Sky News on the Line as U.K. Regulator Weighs Fox Deal

(Bloomberg) -- Broadcasting live from a glass-box studio at the heart of Sky Plc’s headquarters in west London, the future of Sky News has suddenly become murky.

As U.K. regulators said 21st Century Fox Inc.’s 11.7 billion-pound ($16.3 billion) bid for Sky would give Rupert Murdoch too much influence over British media, the head of Sky News John Ryley called employees to a Tuesday morning newsroom meeting to allay concerns about their future, according to a person familiar with the matter, who asked not to be identified as the communication was private.

“I appreciate that today’s announcement does not end a period of uncertainty,” Ryley said in an emailed letter to staff, a copy which was seen by Bloomberg. “But it is the start of a process, the outcome of which we hope will be a good one for Sky News.”

The roughly 500 employees at Sky News, the U.K.’s first 24-hour news channel, set up by Murdoch in 1989, face an uncertain fate. The Competition and Markets Authority said the channel might have to be sold or spun off to restrict Murdoch’s sway over British media, while Sky has previously threatened to close the channel entirely if it became an impediment to the Fox deal. Sky is part of Murdoch’s $52.4 billion deal to sell much of his media empire to Walt Disney Co.

A spokesman for Sky declined to comment on the memo and meeting.

Behavioral Remedy

Of the options available, Fox is most likely to offer a behavioral remedy such as insulating Sky News from Murdoch’s influence through an independent editorial board, a proposal it made at the time of a previous regulatory review, said Alice Enders, head of research at Enders Analysis.

Communications watchdog Ofcom said that proposal mitigated concerns around Murdoch’s influence. The measure was rejected at the time by former Culture Secretary Karen Bradley, who said it didn’t go far enough. Fox would now have to convince new Culture Secretary Matt Hancock, who was appointed to the role earlier this month.

“They may add to it in some ways,” Enders said. “Nobody wants to close Sky News -- it’s a key part of the bundle for Sky.”

After giving a statement on the probe to lawmakers, Hancock was pressed for assurances on the future of Sky News.

The Scottish National Party’s Brendan O’Hara asked him to pledge not to let Sky’s employees to be used as “pawns in any takeover.” John Whittingdale, one of his predecessors as culture secretary, asked Hancock to bear in mind that “the greatest disaster” that could befall plurality of U.K. media would be for Sky News to be closed by its new owner.

Hancock said he would reserve judgment until the final report and asked MPs to submit formal statements to the CMA.

The deal’s opponents have challenged a behavioral solution to Sky News, saying that Murdoch made similar commitments when he bought the Times and the Sunday Times newspapers in 1981, and in the acquisition of Dow Jones & Co. by News Corp. in 2007, and that they were ineffective.

Coming up with a behavioral remedy that ensures the independence of Sky News will be difficult, said Matthew O’Regan, a lawyer at St. John’s Chambers in Bristol with experience in telecommunications and broadcasting.

Spinoff

Selling Sky News would also pose challenges. It’s a money-losing channel and may struggle as a stand-alone business, the CMA said in its provisional findings.

“It doesn’t seem obvious that Sky News can be viably divested to a suitable purchaser,” O’Regan said.

Spinning Sky News off into a separate legal entity -- a solution proposed at the time of Murdoch’s last bid for Sky in 2011 -- may be Fox’s better bet for approval, Jerry Dellis, an analyst at Jefferies, wrote in a note to clients. The CMA’s attitude to that outcome, which would see Sky News become a publicly listed company and Fox retain a minority share, seems “more encouraging” than a full sale, he said.

“An acceptable framework for spinning out Sky News appears to us quite attainable and the CMA is showing flexibility in extending timetables to explore this,” Dellis said.

Any concerns around media plurality would fall away if Disney succeeds in taking full control of Sky, the CMA said.

At the end of the Sky News meeting Tuesday morning, a staff member asked if they’d get a statutory redundancy if Sky, Fox, or Disney decided to close Sky News down, according to the person. Ryley said the prospect hadn’t even been discussed and there had been no planning for a closing.

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