Public interest test for the proposed acquisition of Sky plc by 21st Century Fox, Inc Ofcom’s report to the Secretary of State This version is non-confidential Confidential redactions are indicated by [] Submitted on: 20 June 2017 About this document In March 2017, 21st Century Fox, Inc. notified the European Commission of its intention to buy the shares in Sky plc that it does not already own. Following the notification, the Secretary of State for Culture, Media and Sport asked Ofcom to review the effect of the proposed transaction on two considerations: • the plurality consideration: whether the transaction may be expected to result in insufficient plurality in the number of persons with control of media enterprises in the UK; and • the broadcasting standards consideration: whether Fox and Sky would remain genuinely committed to broadcasting standards following the transaction. Ofcom is required to report by 20 June 2017 to the Secretary of State on the effect of the transaction on the public interest considerations. Our report contains advice and recommendations that may be relevant to the Secretary of State’s decision as to whether to refer the transaction to the Competition and Markets Authority for further assessment. Separately, we have an ongoing duty to be satisfied that the holders of broadcast licences are fit and proper to be licensed. Our findings on our fit and proper assessment will be published on our website. Contents Section Page 1 Key findings, advice and recommendations 3 2 Executive summary 7 3 Our approach 19 4 Market context 31 5 Availability 48 6 Consumption 53 7 Impact 70 8 Influence over the news agenda and the political process 78 9 Internal plurality 86 10 The broadcasting standards public interest consideration 90 11 Advice and recommendations 101 Annex Page 1 Undertakings proposed by Fox 106 2 Summary of responses to invitation to comment 116 3 Methodology 137 Section 1 1 Key findings, advice and recommendations Ofcom’s role 1.1 The Secretary of State has asked Ofcom to report to her on the effect of the proposed acquisition by 21st Century Fox, Inc. (‘Fox’) of Sky plc (‘Sky’) on two public interest considerations: whether it may be expected to result in insufficient plurality in the number of persons with control of media enterprises in the UK, and whether there would continue to be a genuine commitment to broadcasting standards by Fox and Sky following the transaction. 1.2 Our role is to conduct a first stage investigation into the two public interest considerations and, on the basis of this investigation, to provide advice and recommendations that may be relevant to the Secretary of State’s decision on whether to refer the transaction to the Competition and Markets Authority for further assessment. The threshold for a reference is low. The Secretary of State would need to hold a reasonable belief that it may be the case that the transaction may operate or may be expected to operate against the public interest. Key findings on media plurality 1.3 We have considered the influence of the Murdoch Family Trust over Fox, Sky and News Corp. While Fox and News Corp are separate companies, the Murdoch Family Trust has material influence across both companies. 1.4 The proposed transaction would give the Murdoch Family Trust material influence over news providers with a significant presence on television, radio, printed newspapers and online. It would bring the largest UK-wide newspaper group and one of only three significant providers of television news under the material influence of the Murdoch Family Trust. The transaction would also expand the reach of important online news sources influenced by the Murdoch Family Trust. 1.5 The combined Fox/Sky and News Corp would have the third largest total reach of any news provider. Across all platforms, news sources from Fox/Sky and News Corp would be used by three in ten adults (31%). This reach is lower than the BBC’s (77%) or ITN’s (39%) but significantly higher than that of the next biggest provider, Daily Mail and General Trust (‘DMGT’) (17%). 1.6 Fox/Sky and News Corp would also account for a large share of the news that the public consume. It would provide 10% of the UK’s news across all platforms, using Ofcom’s bespoke ‘share of reference’ metric, which measures the share of news consumption of individual providers. This share is behind that of the BBC (42%), in line with ITN (11%), and significantly ahead the next biggest provider, DMGT (4%). 1.7 The use of online news is developing rapidly. Evidence suggests that traditional news providers retain a strong position online. Sky News and The Sun may be more successful than most other news sources in attracting viewers and readers through ‘online intermediaries’ – websites that do not produce news, but direct people to it. The true reach and share of the merged parties may, therefore, be materially larger than survey data would suggest. This effect means that the merging parties could 3 plausibly have the second largest share of news consumption, behind the BBC, and ahead of ITN. 1.8 Sky News is a trusted voice for those who use it. We are more concerned about a transaction involving Sky News than we would be for a news provider with lower levels of trust. 1.9 The transaction may increase the ability of members of the Murdoch Family Trust to influence the overall news agenda. There is a risk that members of the Murdoch Family Trust may seek to coordinate the editorial policy of news outlets under their influence by omitting certain news stories, highlighting others or using the same commentators in their newspapers and on television news. This type of coordination could weaken the editorial independence of Sky News and so give members of the Murdoch Family Trust greater influence over public opinion. 1.10 The transaction may increase the influence that members of the Murdoch Family Trust have over the political process. Respondents to our invitation to comment argued that members of the Murdoch Family Trust already hold significant political influence, citing evidence that includes the Leveson Inquiry. The transaction could increase the perception among some politicians that members of the Murdoch Family Trust are more able to shape the editorial direction of Sky News, in order to favour one side of a political debate over another. Our assessment, therefore, is that there is a risk that the transaction may increase the political influence of members of the Murdoch Family Trust. Advice and recommendation on the plurality consideration The transaction raises public interest concerns as a result of the risk of increased influence by members of the Murdoch Family Trust over the UK news agenda and the political process, with its unique presence on radio, television, in print and online. We consider that these concerns may justify a reference by the Secretary of State to the Competition and Markets Authority. Key findings on broadcasting standards 1.11 Fox’s and Sky’s compliance with Ofcom’s Broadcasting Code is in line with that of comparable broadcasters. The number of breaches of the Broadcasting Code by Fox is not exceptional when compared to Sky or similar broadcasters. Fox’s compliance record in relation to overseas broadcast jurisdictions does not give cause for concern. 1.12 We do, however, have significant concerns about the procedures that Fox News has in place to ensure compliance with our Broadcasting Code. We found that Fox News did not have adequate procedures in place to ensure compliance with our rules. Fox has put in place a new compliance process for Fox News with effect from 15 May 2017. 1.13 Corporate governance concerns do not raise issues about genuine commitment to broadcasting standards. The Secretary of State also asked us to consider the effect of any failures of corporate governance on this public interest consideration. We have considered alleged corporate governance failures in the context of our separate assessment of whether Sky would remain fit and proper to hold broadcast licences following the transaction. We have concluded that the behaviours alleged at Fox News amount to significant corporate failure, however, the 4 overall evidence available to date does not provide a reasonable basis to conclude that if Sky were 100% owned and controlled by Fox, they would not be fit and proper to hold broadcast licences. Advice and recommendation on the broadcasting standards consideration In light of Fox’s and Sky’s broadcast compliance records and taking account of our separate assessment of whether Sky remains fit and proper to hold broadcast licences following the transaction, we do not consider that the merged entity would lack a genuine commitment to the attainment of broadcasting standards. Therefore, we consider that there are no broadcasting standards concerns that may justify a reference by the Secretary of State to the Competition and Markets Authority. Fox’s proposed undertakings 1.14 The Secretary of State may accept undertakings in lieu of a reference to the Competition and Markets Authority if she considers them to be appropriate for the purpose of remedying, mitigating or preventing any adverse public interest effects which may be expected to result from the transaction. 1.15 Fox has put forward undertakings, in lieu of any reference to the Competition and Markets Authority. The stated intention is to ensure the continued editorial independence of Sky News by addressing our concerns about the potential influence of members of the Murdoch Family Trust over Sky News. 1.16 Fox has said that it would establish an independent Sky News Editorial Board. The Board would consist of a majority of independent members and would appoint the Head of Sky News.