Sky and 21st Century Fox: Proposed Merger - Statement

– in the House of Lords at 12:43 pm on 16th March 2017.

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Photo of Lord Keen of Elie Lord Keen of Elie The Advocate-General for Scotland, Lords Spokesperson (Ministry of Justice) 12:43 pm, 16th March 2017

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

“I came to this House on 6 March to give an update on the proposed merger between 21st Century Fox and Sky. At the time I said that I was minded to issue a European intervention notice on the basis that I believed there to be public interest considerations as set out in the Enterprise Act 2002 that may be relevant to this proposed merger and which warrant further investigation.

The grounds on which I was minded to intervene were, as I explained at that time, media plurality and commitment to broadcasting standards, but I also confirmed that, in line with statutory guidance, I would invite further representations in writing from the parties and gave them until last Wednesday to provide them.

Having carefully considered the representations from the parties and the other representations that I have received, I can now tell the House that I have today issued a European intervention notice on the grounds of media plurality and commitment to broadcasting standards. I have written to the parties, Ofcom and the Competition and Markets Authority, informing them of my decision.

While the representations from 21st Century Fox highlighted areas where it contested the position taken in my ‘minded to’ letter, none of the representations has led me to dismiss the concerns I have regarding the two public interest grounds that I previously specified. I am of the view that it remains both important, given the issues raised, and wholly appropriate for me to seek comprehensive advice from Ofcom on these public interest considerations and from the CMA on jurisdiction issues. I note that, overall, the parties have welcomed a thorough regulatory review, which is what will now happen as a result of the intervention notice I have issued.

Since my ‘minded to’ decision, I have also received just over 700 representations from third parties, the vast majority of which supported intervention. A number of these representations called for me to create a new public interest consideration which would require a fit and proper assessment of the parties to the merger to take place as part of the intervention process. They also argued that it should be made clearer that matters of corporate governance, accountability and conduct could be taken into account in assessing the merger. These issues relate to questions about the application of the fit and proper test by Ofcom—I will come to these issues shortly.

As I previously set out, this decision will now trigger action by Ofcom to assess and report to me on the public interest grounds that I have specified and for the Competition and Markets Authority to report to me on jurisdiction. They each have 40 working days to prepare and provide these reports. This means that I will expect their reports by Tuesday 16 May. I will then resume my decision-making role in relation to the merger. To be clear, this intervening period, and indeed any time after that until a final decision on the merger is taken, is subject to the constraints that apply to my quasi-judicial role.

Mr Speaker, I am sure you understand that I cannot, nor can any other member of this Government, comment substantively on the case as it proceeds. I will, as I have done so far, keep the House updated once I have considered the reports of Ofcom and the CMA.

What I will comment on is that much of the discussion in last week’s debate both here and in the other place focused on the question of Ofcom’s assessment of whether a licensee is fit and proper, including the ongoing duty which falls to Ofcom under the Broadcasting Acts 1990 and 1996.

I have received representations from the honourable Member for West Bromwich East and from the right honourable Member for Doncaster North, as well as from a number of other parties, on adding fit and proper as a new public interest consideration in the Enterprise Act. I want to assure them that I have carefully considered the arguments they have put forward.

The grounds set out in the Enterprise Act that allow for intervention in media mergers are aimed at ensuring plurality of the media, which is essential to a healthy democracy—something I know Members of this House and the other place support. It is a view which I fully and unequivocally endorse. I am also clear that assessing whether someone is fit and proper to hold a broadcasting licence is a different requirement, and one that, quite rightly, sits with the independent regulator, Ofcom.

On Monday, Ofcom announced that it will conduct its fit and proper assessment at the same time as it would consider any public interest test in response to my decision to intervene in the merger. This means that Ofcom will conduct its assessment within the 40 working days it has to report to me on the public interests I have specified in the intervention notice. I welcome Ofcom’s announcement, which will provide clarity for the parties but also provide reassurance to those who have expressed their own concerns about this issue, that this is a matter which Ofcom will now consider before the merger takes place.

I trust, as before, that this update is helpful to honourable and right honourable Members and that this Statement gives an opportunity to debate this important issue, but at the same time respecting the limits of what I can say, as I mentioned earlier, given my ongoing quasi-judicial role in relation to this merger. I commend this Statement to the House”.

Photo of Lord Stevenson of Balmacara Lord Stevenson of Balmacara Opposition Whip (Lords), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Business, Energy and Industrial Strategy), Shadow Spokesperson (Education) 12:50 pm, 16th March 2017

My Lords, I am obliged to the noble and learned Lord for repeating the Statement made in the other place. On this side of the House we welcome the decision that has been reached, that having been minded to go ahead with a full referral, the Secretary of State today confirmed that that is what she is doing. That is entirely right and appropriate. It is perhaps worth mentioning in the process, as alluded to in the Statement, that 21st Century Fox also welcomed the referral. That needs no further comment from me.

The two grounds on which the referral is made are broadcasting standards and the question of being a fit and proper person. I will deal with them both and ask a couple of questions around them. The broadcasting standards ground is a relatively new departure in this area because previous referrals have been done on much narrower grounds. Broadcasting standards is a very broad term but I welcome this. It is right that the consideration of this merger, since it involves a global media company, needs to engage with all areas that might affect the plurality of sources of information but also the entertainment and other features of the broadcasting world today. Will Ofcom have the power to investigate all corporate governance issues affecting 21st Century Fox, including anything that may arise from the phone-hacking scandal, any cover-up of illegality at News International, the rehiring of people responsible for corporate governance failures and ongoing sexual harassment claims currently being heard by a grand jury in the United States which, if proved to be the case, might lead to withdrawal of that company’s licence to broadcast there?

Secondly, plurality is a term that probably needs to be reinterpreted as technology has moved on considerably since the first time this issue was raised in the events of 2010-11. The work done at that time by Ofcom, which involved a 40-day period of investigating similar but not necessarily the same issues, resulted in a report provided to the Secretary of State. The Secretary of State has the power to publish that report but, as far as I can understand, that has not yet been published. Can the report now be made available, since it clearly bears on the issues before us? Whether or not it is published, can and will the issues raised in that report by Ofcom with the then Secretary of State be considered in the work going forward at this point?

I welcome Ofcom’s announcement that it will conduct the assessment under the fit and proper regulations at the same time as the other work it has been commissioned to do, so that we have a timetable of 40 days. That may prove a bit challenging given the amount of material that must be covered but it is important that we do so. The question of the “fit and proper” assessment is undefined in the legislation and it may be that there are, as we discussed in the Digital Economy Bill before your Lordships’ House, questions raised about exactly what tests are required for this. In some ways, it may be appropriate to reconsider those, and we may be able to find time in the remaining stages of that Bill to do so. Today, could the noble and learned Lord confirm that while the report issued after the fit and proper assessment at the time of the last merger investigation was largely couched in terms of directorial duties, this report will deal with not only individuals but the corporate structures within which they operate and that the level at which “fit and proper” persons are concerned will be adjusted to make sure that it covers the responsibilities inherent in a corporate as opposed to an individual structure?

Many of the questions I raise today and which are raised more generally by the approach that the Government are taking—which, as I said, we welcome—would have been considerably aided had they been informed by the work that could have been done under part 2 of the Leveson inquiry. That has been delayed and, for reasons that the Secretary of State gave at a recent meeting in this House, cannot be reopened until such time as judicial processes going forward are complete. I understand that and do not seek to raise any questions about it. But I put it to the noble and learned Lord that the issues that are likely to be part of that review will be germane to what we are discussing today, and I wonder if he has any comments on that.

Finally, on the question of powers, the founding document for the investigations being announced today is the Enterprise Act 2002. The current thinking is that sufficient powers to carry these out are available to Ofcom and the CMA under the different regulations that affect them. But will the Minister confirm that the Ofcom investigation has the power to obtain documents and compel witnesses to appear before it? That power is available to the CMA but may not be explicit in the regulations that are operating this investigation.

Photo of Lord McNally Lord McNally Liberal Democrat

My Lords, I, too, welcome the Statement and the way that the Secretary of State is approaching her responsibilities in this regard. The big problem is that we have been here before. In many ways, we are dealing with an issue that we have faced many times—since the end of the war there have been five royal commissions on the press, and Leveson—and yet we still have these concerns about power and influence.

I am still haunted by the word that Mr Murdoch used at the height of the hacking scandal when he appeared before the Select Committee and said it was the humblest day of his life. I always thought that that was an odd word to use. It is not humbling, it is not regretting, it is not “I am going to mend my ways”. In fact, everything that has happened since has warned us that there has been no change in the approach.

Can the Minister tell us what were the points that Fox contested? It would be interesting to know how it contested what we thought a week ago was a very good Statement. As the noble Lord, Lord Stevenson, said, where does this sit in the timetable of other decisions to be made about Leveson 2 and about setting up one of the great prizes of Leveson—a genuine, low-cost arbitration system under Section 40? It is important that we look at this in a holistic way, not a siloed way. I also worry about the 40-day time limit. We should not put false timetables on these decisions because we will be stuck with them for a very long time.

I welcome the Secretary of State’s emphasis on her assurances about respecting her quasi-judicial authority. Will the Government also guarantee that any meeting or communication between Mr Murdoch and the Prime Minister, or their emissaries, is made immediately public, as well as the record of any meetings that do take place? There is a long record of Mr Murdoch having access outside the direct ministerial responsibilities, in all the jurisdictions in which he operates.

The wording of the Statement gives us confidence but will the Minister assure us that we are in a process which is going to satisfy somebody he will be well aware of—the man or woman on the Clapham omnibus? When we get to the end of this process, will it feel right? Will it smell right? Will it look right? If it does not, we will have created another problem that we will have to face further down the road.

Photo of Lord Keen of Elie Lord Keen of Elie The Advocate-General for Scotland, Lords Spokesperson (Ministry of Justice)

I am obliged to noble Lords for their observations on this matter. I will begin with a number of points raised by the noble Lord, Lord Stevenson; first, the question of commitment to broadcasting standards. When one is looking at broadcasting standards, one can have regard to broadcasting by way of television and radio within the statutory context but of course when actually applying a test of commitment, one is looking much more broadly at the behaviour of a particular party. That would include their behaviour in the context of news media, newspapers and other related conduct. This is not a narrowly defined issue. Commitment to broadcasting standards will embrace the conduct of a party. A party includes corporate parties and their relevant behaviour but also of course the behaviour of a controlling shareholder of a corporate party, or even a shareholder with less than a majority interest but a material controlling interest in a corporate entity. I seek to reassure the noble Lord that the question of commitment to broadcasting standards is approached on what, I suggest, is a broad basis.

With regard to plurality and the publication of reports, I understand that the last report was published in December 2010. We will publish reports arising out of this intervention, albeit I understand that they may have to be redacted to some extent on the grounds of commercial sensitivity.

On the question of a fit and proper person being undefined, clearly there is a crossover between “fit and proper” and the question of the commitment to broadcasting standards. As I understand it, that is why Ofcom has expressed confidence in being able to respond to the Secretary of State by reference to not only commitment but the fit and proper test that applies under the Broadcasting Acts of 1990 and 1996.

With regard to Leveson part 2 there is little I can say, as the noble Lord, Lord Stevenson, anticipated, in view of the undertakings given to the court pending the final disposal of the application for judicial review—an application, I would add, which was made not by this Government but against them. As regards the powers of Ofcom under the 2002 Act, it has expressed the view that it has sufficient powers. But I note that it does not, in the context of discharging its duty with regard to fit and proper under the Broadcasting Act, have the power to compel the attendance of witnesses. Nevertheless, where it requests their attendance or the provision of documents and witnesses and documents are not provided, that has a material bearing upon its assessment of commitment to broadcasting standards. Somebody who is not prepared to answer simple questions about how they would discharge their obligations as a licensee would throw into doubt whether they have a true commitment to those standards. That may appear a little circular to the noble Lord but it is essentially an effective mechanism by which Ofcom can control this process.

Coming to the observations of the noble Lord, Lord McNally, I am not going to enter into a debate about the definition of “humbling”. Nevertheless, it appears on the face of it that what occurred had hit home not only with the corporate structure—the shareholders—but with individuals who held those shares. It simply would not be appropriate for me to identify the contested points made to the Minister at this stage. The Secretary of State is going to carry out a quasi-judicial process, on the advice of Ofcom and the CMA. We have to await the outcome of that process. The noble Lord mentioned the 40-day time limit. Again, that is a statutory provision and Ofcom is confident that it can adhere to that time limit. We therefore feel that it is appropriate.

As regards guarantees with regard to meetings, I am not aware of any meetings being planned or proposed by Mr Murdoch. A quasi-judicial decision will be made by the Secretary of State and the noble Lord, Lord McNally, may accept my reassurance that there is no question of inappropriate contact from any party with the Secretary of State pending the determination of that decision. With regard to the gentleman and lady on the Clapham omnibus—as originally invented, I believe, by Lord Denning—we will have to await their response to this process. But we have confidence in Ofcom and in the CMA, and we will see in due course whether it is necessary to take this on to a phase 2 inquiry at the instance of the CMA. I am obliged to noble Lords.

Photo of Baroness McIntosh of Pickering Baroness McIntosh of Pickering Chair, Licensing Act 2003 Committee 1:05 pm, 16th March 2017

My Lords, does my noble and learned friend agree that one of the most worrying things about this link and takeover is the threat to the dominant position already enjoyed by Sky News, the Times, Sunday Times and Sun newspapers, as well as talkSPORT radio? This could impact on bidding for sports programmes, TV shows and movies, as well as eliminating potential competition in the news. I should declare an interest in that I spent six months as an intern—perhaps more glamorously called a stagiaire in French—in the European Commission’s directorate-general for competition. Does my noble and learned friend have the timetable for that investigation, which is ongoing, and the impact it will have on the Secretary of State’s decision?

Photo of Lord Keen of Elie Lord Keen of Elie The Advocate-General for Scotland, Lords Spokesperson (Ministry of Justice)

I am not going to make any comment that would touch upon the merits of the proposed merger but the European Commission will of course take forward its inquiry into the competition aspects of this merger. My understanding is that the timing of that will fall within the time limit for the present investigation at the instance of the Secretary of State.

Photo of Lord Lansley Lord Lansley Conservative

My Lords, I welcome my noble and learned friend’s Statement. Perhaps I may elaborate on the question relating to the grounds for the intervention notice relating to the commitment to the attainment of broadcasting standards. That relates specifically to the standards as set out under Section 319 of the Communications Act on the content of programming for television and radio services. My noble and learned friend suggested that “commitment” enables one to go much wider on those grounds. However, it relates to the programming of television and radio services. If the question of commitment was raised in relation to something that did not relate to television and radio services, how could it be seen as directly relevant?

Photo of Lord Keen of Elie Lord Keen of Elie The Advocate-General for Scotland, Lords Spokesperson (Ministry of Justice)

I am obliged to the noble Lord for repeating an inquiry that he made at the time of an earlier Statement on this same issue, with reference to Section 319 of the 2003 Act. It does refer in particular terms to television and radio; however, I stress the use of the term commitment. In determining that more general issue Ofcom is confident—rightly confident, I suggest—that it can have regard to conduct in other areas of media. For example, the way in which a party has conducted its newspaper empire or whatever may be directly relevant, and indeed often will be, to the question of whether it has a genuine commitment to broadcasting standards when it comes to television and radio. I stress “commitment” as being important in this context.

Photo of Lord Deben Lord Deben Conservative

I thank my noble and learned friend for repeating the Statement, which will cheer a lot of us in its wording and in the commitment to high standards. Is he not also willing to accept that in a world in which we appear to be post-truth, and where there is considerable opportunity for people to create fake news, the position of broadcasters as a source of ensuring that what one understands to be true is true becomes even more important? When we talk about broadcasting standards, therefore, this now means something in our society that is a whole stage further than any consideration which we have had before. I therefore commend my right honourable friend for taking these steps, which enable so careful a consideration to take place.

Photo of Lord Keen of Elie Lord Keen of Elie The Advocate-General for Scotland, Lords Spokesperson (Ministry of Justice)

I am obliged to my noble friend and agree with him that any test, such as the commitment to broadcasting standards, has to be contextualised and must have regard to the current circumstances in which we operate with regard to our media. That would include the development on the internet of sources of news which may or may not be misleading. We must judge matters in that context.

Photo of Lord Brooke of Alverthorpe Lord Brooke of Alverthorpe Labour

My Lords, I would be grateful if the Minister will endeavour to answer my questions, which I pose on behalf of the ordinary—“ordinary” is very much the in word these days—consumer. Does the Minister believe that the ordinary consumer has the confidence in Ofcom and in the CMA that he and the Government share? I am worried about Leveson, but I do not believe that the ordinary consumer is that worried. If one looks at the research that is undertaken among ordinary consumers, one will find that their interests are in costs and how they affect their pockets and their purses. The question that they would want to know that Ofcom is exploring in this context is: what benefit will accrue to the public from this exercise? What saving in cost, if any, will accrue to the individual consumer?

The majority of consumers do not spend their time watching TV programmes on parliamentary activities and politics, but a very substantial and increasing number of people in our country spend their time watching sport. They look at what Ofcom has endeavoured to do on sport. Last year, Ofcom and the CMA endeavoured to introduce competition into that area of activity, and we all support that, particularly between Sky, which had a monopoly at one stage, and BT, but we have ended up in a rather strange place—although we have competition, overall consumers are now paying much more money than they paid before. They are having to pay for BT and for Sky, and they are seeing precisely what they were seeing before. There are marginally more matches, but effectively they are paying more. I subscribe to Sky. I pay more to Sky now for an inferior service. It provides less than it provided five years ago. This comes about through Ofcom’s activities and its work in this area and also the work of the CMA.

I am endeavouring to represent and capture as best I can the view of ordinary people. Will the Minister say whether the cost side is being examined, what benefit will accrue and why the Government have such confidence? Ordinary people feel that the Government spend a lot of time chasing the BBC about its licence fee of £150 or thereabouts, but Sky is charging £600 a year now for sport, let alone for films and the rest on top of it. They see little taking place other than the Government falling in line with the requirements of Mr Murdoch and his company. I would like to hear some of those questions answered.

Photo of Lord Keen of Elie Lord Keen of Elie The Advocate-General for Scotland, Lords Spokesperson (Ministry of Justice)

I am obliged to the noble Lord. The question of cost relates directly to media plurality. The noble Lord suggests that because competition has been introduced into the market, he is paying more. That may appear to be an immediate effect of more than one provider, each with a cost base, dividing a limited resource, but nevertheless I respectfully suggest that a monopoly situation has never ultimately obtained in favour of the consumer, a point Adam Smith made some years ago.