Proposed Media Mergers - Statement

– in the House of Lords at 3:19 pm on 5th June 2018.

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Photo of Lord Keen of Elie Lord Keen of Elie The Advocate-General for Scotland, Lords Spokesperson (Ministry of Justice) 3:19 pm, 5th June 2018

My Lords, with the leave of the House, I will repeat a Statement made by my right honourable friend the Secretary of State for Digital, Culture, Media and Sport in the other place:

“Mr Speaker, with permission, I would like to make a Statement about the proposed merger between Comcast and Sky, and the proposed merger between 21st Century Fox and Sky.

In my quasi-judicial role I have considered these mergers separately, on their own merits, and want to set out my decisions taken on the basis of the relevant evidence. I would like, first, to update the House on Comcast’s proposed acquisition.

On 7 May, Comcast notified an intention to acquire Sky. As Secretary of State, I am required to consider whether the merger raises public interest concerns that meet the threshold for intervention, as set out in Section 58 of the Enterprise Act 2002. As required, I considered the need for a sufficient plurality of people with control of media enterprises, the need for a wide range of high-quality broadcasting and the need for a genuine commitment to broadcasting standards.

Last month I informed the House that I was minded not to intervene in the merger on the basis that it does not meet the threshold for intervention. I gave interested parties time to make representations and I received no further representations. As a result, I have concluded that the proposed merger does not raise public interest concerns and so I can confirm today that I will not be issuing an intervention notice.

Turning to Fox’s proposed acquisition of Sky, in March 2017 my predecessor issued an intervention notice on public interest grounds due to concerns about media plurality and the genuine commitment to broadcasting standards. The intervention notice triggered phase 1 investigations by Ofcom and the CMA. In September, having considered these reports, along with further advice from Ofcom, she referred the proposed merger to the CMA for a phase 2 investigation on both grounds. The CMA published its interim report in January and provided its final report to me on 1 May. I have today published this report and deposited a copy in the Libraries of both Houses.

The report confirms, as previously set out, that the proposed merger passes the threshold for a relevant merger situation and provides recommendations on both public interest tests. On broadcasting standards, the CMA carried out a thorough and systematic assessment, taking into account Fox’s and Sky’s approach to broadcasting standards, both in the UK and outside, and the approach of Fox and News Corp to wider regulatory compliance and corporate governance. The CMA concluded, in line with its interim findings, that the merger may not be expected to operate against the public interest on the grounds of a genuine commitment to broadcasting standards. I agree with this finding.

On the question of media plurality, the CMA’s final report confirms its interim findings that the proposed merger may be expected to operate against the public interest. The CMA found cause for concern in two areas: first, the potential erosion of Sky News’s editorial independence, which could in turn lead to a reduction in the diversity of viewpoints available to and consumed by the public; and secondly, the possibility of an increased influence of the Murdoch Family Trust over public opinion and the UK’s political agenda.

The CMA has used a clear and logical approach and taken into account Ofcom’s media plurality framework. It has taken great care to obtain a wide range of written and oral evidence and I agree with this finding too. Where the CMA makes a finding that a merger is likely to operate against the public interest, it is then required to consider what remedy would be appropriate.

To address the media plurality concerns, the CMA considered a range of options, including those proposed by the parties. Specifically, these were: first, a firewall of behavioural commitments to insulate Sky News from the influence of the Murdoch Family Trust; secondly, a ring fence, whereby Sky News would be separated structurally from Sky but still owned by Fox, along with the same behavioural commitments; thirdly, divesting Sky News to a suitable third party; and fourthly, prohibition of the transaction as a whole.

I have considered the CMA’s detailed assessment and its conclusions on how effective and proportionate the different remedies are. I agree with the CMA that divesting Sky News to Disney, as proposed by Fox, or to an alternative suitable buyer, with an agreement to ensure that it is funded for at least 10 years, is likely to be the most proportionate and effective remedy for the public and for the public interest concerns that have been identified.

The CMA report sets out some draft terms for such a divestment, and Fox has written to me to offer undertakings on effectively the same terms. The proposals include significant commitments from Fox, but there are some important issues on the draft undertakings which still need to be addressed. I need to be confident that the final undertakings ensure that Sky News remains financially viable over the long-term, is able to operate as a major UK-based news provider and is able to take its editorial decisions independently, free from any potential outside influence. As a result, I have asked my officials to begin immediate discussions with the parties to finalise the details with a view to agreeing an acceptable form of the remedy, so that we can all be confident that Sky News can be divested in a way that works for the long term.

Under the legislation, I am required to consult formally for 15 days on the undertakings. Subject to the willingness of the parties to agree the details, I aim to publish this consultation within a fortnight. I am optimistic that we can achieve this goal, not least given the willingness that 21st Century Fox has shown in developing these credible proposals. However, if we cannot agree terms at this point, then I agree with the CMA that the only effective remedy now would be to block the merger altogether. This is not my preferred approach.

We have followed a scrupulously fair and impartial process, based only on the relevant evidence and objectively justified by the facts. I would like to thank Ofcom, the CMA, the parties, my predecessor and my fantastic team at DCMS for all their hard work. I hope that we can reach a final agreement very soon. I want to see a broadcasting industry in Britain that is strong, effective and competitive, and I commend this Statement to the House”.

That concludes the Statement.

Photo of Lord Stevenson of Balmacara Lord Stevenson of Balmacara Opposition Whip (Lords) 3:27 pm, 5th June 2018

My Lords, I am obliged to the Minister for repeating the Statement made earlier by his right honourable friend the Secretary of State in the other place. On the decisions announced today, the best thing that can be said is that they are not unexpected. Comcast cast a shadow, but not as long as that of 21st Century Fox or indeed the Murdoch Family Trust. The key issue raised today is the question of what undertakings would be accepted to ameliorate the CMA finding that a Sky-21st Century Fox merger is likely to operate against the public interest on media plurality concerns. I do not disagree that divestment of Sky News to a suitable third party such as Disney is the least worst of the available options, provided that appropriate remedies are put in place to assuage media plurality concerns.

The CMA report sets out some draft terms for such a divestment and Fox has indicated that these are acceptable. However, the Statement makes it clear that more work is required on this issue and we will want to scrutinise carefully what is finally proposed, to ensure that Sky News remains financially viable over the long term, is able to operate as a major UK news provider and is able to take its editorial decisions independently, free from any potential outside influence. Will the Minister confirm that Parliament will be kept informed of progress in these negotiations?

In the conclusion to his Statement, the Secretary of State says that the Government have followed,

“a scrupulously fair and impartial process, based only on relevant evidence and objectively justified by the facts”.

I was glad to hear that. As required by the Enterprise Act 2002, the Secretary of State has been operating in a quasi-judicial role and I accept that both he and his predecessor have been punctilious in following that approach. However, if we are reaching the end of this complex process, does the Minister accept that if,

“we want to see a broadcasting industry in Britain that is strong and effective and competitive”, as the Statement has it, we need urgently to review whether we have the right regulatory structure and statutory powers in place for the modern world?

Does the Minister agree that there are aspects of the public interest test on media mergers which now need to be reconsidered? Many of the powers are found in the Communications Act 2003, which first brought in the public interest test for media mergers. Fifteen years on, the media landscape has greatly changed and with it comes the need to review, strengthen and future-proof this important legislative measure. We need to widen the definition of “media enterprises” to which the public interest test refers. Currently, the definition does not include enterprises such as Google, YouTube, Facebook, Twitter, Snapchat and others. Nowadays, many people take more of their audio-visual content off YouTube than from conventional broadcast channels, or they seek their news through Twitter or from apps on smartphones and thus not necessarily through broadcast platforms and channels. If the public interest can be engaged by the dominance or inappropriate control of a broadcast channel, why is it not engaged by the platform or channel through which large-scale news-related and other material is delivered to the whole population?

Ofcom needs the same powers when carrying out its Enterprise Act competition functions as are currently available to the Competition and Markets Authority, and specifically the power to require the attendance of witnesses and the production of documents. Without these powers, Ofcom is playing second fiddle. We need to think harder about the fit and proper test itself, which is currently couched as the,

“commitment to the attainment in relation to broadcasting of the standards objectives”.

However, these standards relate only to television and radio services. We need to think about how a commitment to the attainment of standards can be evidenced through the control of media enterprises that are more widely construed. This test would eliminate the risk that behaviour outside the scope of television and radio, and beyond the specifics of the broadcasting standards code, would not be able to be drawn in aid in determining fitness. Presumably we are also thinking about the question of control over other channels, newspapers and organisations. I also think that we could learn from the experience of the “fit and proper test” in other sectors such as financial services.

Finally, we need to think harder about how to protect the editorial freedom of the news services of media enterprises and see that safeguards are in place. Media plurality—the plurality of ownership—does not necessarily mean that editorial freedom is protected and safeguarded.

Photo of Lord McNally Lord McNally Liberal Democrat

My Lords, I thank the Minister for repeating the Statement. For someone who is not always clear on these great battles, where does this put the Comcast bid and the Fox-Disney bid? Are they now parallel bids and will Sky shareholders now decide which is the best deal? I read somewhere that Sky has advised its shareholders that it no longer stands by an earlier recommendation to accept the Fox bid. Once the procedure has been gone through, will it be a straight fight on price for Sky or are there other considerations?

I associate myself with what the noble Lord, Lord Stevenson, has just said: this keeps on happening. No other country in the world would allow important parts of its media industry to be fought over by foreign interests in such a way. We have here a battle between three massive American media conglomerates over a key part of our media industry. Moreover, as the noble Lord has just said, all this is being done in the long shadow of even bigger technology companies that may be coming in. We need a framework of defences for this key sector. As we said when we considered these issues 20 years ago, we are not talking about tins of beans. When these companies pass on to different control, we are talking about an essential part of a functioning democracy. There is a case for looking at the powers of Ofcom and the CMA and the Government’s responsibilities in this media area, which are badly in need of an overhaul.

The only other thing I have to say is that it is important that we get the decision right. I am always worried when the Secretary of State gives himself timetables of 15 days, or whatever. The important thing is making sure that we get it right. I also underline the importance of Parliament being kept fully informed and consulted on decisions that are taken.

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

My Lords, I am obliged to the noble Lords, Lord Stevenson and Lord McNally, for their observations on the Statement. Clearly, the terms of any divestment, which will be a requirement of the Fox bid, must be sufficient to ensure the remedy’s effectiveness over the long term. That is why reference is made in the report to a period of 10 years.

The Secretary of State has already instructed officials to begin immediate discussions with Fox and its representatives on the detail of the proposals so that work can be done to take us towards an agreement—we hope—on the final form of any undertakings. Once that is in place and the undertakings are in a form that he is prepared to accept, the Secretary of State will be required to consult on them. He must allow a minimum of 15 calendar days for responses. Of course, Parliament will be kept informed of the consequences of that process.

Regarding the points raised about other platforms and their dominance—reference was made to Google, for example—we committed to reviewing the media public interest considerations during the passage of the then Digital Economy Bill. That can now be taken forward, as is our intention.

As far as Ofcom’s powers are concerned, it is important to maintain and understand the distinction between the role of Ofcom in the phase 1 stage of an inquiry and the role of the CMA in the more intensive phase 2 stage, where the CMA has greater powers than Ofcom. However, Ofcom has indicated that it is satisfied that it has the powers it needs to conduct the form of review required under the Act in respect of a phase 1 inquiry.

The competing bids of both Comcast and Fox can be taken forward. Where that process concludes will ultimately be a matter for the shareholders of the relevant companies. In a sense, this decision leaves them on a level playing field, commercially, as far as their respective bids are concerned.

Photo of Lord Lansley Lord Lansley Conservative 3:37 pm, 5th June 2018

My Lords, this issue reflects well on this House for inserting the media plurality public interest test into the Enterprise Act, by virtue of the Communications Act 2003. The value of that has been further demonstrated. However, to return to the point made by the noble Lord, Lord Stevenson, when one further amends the Enterprise Act definition of “media” in “media plurality”, it is important to do so before the point at which that issue might be engaged by some proposed merger activity. Therefore, I ask my noble and learned friend whether the department might now make some rapid progress with its review of the meaning of “media” in the media plurality public interest test.

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. Clearly, the department is committed to taking its consideration of these matters forward. At this stage, I am not in a position to give him a timescale, but we seek to bring the matter forward as soon as we can. If there is what is perceived by this House to be undue delay, no doubt questions will be raised.

Photo of Lord Robathan Lord Robathan Conservative

Could my noble and learned friend illuminate for me, if not for others, the implications for the future of Sky News? I do not quite understand.

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

It appears that Sky News will be the subject of divestment and it appears that the intended party to acquire Sky News will be Disney. Of course, some have referred to that as the Mickey Mouse solution.