21St Century Fox, Inc. / Sky Plc Merger Inquiry
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Non-confidential version 21ST CENTURY FOX, INC. / SKY PLC MERGER INQUIRY INITIAL SUBMISSION TO THE COMPETITION AND MARKETS AUTHORITY REGARDING MEDIA PLURALITY 1. INTRODUCTION AND EXECUTIVE SUMMARY 1.1 This initial submission is made to the Competition and Markets Authority (CMA) on behalf of Twenty-First Century Fox, Inc. (21CF) in relation to 21CF’s proposed acquisition of the remaining shares in Sky plc (Sky) (the Transaction). This submission addresses matters relevant to the CMA’s assessment of media plurality. 21CF has separately commented on matters relating to the broadcasting standards consideration. 1.2 21CF welcomes the opportunity presented by the Phase II inquiry process for a considered and impartial review of the Transaction’s implications for media plurality. 21CF believes that the available evidence, when analysed within the relevant legal framework, should lead the Inquiry Group to advise the Secretary of State that the Transaction will not operate against the public interest. 1.3 21CF disagrees with several aspects of Ofcom’s advice to the Secretary of State (the Ofcom Report), and with its overall conclusion regarding the potential effects of the Transaction on plurality, which formed the basis on which the Secretary of State reached her decision to refer the Transaction to the CMA. 21CF has addressed these matters separately, in its response to the Secretary of State’s provisional decision on reference (the Provisional Decision Response), and does not repeat specific comments in detail here. A copy of the Provisional Decision Response is provided as Annex 1. 1.4 Instead, the purpose of this submission is to provide the CMA with 21CF’s views on relevant aspects of the legal framework and key themes that 21CF submits should inform the CMA’s assessment of the Transaction, and to set out at a high level what 21CF believes is the proper analysis of Transaction. The CMA now needs to consider these matters on the basis of the evidential standard that applies to its decision under Article 6(3) of the Order, and to the Secretary of State’s final decision under Article 12(2) of the Order: whether the Transaction “operates or may be expected to operate against the public interest”, i.e. whether on the balance of probabilities it will do so.1 This is a higher standard than applied to Ofcom’s Report and to the Secretary of State’s decision on reference. 1.5 This submission should be read in conjunction with an expert report 21CF has commissioned regarding the state of the UK media landscape, attached as Annex 2.2 This shows how the available evidence in fact supports entirely different conclusions regarding the Transaction’s implications for media plurality to those drawn by Ofcom and the Secretary of State at Phase I, even applying Ofcom’s own published measurement framework. In addition, 21CF provides as Annexes 3 and 4 two further expert reports prepared by Enders Analysis. Annex 3 sets out further background on the supply of news in the UK and how this has developed since the enactment of the Communications Act in 2003, which introduced the current media plurality regime. Annex 4 focuses specifically on Facebook’s role in shaping news provision and consumption; a role which, as explained below, is of considerable importance for any assessment of media plurality in the UK. 1 Enterprise Act 2002 (Protection of Legitimate Interests Order) 2003; read (by analogy) with IBA Health v OFT [2004] EWCA Civ 142, at paragraph 46. 2 Robert Kenny, Communications Chambers, News Plurality in the UK and the impact of 21CF’s acquisition of Sky. 0012561-0000398 CO:30950319.1 1 Non-confidential version 1.6 In summary, 21CF would submit that the following considerations must be central to the CMA’s assessment of the Transaction. (i) The Transaction does not bring news providers under common material influence. The Secretary of State’s decision on reference appeared to attach significance to a statement by Ofcom that the Transaction would “bring” important news providers under the material influence of the Murdoch Family Trust (MFT). In fact, the MFT already owns 38.4% of the voting Class B Common Stock in News Corp and 38.4% of the voting Class B Common Stock in 21CF. Each of News Corp and 21CF is a listed company with a separate majority independent board. News Corp is not a party to the Transaction. Most importantly the Transaction does not affect either the ownership or the degree of control that the MFT has over either News Corp or 21CF. 21CF already owns 37.19% of the voting rights in Sky and has at least material influence over Sky for the purposes of the Enterprise Act. The plurality assessment must focus on the change brought about by the Transaction taking into account the current position. If one were to proceed on the basis of a legal fiction under which 21CF, Sky and News Corp are considered a single entity because of common material influence, the Transaction would bring about no change to the status quo. (ii) The Transaction is not a full combination of Sky, 21CF and News Corp, and cannot be assessed as if this were the case. Following the Transaction, the UK news outlets concerned – Sky News and those of News Corp – will remain under the ownership of separate listed companies – 21CF and News Corp – with separate majority-independent boards. While the statutory framework permits the CMA to take account of the activities of News Corp, due to the common minority shareholdings of the MFT in 21CF and News Corp, it must do so on the basis of the actual extent of control exercised and exercisable by the MFT over the relevant news outlets as a result of that shareholding, consistent with the judgment of the Court of Appeal in Sky/ITV. A failure to do so led Ofcom’s Report to overstate significantly the effects of the Transaction on media plurality. The Transaction will bring about no changes to the relationship between the MFT and News Corp on the one hand and 21CF on the other. 21CF - which already has at least material influence over Sky - will acquire full ownership and control of Sky. But 21CF will remain a listed company with a majority independent board equivalent to the one governing Sky at present. (iii) No adverse finding can be made unless the CMA concludes that the Transaction would result in insufficient plurality. Ofcom’s Report confined itself to considering whether the Transaction could potentially reduce plurality. This is a reasonable starting point for a plurality assessment – and should in fact suffice to exclude plurality concerns regarding the Transaction – but it is only a starting point. It cannot serve as the basis for an adverse public interest finding. The statutory question is whether the Transaction would lead to insufficient plurality. This requires not only a significant reduction in plurality, but that, as a result of the Transaction, plurality would fall below a critical benchmark. 21CF would submit that current levels of plurality are substantially more than “sufficient” on any reasonable view, having regard to indications as to the appropriate benchmark in the legislative history and relevant statutory guidance, and that a finding of insufficient plurality as a result of the Transaction is therefore not plausible. (iv) The landscape of news provision is highly plural, having been transformed by the rise of online sources and intermediaries. There remains no lack of diversity across the traditional news platforms – TV, radio and print – and these are complemented by new provision online, which is firmly established as a platform of similar importance to TV. The provision and consumption of news online is of critical relevance for any plurality assessment. It has brought new entry and redistributed share across traditional media groups (resulting in a sharp drop in the relative importance of newspapers generally, and News Corp specifically, as news providers). More than that, though, it has dramatically eroded the 0012561-0000398 CO:30950319.1 2 Non-confidential version scope for any news outlet, or proprietor of news outlets, to exert influence over public discourse. These effects are already clear - they cannot be dismissed as speculative or uncertain, as Ofcom’s report did. (v) The quantitative evidence is inconsistent with media plurality concerns. During its Phase I review, Ofcom carried out a quantitative analysis of the Transaction in the context of the UK media landscape, using cross-platform measures of consumption (share of references and reach). 21CF would submit that this evidence is not consistent with media plurality concerns. Far from creating a provider with a position of “cross-media dominance” (in the words of the relevant statutory guidance), even a full combination of Sky, 21CF and News Corp (which is not the effect of the Transaction) would amount to the moderate strengthening of the third-largest player, with around one-tenth of news consumption on a cross-media basis (compared with Sky’s existing share of around 6%), far behind the BBC and also behind ITN. Looked at another way, an adverse public interest finding would require one to believe, amongst other things, that the continued sufficiency of plurality in the UK media hinges on a company that accounts for just 3% of news consumption on a cross- media basis – that is to say, News Corp. (vi) The alleged influence of the MFT provides no basis for a finding of insufficient plurality. Ofcom’s Report took the view that a reference to the CMA might be justified on the basis that the Transaction might increase the influence of members of the MFT over the news agenda and the political process.