the deal would affect the British media market competition. In fact, Bradley had gone beyond even what the country's independent media regulator, Ofcom, had suggested, leading to an unusual divide between an official government regulator and the government official they are supposed to be advising.   

Related: Fox News fears could kill Rupert Murdoch's $15 billion Sky deal

"[It] was one of those quite rare moments of genuine parliamentary drama where everyone thinks they know what will happen until she actually stands up to speak," said Steven Barnett, professor of communications at the University of Westminster, who has advised government ministers, parliamentary committees, and the European Parliament on media matters.

One reason observers came away surprised is that that the ruling party in the U.K. at the moment is the Conservative Party, and the party is often presumed to be naturally allied with Murdoch and his papers in the U.K.

But the Conservatives' precarious political situation, plus the still-fresh memory of the phone hacking scandal at Murdoch's News of the World, may be playing into why Bradley is giving extra scrutiny to the deal. Bradley has specifically pointed to concerns about corporate governance failings at the company, and there are fresh scandals to bring the memory of phone hacking back to the surface. Ofcom has, among other things, looked into sexual harassment allegations made against people working at Fox News and the allegations surrounding the circumstances of a retracted story at the network about murdered Democratic National Committee staffer Seth Rich.

Though the Conservatives are the ruling party at the moment, this summer's snap election saw the party lose seats, leading to a hung parliament and a situation in which Conservatives don't have an outright majority, but a "working" majority. Any sort of rebellion from Conservative members or their allies would lead to the party losing its majority and another general election.

While there are divisions within the Conservative Party -- some love the Murdoch media empire, others don't -- the decision is one the party does not want at the moment. In its weakened position, the issue could give Labour and other opposition parties the perfect weapon with which to hit them, political experts say.

"The Conservative government has quite a slim majority in parliament and has a lot of major issues they're trying to handle with Brexit and the domestic political situation with internal disagreements, so the government may have decided this was not an issue they wanted to take on a major fight over," said Dr. Rasmus Kleis Nielsen, a professor of political communications and director of research at the Reuters Institute at the University of Oxford. "They've been under a lot of pressure from Labour and Liberal Democrats as well as activist groups. This was something that could become a high profile issue for the Conservative party if they had decided to wave this through without a thorough investigation."

Brexit has also thrown a wrench into the process, leading to a "febrile atmosphere in the House of Commons," said Becket McGrath, a British lawyer who specializes in EU and UK competition law, especially in the media, technology and communications sectors. Murdoch-owned papers heavily favored the U.K. leaving the European Union, which McGrath said now means British Secretaries of State may feel a "bit more space to do their own thing."

"Where that feeds into this is there is a desire on the part of the government to be seen to be acting independently and not be beholden to Murdoch and his publications," McGrath said. "Whether that is genuinely wanting to actually be tough on this or wanting to be seen as tough on this is not clear."

Damian Collins, a Conservative Member of Parliament who chairs the Culture, Media and Sport select committee, denied politics was playing a role, saying simply that Bradley was following the letter of the law.

"I don't think she had any other choice than to refer to it [for an investigation]," Collins said in an interview, citing concerns brought up by Ofcom. "She took a small c conservative approach and said if something has been flagged it must be looked into. She's closely followed advice she's been given, she's applied a cautionary approach."

Related: Fox News pulled off the air in Britain

At the Royal Television Society conference on Thursday, Bradley defended her position, saying, "The threshold for reference that I have to take is lower for the fit and proper test that Ofcom do ... I want [the CMA] to look at the concerns that have been raised. You will see when we publish all the information on this exactly why the referral has been made."

Bradley had some air cover to just carry on the process toward approval, because Ofcom did not give a specific direction despite discussing what it said were "non-fanciful" concerns. But the bid has faced fierce opposition from anti-Fox activists and the opposition political parties, especially from the Labour Party, whose former leader Ed Milliband has been on a public campaign against the bid.

The controversy over Fox News' retracted report on Seth Rich has reminded many media observers in the country of the furor over the News of the World phone hacking scandal, which ultimately led to Murdoch pulling his first attempt at taking over Sky and the eventual splitting off of the company into two entities: 21st Century Fox which now owns many of the television and film networks, and News Corp. which controls many of the newspaper and publishing prosperities.  

The then-Secretary of State for Culture, Media and Sport, Jeremy Hunt, also of the Conservative party, was close to approving the deal before new revelations about the hacking scandal blew out into the open. A judicial public inquiry into the scandal later revealed that Hunt was in direct text contact with then-News Corp. chairman and CEO James Murdoch (now head of 21st Century Fox) while Hunt was judging whether the company could take over Sky. (Hunt acknowledged the texting but denied it colored his decision making process.) 

Following the scandal and the withdrawal of the bid, then prime-minister David Cameron of the Conservative party said in a speech that "never again should we let a media group get too powerful."

Another big question looming over the upcoming investigation is whether and how the CMA will look into Fox News' operating procedures around not only the sexual harassment allegations but also the Rich story and other possible issues.

"They'll have a good look at standards at Fox and they'll want to be satisfied that Fox will adhere to the broadcaster codes," Collins said. "Sky itself is an excellent broadcaster and fully compliant and there hasn't been concerns in the past."

A CMA spokesperson did not respond to specific questions as to how and whether the agency might investigate the Rich story at Fox, only noting that they were waiting for the official formal referral from Bradley before opening the investigation. 

Regardless of Bradley's intention, the investigation window gives the government some breathing room during an intensely political moment. But eventually, there will be a day of reckoning. Fox has said it still expects the deal to close next year. And at the Royal Television Society conference on Thursday, James Murdoch said that he was disappointed with the decision and with Brexit it is "more important than ever" for the country to approve the deal signal it is a welcoming place for business.

"If the U.K. truly is 'open for business' post Brexit, we look forward to moving through the regulatory review process and this transformative transaction for the U.K. creative sector becoming an affirmation of that claim," he said.


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