News Corporation/BSkyB Merger — Statement

– in the House of Lords at 4:09 pm on 3 March 2011.

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Photo of Baroness Rawlings Baroness Rawlings Lords Spokesperson (Department for Culture, Media and Sport), Baroness in Waiting (HM Household) (Whip) 4:09, 3 March 2011

My Lords, with leave of the House I shall now repeat a Statement made in another place by my right honourable friend the Secretary of State for Culture, Olympics, Media and Sport. The Statement is as follows.

"I would like to make a Statement about News Corporation's proposed acquisition of BSkyB. I would like to start by thanking both the OFT and Ofcom for their detailed, thorough and independent analysis, which has been produced to a very challenging timescale. My decision today relates to the issue of plurality of news provision, and not competition or market power issues, which were ruled on by the EU Commission on 21 December 2010.

Earlier this morning, I announced that the independent media regulator, Ofcom, had advised me that undertakings in lieu offered by News Corporation would address the plurality concerns that it had identified in its report to me of 31 December 2010. I also announced that the OFT considered the undertakings to be practical and financially viable for up to 10 years. In light of this independent advice, I am proposing to accept such undertakings, instead of referring the matter to the Competition Commission.

As the Enterprise Act 2002 requires, I have today published these undertakings for public consultation. For the sake of transparency, I have also published all the advice that I have received from Ofcom and the OFT, together with correspondence between myself and News Corporation, and a timeline of the process that I have followed, including details of all the meetings I have held. I hope that honourable Members will have time to study these undertakings during the formal consultation that will start today. However, it may help if I outline the main points.

The undertakings would ensure that Sky News is spun-off as an independent public limited company. The shares in that company would be distributed among the existing shareholders of BSkyB in line with their existing shareholdings. News Corporation would therefore retain a 39.1 per cent stake in the new company, although it will not be allowed to increase this shareholding for 10 years without the permission of the Secretary of State. In other words, even if the proposed News Corp/Sky merger goes ahead, News Corp's shareholding in Sky News will remain the same as at present.

The new company would have a 10-year carriage agreement and a seven-year renewable brand-licensing agreement with the newly merged News Corp/Sky so as to ensure its financial viability. Unlike the board to which Sky News currently reports, the chairman would be required to be an independent director. Unlike at present, the board would have a corporate governance and editorial committee to ensure compliance with the principles of editorial independence and integrity in news reporting. For the first time, the requirement for the company to adhere to Ofcom's broadcasting code would be enshrined in the new company's articles of association. In short, the editorial independence of Sky News would be better protected than it would have been, not only if Sky News had formed part of the buyout of Sky shares, but even than it is right now.

The principles of the arrangements are clear and set out in the proposed undertakings. There are still some detailed provisions of carriage, brand licensing and certain operational agreements that will need to be finalised, and the terms ensure that such agreements will need to be approved by me. In deciding whether or not to approve them, I will again take the advice of Ofcom and the OFT, as appropriate. The merger cannot, of course, go ahead until I have been satisfied on all these matters.

I also want to draw the House's attention to the issue of the long-term sustainability of these undertakings. The OFT has said that the undertakings are likely to be practically and financially viable in the short and medium term, but expressed concerns about whether the undertakings would be viable over the longer term. It stated, however, that the appropriate timeframe in this market was for me to decide, with Ofcom's advice.

Ofcom has considered the impact of a 10-year carriage agreement in the context of the media industry and has expressed the view that in a rapidly changing media and technological environment, a carriage agreement of 10 years is a long-term measure. I agree with its independent view of that given the difficulties of predicting with any certainty how the plurality issues will develop over a longer timeframe. However, I will of course only reach a final conclusion on this and other aspects of the undertakings after the consultation is complete.

Consequently, on the basis of the independent advice I have received, I have concluded that a referral to the Competition Commission would not be merited at this stage, and instead propose to consult on the undertakings in lieu, the final version of which has also been placed in the Libraries of both Houses and on my department's website.

In line with the legislation, I am opening a consultation period during which time all interested parties will be able to express their views on the undertakings. Once I have considered representations, I will reach a decision on whether I still believe that the undertakings should be accepted in lieu of a referral. If, after consultation, I am still of the view that the undertakings address the concerns about media plurality, I will accept them and not refer this merger to the Competition Commission.

I would add that, quite separately to my consideration of this merger, I have carefully noted Ofcom's point that there is a potential weakness in the current public interest test with respect to media plurality, namely that it can only be applied when there is a commercial transaction to consider. This wider question is one that I intend to consider in the context of the forthcoming review of communications regulation that I announced earlier this year.

Throughout this process I have been very aware of the potential controversy surrounding this merger. Nothing is more precious to me than the free and independent press for which this country is famous the world over. In order to reassure the public about the way that this decision has been taken, I have sought and published independent advice at every step of the way, even when not required to do so by law. After careful consideration, I have followed that independent advice.

The result is that, if this deal goes ahead, Sky News will be able to continue its high-quality output with greater protections for its operational and editorial independence than exist today. For those who have concerns about the plurality of news provision, I hope that this will be a welcome step forward. As such, I commend this Statement to the House".

That concludes the Statement.

Photo of Baroness Jones of Whitchurch Baroness Jones of Whitchurch Opposition Whip (Lords), Shadow Spokesperson (Culture, Media and Sport) 4:18, 3 March 2011

My Lords, I thank the Minister for this Statement. For those of us who have been watching the progress of the referral to Ofcom with some interest, it does not come as a great surprise that we have received a Statement of this nature today. A cynic might say that it would be very surprising if the Christmas social engagements between the Camerons and the Murdoch clan, and the subsequent lobbying, did not have an outcome such as this, although I know that the noble Baroness will have no knowledge of that and I do not expect her to comment.

In November last year we had an excellent debate on the case for maintaining a broad plurality of media ownership tabled by my noble friend Lord Puttnam, who regrettably cannot be with us today. What was noticeable about that debate was the degree of well informed consensus around the Chamber that the proposed News Corp takeover of BSkyB would not serve the public interest. Indeed, I was struck by the passion of noble Lords' belief in the principle of media plurality as a central issue of our democracy-so much so that the noble Lord, Lord Razzall, made it clear that, for the Liberal Democrats, upholding the principle was,

"a significant marker for our involvement in the coalition"-[Hansard, 4/11/10; col. 1784.]

I hope to hear him reaffirming that fact this afternoon.

In preparing for the Statement, I have reread the debate and the many concerns expressed, and have tried to measure them against the package that we have before us to see whether we can be reassured that they have been addressed. Unfortunately, many of the earlier doubts remain, and I hope that the noble Baroness can reassure us on some of them today. For example, even if we take Sky News out of the equation, does not the BSkyB takeover still represent a concentration of media power on a scale that would not be allowed anywhere else in the developed world-not even in the US? On the basis that News Corp's share of the national press circulation is estimated to increase to more than 40 per cent by 2014, what are the implications for cross-media dominance in the years to come?

A major concern not answered by this deal is that the strength of BSkyB's financial dominance will allow it to bundle or cross-subsidise its newspaper output, potentially driving competitors out of the market. What steps does the department intend to take to ensure that that cannot happen? That is even more of a pressing issue with the development of internet news and pay-to-view tablet initiatives, in which Murdoch is taking the lead. Surely that underlines the fact that a plurality of news outlets is no longer just about the big TV news broadcasters and that the offering of Sky News as a token sacrifice does not address the real issue of concentration of media power.

There is another reason why sacrificing Sky News might not be the answer. The views of citizens and their access to information are shaped more widely than just by watching news programmes. The nature of entertainment and cultural output matters just as much, as does whether the programmes on offer have, for example, a concentration of American rather than UK origin. Those things matter in shaping how we see our world.

In our previous debate, several noble Lords spoke of Rupert Murdoch as an honourable man, and I have no reason to doubt that, but where might this decision and the promises made lead us in future? How can we stop BSkyB falling into others' hands in years to come? The spectre of Russian oligarchs, or worse, cannot be discounted. How can we be sure that the deal today will be watertight and stand the test of time?

These decisions, once taken, are virtually impossible to reverse. Surely the sensible thing to do is to err on the side of caution. Will the Minister comment on whether the decision could in due course be reversed if it is subsequently shown not to be in the public interest?

In addition to those questions of principle regarding the deal, we have some specific questions about the detail of Sky News governance. For example, who will appoint the Sky News board and chair? What steps would News Corp have to take if it wanted to change its shareholdings or governance arrangements? Are there any constraints on who might buy the remaining shares in Sky News? Finally, what is to stop News Corp in setting up a rival news station to Sky-let us give it a name picked at random, Fox News-and thereby let Sky decline in its impact and status over time?

The Minister set out today the short period of consultation which will follow this announcement. We, too, plan to study the undertakings carefully and consult widely before coming to a view on whether this package is in the public interest. We will listen to the views of the regulator and to the other media organisations which may be affected by the decision. At the end of the day, our decision will be made by applying the public interest test in the knowledge that to get this decision wrong could have wide implications for our democracy for many years to come.

Photo of Baroness Rawlings Baroness Rawlings Lords Spokesperson (Department for Culture, Media and Sport), Baroness in Waiting (HM Household) (Whip) 4:24, 3 March 2011

My Lords, I thank the noble Baroness, Lady Jones, for those questions, and I will go through most of them.

Given our debate in the House initiated by the noble Lord, Lord Puttnam, to which I replied, the Opposition's stance is no surprise, as it was clearly set out then. The noble Baroness started by voicing doubts about competition. This was settled by the EU Commission on 21 December.

On bundling, there is absolutely nothing new. If Mr Murdoch had wanted to bundle he could have bundled a long time ago. He would have had an opportunity before to bundle the 39 per cent control that he has, plus the Times and other newspapers, and obviously is not interested in bundling.

On the control of ownership, the basis of the undertakings is that News Corporation will not have control of Sky News; it will have only 39.1 per cent of the shares. The majority of the board, however, including the chairman, will now be independent. Should News Corporation wish to acquire more shares in Sky News following the merger, it would have to get the Secretary of State's consent to this for a period of 10 years following the merger.

The noble Baroness quite rightly raised questions about future financial worries. The 10-year carriage agreement and the brand-licensing agreement underpin the undertakings and will ensure the viability of Sky News. Both those agreements must be agreed by the Secretary of State, so their terms will be subject to additional scrutiny.

The Secretary of State has made clear throughout his dealings on this that he has been committed to a fair, thorough and open process. I hope that the Statement has made clear that he has not reached a final decision and will not do so until after the consultation period when all parties have had the chance to contribute.

If any questions or points of detail remain that I have not answered, I will, of course, write to the noble Baroness and put a copy of the answer in the Library with all the other documents. I am grateful for the interest that noble Lords on the Back Benches will show on this matter, and I look forward to answering any of their questions.

Photo of Lord Fowler Lord Fowler Chair, HIV and AIDS Committee in the United Kingdom, Chair, HIV and AIDS Committee in the United Kingdom, Chair, HIV and AIDS Committee in the United Kingdom 4:28, 3 March 2011

My Lords, is not the trouble with Mr Murdoch's assurances that, frankly, we have been down that road before, and not very happily in the case of the Timesnewspapers, so will need to study those assurances with very great care.

As I understand it, the new company will be loss-making, will have a 40 per cent News Corporation shareholding, and will rely for two-thirds of its income upon News Corporation.

Who from outside does the Minister believe will be investing in this new company, and will she confirm that the undertakings that Mr Murdoch has given do not prevent him eventually taking back control of Sky News? Lastly, does she agree that this further concentration of powers-as the noble Baroness from the opposition Front Bench was saying-on advertising and cross-subsidy will pose a danger to many other media companies in this country? Is that really in the public interest?

Photo of Baroness Rawlings Baroness Rawlings Lords Spokesperson (Department for Culture, Media and Sport), Baroness in Waiting (HM Household) (Whip)

My Lords, I am very pleased that my noble friend, Lord Fowler, asks these questions. It gives me an opportunity to inform your Lordships' House further, following the Statement.

I clarify yet again that this is not a final decision. The Secretary of State has announced that he is proposing to accept the undertakings offered by News Corporation. There will now be a consultation period, which will close on 21 March, after which the Secretary of State will decide whether to approve the merger. Ofcom's report on the proposed merger stated, and the Secretary of State agreed, that:

"We consider that the revised proposed undertakings would address the plurality concerns identified in our report of 31 December 2010".

On the question of who outside might bid for the shares, I am afraid I have absolutely no idea. No one has told me anything about who might buy. The figure quoted by the Secretary of State was that 65 per cent of Sky News' income will come from Sky. We have no idea about the rest. The concentration of power will be less because the new Sky News will not have a Murdoch as chairman or on the board. The chairman and the board will be independently chosen.

Photo of Lord Borrie Lord Borrie Labour

I shall not repeat the excellent points made from the Front Bench by my noble friend Lady Jones, but I shall follow some of the things that the noble Lord, Lord Fowler, said. In particular, great emphasis has been put in the Statement on the independence of Sky News and of the chairman and the directors. Who is going to appoint them? Will the Murdoch family surely not want some say in how the independent chairman and directors are appointed? I would welcome an answer on that.

Bearing in mind some of the points made by the noble Lord, Lord Fowler, not only do we all recall, I am sure, the failure of the so-called independent directors of the Times, who were a somewhat useless set of people, but I remember, and I am sure many of us will, the so-called independent directors of the Observer, who were set up to put some kind of limit on the unreasonable power of the late Mr Tiny Rowland. The independent board is very much emphasised in this Statement, but I have not yet understood how it will be achieved, particularly if you have, as the Murdoch family will have, a 39.1 per cent share. Is the Murdoch family going to take no responsibility and want no power over the appointment of the independent directors?

Finally, how long is the arrangement to last? I understand the viability point about the 10 years. Perhaps I ought to have declared that some time ago I headed up the Office of Fair Trading for many years. I notice that it has usefully expressed some concern about the feasibility and viability of this arrangement and about whether it can last. We must all be concerned, as my noble friend Lady Jones indicated, about who may purchase. It might be some other undesirable person or group of persons whose viability and concern one would want to check.

Photo of Baroness Rawlings Baroness Rawlings Lords Spokesperson (Department for Culture, Media and Sport), Baroness in Waiting (HM Household) (Whip)

The noble Lord, Lord Borrie, makes very valid points. He knows about independence and Ofcom from having been chairman of the OFT. We either have to believe in this country that we have independent appointments or we do not. The way in which this country is run means that many bodies have independent board members and independent chairmen; it is not government and the Murdoch family. Paragraph 3.3 of the paper states that the new chairman will be independent.

The noble Lord, Lord Borrie, mentioned 10 years. The Office of Fair Trading stated that the Sky News company, which was not part of News Corporation, will be viable for at least 10 years. That is a long time in this market, and I remind the noble Lord that it is difficult to predict with certainty what the media world and plurality will be like in that time.

Photo of Baroness Howe of Idlicote Baroness Howe of Idlicote Crossbench

My Lords, alas, I fear that there is quite a lot of scepticism on the part of a number of your Lordships and concern about plurality. I accept that an independent chairman will be an improvement, but, by way of helping to reassure myself, I ask about the guarantee for 10 years that this sum-I believe it is 65 per cent-will be provided for the needs of this independent organisation. Will it be available every year or will it be a lump sum? If it is provided on a yearly basis, my concern is whether any condition might be attached-perhaps a delay in paying the sum. Might there be a way in which that could happen?

Photo of Baroness Rawlings Baroness Rawlings Lords Spokesperson (Department for Culture, Media and Sport), Baroness in Waiting (HM Household) (Whip)

Understandably, there is a certain amount of scepticism about some of the details. As I say, this is not a final decision; we are still consulting. The point about plurality came clearly from Ofcom. Its conclusion was that,

"we consider that the revised proposed undertakings would address the plurality concerns identified in our report of 31 December 2010".

At the moment, I cannot give the noble Baroness the details of how the money will be given.

Photo of Lord Razzall Lord Razzall Liberal Democrat

My Lords, as the noble Baroness indicated, when we debated this issue in November, with the possible exception of my noble friend Lord Lloyd-Webber there was an overwhelming feeling that this merger should not be allowed to go through. Having read the Ofcom letter and having listened to the Statement, my overall concern, which was expressed from the other Benches, is that nowhere in the Statement or in the Ofcom letter is the question addressed of the overall media power that this organisation will have following the BSkyB merger. That seems to be a huge lacuna in the Statement and the Ofcom letter, which is dealt with simply by reference to the fact that the European Union competition authorities have looked at this issue and have passed it, and that therefore we do not need to worry about it. Looking at the faces and nods around this House, it is something that we should worry about. However, as the noble Baroness has rightly said, these undertakings are now going out to consultation, and the devil, as always, will be in the detail.

Various noble Lords have indicated their suspicion about independent directors. I noticed the noble Lord, Lord Rees-Mogg, grinning at the comment about the independent directors of the Times. I am not sure which way he was grinning, but he was certainly grinning.

Photo of Lord Rees-Mogg Lord Rees-Mogg Crossbench

I am not an independent director of the Times and have no business connection with the Times other than writing a column.

Photo of Lord Razzall Lord Razzall Liberal Democrat

I understood that. Perhaps I should move on swiftly. There clearly is suspicion about the role of independent directors. Various people have mentioned the Times and the Observer, but even going back to the takeover of the News Chronicle by the Daily Mail, the record was rather poor. Undoubtedly, these undertakings will be looked at with huge scepticism.

Apart from being very light on the issue of overall media power, both the Statement and the letter from Ofcom are extremely light on how the new Sky News will be financed. My question for the noble Baroness is: is it intended that all the money will be put up by News Corporation for the next seven to 10 years? If so, will we have satisfactory undertakings that, despite the fact that it is retaining only 40 per cent of the business, it will continue-

Photo of Lord Campbell-Savours Lord Campbell-Savours Labour

My Lords, this is an abuse of our procedure. Would the Whips step in to sort it out?

Photo of Lord de Mauley Lord de Mauley Lord in Waiting (HM Household) (Whip)

My Lords, questions are expected to be brief.

Photo of Lord Razzall Lord Razzall Liberal Democrat

My question is whether the financial obligations to fund Sky News will be absolutely guaranteed in the light of future technological developments in the industry.

Photo of Baroness Rawlings Baroness Rawlings Lords Spokesperson (Department for Culture, Media and Sport), Baroness in Waiting (HM Household) (Whip)

My Lords, my noble friend Lord Razzall started off by asking about the merger and how the House had expressed a contrary view. The whole point of debate is that people should be allowed to express whatever view they wish. What we are looking at now are the reports from Ofcom and others on how to advise the Secretary of State. The Secretary of State is now putting the issue out to further consultation. The overall power of News Corp will actually be lessened because it will no longer control Sky News. It is to be a separate body and thus more independent.

On financial robustness, the 10-year carriage agreement and the brand licensing agreement that underpin these undertakings will ensure that Sky News will be financially viable. Both those agreements must eventually be underpinned by the Secretary of State, so their terms will be subject to additional scrutiny.

Photo of Lord Kinnock Lord Kinnock Labour

My Lords, my personal affection and respect for the noble Baroness, Lady Rawlings, make me accept from her that this is not a final decision. May I put it to her that if it does not bear close similarity to the final decision when it is made, noble Lords across the House are prepared to be utterly astounded with delight and shocked to their roots? Can I also put it to her that what she has told us this afternoon means that Sky News will by owned by the people and interests who own BSkyB, including 39 per cent by Murdoch interests? Does that not make the same mockery of independence that is evident elsewhere in the Murdoch empire, including the Wall Street Journal and our own Times in this country? Is it not clear that the Secretary of State has accepted this arrangement as a quid pro quo for allowing Mr Murdoch to take complete ownership of BSKyB, and is it not evident that this is a handsome pay-off for the support given by News International to the Conservative Party during the election?

Photo of Baroness Rawlings Baroness Rawlings Lords Spokesperson (Department for Culture, Media and Sport), Baroness in Waiting (HM Household) (Whip)

I cannot say anything about the final decision that the noble Lord, Lord Kinnock, has asked for. This is still open to consultation until a certain date, and it will be very interesting. The Secretary of State will then look at it all. There will be independent shareholdings. The Murdoch press will own 39 per cent, but the rest will be open to the public. It is a little unfair of the noble Lord, Lord Kinnock, to criticise the Secretary of State. He has made this absolutely clear right from the beginning. Everything is published and available in the Library-papers of every meeting are available for scrutiny by anyone who wants to do so. If people have been worried about anything at any stage, he has always seen them. So I think he is being a little tough.

Photo of Lord Elton Lord Elton Conservative

My Lords, I have a brief question to ask my noble friend. As I understand it, the situation is that the shareholding is limited to 39.1 per cent at the point of entry into this system, but we hear that the Secretary of State will have to give permission if further shares are to be brought in. Can my noble friend tell us on what grounds that permission would be given, because that is a very important factor?

Photo of Baroness Rawlings Baroness Rawlings Lords Spokesperson (Department for Culture, Media and Sport), Baroness in Waiting (HM Household) (Whip)

My noble friend Lord Elton is absolutely right to say that it is 39.1 per cent, but I cannot give him any further details about further permissions because they are not in my briefing.

Photo of Lord Campbell-Savours Lord Campbell-Savours Labour

My Lords, I should like to follow up the question asked by the noble Baroness, Lady Howe of Idlicote. What pressures can be exerted by BSkyB for an accelerated reduction in the subsidy paid to Sky News over the coming years, thereby reducing the quality of news output by Sky News?

Photo of Baroness Rawlings Baroness Rawlings Lords Spokesperson (Department for Culture, Media and Sport), Baroness in Waiting (HM Household) (Whip)

The noble Lord, Lord Campbell-Savours, asks me about the subsidy to Sky News. I am not aware of any subsidy to Sky News as yet; and, if there is a subsidy, I am sure it will be published for everyone to see.

Photo of Baroness Bonham-Carter of Yarnbury Baroness Bonham-Carter of Yarnbury Liberal Democrat

My Lords, can I press the Minister on a concern of mine, which is about retaining the quality of journalism on Sky News? Is the Minister satisfied that there are sufficient guarantees that News Corp will continue to fund Sky News properly, particularly considering the relentless forward march of new technology, which will necessitate considerable investment over future years? Just as a final thought, I have a feeling that the Telegraph must be thinking that it scored an own goal today.

Photo of Baroness Rawlings Baroness Rawlings Lords Spokesperson (Department for Culture, Media and Sport), Baroness in Waiting (HM Household) (Whip)

My noble friend Lady Bonham-Carter is worried about continuing openness. News Corporation shares in Sky News will be unchanged as a result of the merger, and the independence of Sky News will actually be increased. It has an independent board and a new independent chairman, and we hope that they will keep the high quality.

Photo of Lord Prescott Lord Prescott Labour

My Lords, this Statement, frankly, is largely about the price of shares and ownership of BSkyB, and little to do with democracy in our society. Is the Minister aware that the investigation into the Murdoch press on phone hacking has now been extended to the Sunday Times. The argument that it was simply one paper and one rogue reporter is no longer true-a number of papers owned by the Murdoch press and a number of their employees have been involved in withholding evidence and illegal practices. Is she happy to extend a major part of our television services to the Murdoch press? Will she consider extending the consultation period until the criminal inquiries have been completed?

Photo of Baroness Rawlings Baroness Rawlings Lords Spokesperson (Department for Culture, Media and Sport), Baroness in Waiting (HM Household) (Whip)

The noble Lord, Lord Prescott, brought this up in our debate on my noble friend Lord Fowler's Question the other day. He raises a very serious point about the hacking, but I cannot address that at this moment in the debate.