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Sky and 21st Century Fox: Proposed Merger

Volume 783: debated on Thursday 29 June 2017


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

“I came to this House on 16 March to confirm that I had issued a European intervention notice in relation to the proposed merger between 21st Century Fox and Sky Plc on the grounds of media plurality and commitment to broadcasting standards. The EIN triggered a requirement for Ofcom to report, initially by 16 May but extended to 20 June, on the media public interest considerations and the Competition and Markets Authority on jurisdiction. I issued a statement last week to confirm that I had received those reports and undertook both to publish them, today, and to come to the House to set out my minded-to decision on the next step in this process: whether to refer the merger to a fuller phase 2 investigation. In line with my commitments, I am today publishing both documents, copies of which will also be deposited in the Libraries of both Houses. I will also be publishing later today the letter to both parties with my decision, which I sent them this morning. Separately, Ofcom is today publishing its fit and proper assessment of the merged company. This reflects its ongoing responsibility as the independent regulator under the Broadcasting Acts to monitor who is fit and proper to hold a broadcast licence.

Decisions made by the Secretary of State on media mergers under the Enterprise Act 2002 are made on a quasi-judicial basis. I want to be very clear about what that means. When taking a quasi-judicial decision, I am tightly bound. I must take my decision only on the basis of the evidence that is relevant to the specified public interests. My decision cannot be based on opinion, speculation or conjecture. Any decision I take must be objectively justified by the facts before me. I must set aside wider political considerations going beyond the scope of the legislation. I must act independently and follow a process that is scrupulously fair and impartial. This is what I am doing.

On the question of whether the merger gives rise to public interest concerns in relation to media plurality, Ofcom’s report is unambiguous. It concludes:

‘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’.

On the basis of Ofcom’s assessment, I confirm that I am minded to refer to a phase 2 investigation on the grounds of media plurality. The reasoning and evidence on which Ofcom’s recommendation is based are persuasive. The proposed entity would have the third-largest total reach of any news provider—lower only than the BBC and ITN—and would, uniquely, span news coverage on television, radio, in newspapers and online. Ofcom’s report states that the proposed transaction would give the Murdoch Family Trust material influence over news providers with a significant presence across all key platforms. This potentially raises public interest concerns because, in Ofcom’s view, the transaction may increase members of the Murdoch Family Trust’s ability to influence the overall news agenda and their ability to influence the political process and it may also result in the perception of increased influence. These are clear grounds whereby a referral to a phase 2 investigation is warranted, so that is what I am minded to do. There, is, however, a statutory process that I must follow. I am required by legislation to allow the parties the opportunity to make representations to me on this position before I reach a final decision. I will now do that and have given them until Friday 14 July to respond.

The second question concerns whether, after the merger, the relevant media enterprises would have a genuine commitment to broadcasting standards. Ofcom is unequivocal. It concludes:

‘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’.

Ofcom’s approach sought to measure commitment to broadcasting standards by reference to breaches of regulatory codes. It found that Fox’s compliance with the UK’s Broadcasting Code is in line with comparable broadcasters. Nor did Fox’s compliance record in relation to overseas broadcast jurisdictions—where Ofcom’s analysis focused largely on the European Union—give cause for concern.

I also asked Ofcom to consider the effect of any failure of corporate governance on this public interest consideration. Ofcom did this in the context of its separate assessment of whether Fox and Sky would remain fit and proper to hold broadcast licences following the transaction. It concluded that,

‘the behaviours alleged at Fox News’—

in the United States—

‘amount to significant corporate failure’.

However, these did not, in its view, demonstrate that the merged company would lack a genuine commitment to broadcasting standards.

In reaching a view, I have to be guided only by the evidence before me. As such, based on the Ofcom report, I am currently minded not to refer to a phase 2 investigation in relation to a genuine commitment to broadcasting standards. As required by legislation, I am giving the parties an opportunity to make representations in relation to media plurality grounds, where I am minded to refer for a phase 2 investigation by the CMA. In the interests of transparency and ensuring all the evidence has been considered, I will also invite wider representations on the question of commitment to broadcasting standards, where I am currently minded not to refer for a phase 2 investigation.

Parties responding to the consultation should not simply duplicate any representations previously made to Ofcom. Instead, responses should be limited to setting out any new and substantial evidence and any comment on the appropriateness of Ofcom’s overall approach.

While there are strong feelings among both supporters and opponents of this merger, in this quasi-judicial process my decisions can be influenced only by facts, not opinions, and by the quality of evidence, not who shouts the loudest. The invitation to make representations will open today and close on Friday 14 July and can be found on the DCMS website.

Under the process set out in the Enterprise Act, it is open to the parties to propose undertakings in lieu of a reference to the CMA for a more detailed investigation. In other words, the parties may seek to avoid a phase 2 reference by proposing remedies to address the public interest concerns that have provisionally been identified.

The decision as to whether or not to accept undertakings in lieu is for the Secretary of State alone. However, and somewhat unusually, the parties proposed a set of undertakings to Ofcom, and Ofcom commented on them in its report. The proposed undertakings centred around Fox maintaining the editorial independence of Sky News by establishing a separate editorial board, with a majority of independent members, to oversee the appointment of the head of Sky News and any changes to Sky News editorial guidelines. They also include a commitment to maintain Sky branded news for five years with spending at least at similar levels to now. Ofcom’s view was that these remedies would mitigate the serious media plurality public interest concerns. It also suggested that the remedies could be further strengthened.

The parties last week, without prejudice to my decision today, of which they only learned this morning, formally submitted undertakings in largely the same terms to me. In accordance with the legislation, if I still intend to refer the merger after having considered representations from the parties, I am required to consider whether or not these remedies are appropriate. Given the parties have offered these undertakings and Ofcom has commented on them, I have taken an initial view. I can confirm that I have today written to the parties indicating that I am minded not to accept the undertakings that have been offered. While Ofcom suggests that they mitigate its concerns, it is for the Secretary of State to decide whether they sufficiently mitigate, or ideally fully remedy, what are serious public interest considerations.

I note that Ofcom’s report says,

‘we recognise that behavioural undertakings can be difficult to monitor and enforce and that there are areas in which the proposed undertakings could be strengthened’.

It cites questions regarding,

‘the ongoing arrangements for the appointment of the independent members of the Sky News Editorial Board and the period of Fox’s commitment to maintaining its investment in Sky News’.

I also note the guidance of the Competition and Markets Authority which, in the context of competition cases, says that UILs are appropriate where the remedies are,

‘clear cut … effective and capable of ready implementation’,

and that, in ordinary cases, it is,

‘highly unlikely to accept behavioural remedies at phase 1’.

I have given the parties 10 working days, until Friday 14 July, to make representations on the minded-to decisions I have reached. If I receive further offers of undertakings as part of those representations, I will keep the House informed on how I intend to structure the statutory process I must follow when considering them.

As I have set out, I will now be taking representations on my minded-to positions. The call will remain open for 10 working days and I will then consider the evidence received before coming to a final decision on both grounds. To be clear, the minded-to decisions I have outlined today are not my final decisions.

A word before I close on Ofcom’s fit and proper assessment. As the independent regulator, this is a matter for Ofcom, and my understanding is it will publish its report today. I have seen the report and know many Members in this House will want to comment on it. Given my current quasi-judicial role in the merger, I will not be commenting on the findings.

It is rightly not for the Government to determine who should, and should not, hold TV broadcasting licences. Ofcom has an ongoing duty to ensure all UK broadcasters are fit and proper to hold TV broadcasting licences. I am clear that if any evidence comes to light, it is for Ofcom to take account of that evidence.

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 while at the same time respecting the limits of what I can say given my ongoing quasi-judicial role in relation to this merger”.

I commend this Statement to the House.

My Lords, I thank the Minister for repeating the Statement made by the Secretary of State.

Media plurality is a key finding and irrespective of any final decision of the Secretary of State, the Labour Party over the next 12 months will review media ownership rules in the United Kingdom. However, I warn the Minister that the problem with Murdoch’s undertakings in lieu, even strengthened ones during this process, is that they will became as meaningless as those he has given in the past. Just look at what happened to the guarantees of editorial independence for the Times and the Sunday Times.

If the current rules mean that James Murdoch can pass a fit and proper test, given everything we know about his and his companies’ behaviour over phone hacking and about Fox’s behaviour over the ongoing sexual harassment scandal in the United States, that says much more about the rules than it does about Mr Murdoch. It is clear that the rules need to be reviewed. Even if this Government will not do it, the next Labour Government will.

It has been reported that a spokesperson from Fox has said that the company is “confident” the merger will be approved based on,

“an objective assessment of the facts”.

But does the Minister not recognise that without Leveson 2 we still do not know the facts, and therefore in order to have a proper objective assessment this merger should not be approved without the findings of the second part of the inquiry?

Added to this, later this year another civil case will be heard against News Group relating to phone hacking, for which the judge has requested thousands of invoices for private investigators linked to the Sun, and James Murdoch’s own laptop. Given that phone hacking is very far from resolved, James Murdoch’s own conduct before and after the scandal broke is not clear, and neither is the reason why millions of emails were deleted by the company, how can we possibly allow this takeover to go ahead while this is hanging over them?

Finally, as regards influence on the political process, I would like to ask the Minister a specific question: what provisions does he believe exist in either the Data Protection Act or within the powers of Ofcom under the Communications Act 2003 to prevent the owner of what is at present Sky Broadcasting misusing the data it holds concerning the lives and preferences of 11 million British and Irish households in a manner that furthers its influence over the political process in either the United Kingdom or the Republic of Ireland? If no such protections are available, what assurances would the Secretary of State seek in this regard? The days when citizens of other countries can dominate our media markets while paying their taxes overseas have to end.

My Lords, one of the advantages of this place is that there is a certain continuity. I have been speaking on, and dealing with, media matters for the last 20 years. I recall that at some point in the mid-1990s the then Press Complaints Commission brought in another charter on good behaviour. I remember talking to a very senior Times executive and asking, “What about this new charter? If you checked a story against the responsibilities under the charter and decided that it would be wrong to publish that story but the next day the Daily Mail led on it, what would happen?”. He said, “That’s easy. Rupert would fire me”. I agree with the noble Lord, Lord Collins: one has to read the book as well as look into the crystal ball in these matters, and the ability of the Murdochs to give assurances and then ignore them is well documented.

One thing that sticks in my mind is Mr Murdoch’s appearance before the Select Committee, at which he said that it was the “most humble” day of his life—a curious choice of words—yet now, a few years later, he and most of the gang who were accused of the most heinous crimes are back in place and moving forward. The reality is that the Murdochs are an ever-incoming tide. I appreciate that the Secretary of State needs to follow a quasi-judicial role and, my goodness, she is going to need the advice of the Minister at the Bench as she now tiptoes through that minefield, because the Murdochs always have some very expensive lawyers at hand. However, I hope she does not get involved in a game of poker in which it is said, “We’ll give you these assurances”, to which the answer is, “No, they won’t do”, and that is followed by, “Well, what about these assurances?”. Let us stick with this referral.

I look forward to reading the Ofcom justification of the “fit and proper” finding. One can assume only that the narrow legal determination of “fit and proper” in the present legislation is far too low, and I hope the Government will now look at the whole question of whether we need to strengthen plurality, public interest and the fit and proper person test in the existing legislation.

I join the noble Lord, Lord Collins, in saying that Leveson 2 is now essential. The Government put it in their manifesto, despite the previous Conservative Government having committed to dropping Section 40. The electorate said no. We should now proceed with Leveson 2 with all speed. There is also now a need to look at the powers of Google and the internet providers.

Finally, I am a little worried about the deadline of 14 July. That is only six days before both Houses rise for the summer. There is an old habit of various decisions being rushed out on the last day before a Summer Recess. Can we be assured that any decisions on this matter will be taken only when Parliament is in session?

I am obliged to my noble friend for his patience. I start with the points raised by the noble Lord, Lord Collins. So far as the undertakings in lieu are concerned, at present the Secretary of State’s intention is not to accept those undertakings that have been submitted and to give full consideration to whether ultimately such undertakings in lieu will be sufficient. However, at present, as I indicated, she is not minded to accept the undertakings that have already been submitted. Of course, it is always open to a party to put forward further undertakings in lieu, and such undertakings will be considered on their merits in accordance with the Secretary of State’s duty in this context.

The fit and proper party test for the purposes of broadcasting is a matter for Ofcom and not for the Secretary of State. Clearly, it is not appropriate for the question of fitness or propriety to be decided by a Minister in this context, and therefore I would not seek to comment further on that. At the end of the day, it must be a matter for Ofcom. That is why we have an independent regulator in this context.

As the noble Lord is aware, we have indicated that, given the changed landscape over the past six years, we do not consider that we should proceed with Leveson 2, but a final decision on that, pursuant to the Inquiries Act 2005, will be taken following consultation with the chair of the inquiry.

On the misuse of data, I respectfully suggest that the answer lies in the question. We have data protection legislation and, in the event that there is any breach of that, there are remedies within that legislation. Therefore, we consider that the present legislation is sufficient to protect the relevant data of the persons referred to.

The noble Lord, Lord McNally, also touched on Leveson but he referred more particularly to the deadline of 14 July for representations. I make it clear that the Secretary of State has been thoroughly transparent throughout this process and—I hope noble Lords will accept this—has kept both Houses fully informed of how she is carrying out this process in a quasi-judicial capacity. She will take any decision that she can promptly, and she will of course continue to keep the House advised of that decision-making process at the earliest opportunity. However, in response to the noble Lord’s question, I can say that any decisions will be taken only when Parliament is in session.

My apologies to the House. That is the first occasion in my career when I have been ahead of my time.

I thank the Minister for repeating the Statement. I have 30 or 40 years’ experience of these issues, arguing with different Governments and different regulators as they have changed their badge over the years. I am also a veteran of many skirmishes with the Murdoch empire and carry many, many scars. He once asked my Uncle Lew, the late Lord Grade of Elstree, to have a word with me about my antagonism towards the Murdoch empire. So I am not an apologist.

The common theme throughout all broadcasting legislation, broadcasting rows and ownership rows is to keep politics out of broadcasting. That is absolutely essential. We are now at a point where we have a regulator, Ofcom, which has proved itself to be incredibly effective, incredibly competent, incredibly independent and very much evidence-based, as it has to be as a statutory regulator. I hope the Minister will agree that the processes that have led to today’s Statement deserve to be seen as a ringing endorsement of Ofcom’s competence and independence.

I do not believe that the laws and rules governing media independence, plurality, mergers and so on are deficient at all, and I think the Statement proves that the system is working extremely well. I caution those who would argue for more political intervention in matters of media ownership and media plurality. We should also bear in mind that you have to have a very good reason indeed, other than a dislike of Murdoch and all his works, to interfere in the wishes of shareholders in a major transaction of this kind. This is a ringing endorsement of the process and of confidence in Ofcom, and we await the outcome.

My Lords, I am obliged to my noble friend Lord Grade. I heartily endorse his observation that it is so important to keep the politicians out of these issues—that they should not become politicised. I endorse his observations about the independence of Ofcom in the context of this process. At the end of the day, fitness is for an independent regulator to determine. It would be a poor turn of events if we found that that was simply a political or ministerial decision.

My Lords, I fully accept the Minister’s point about the independence of Ofcom and, indeed, the point made by the noble Lord, Lord Grade, about not politicising this process. But returning to the point made by my noble friend and the noble Lord, Lord Collins, about Leveson 2, how can a credible “fit and proper” report be drawn up by Ofcom when Leveson 2 has not taken place and two of the absolutely key terms of reference relate to improper conduct within News International and the corporate governance and management failures at News International?

I have sometimes inadvertently made that observation with regard to a solicitor. At the end of the day Ofcom is satisfied that it has been able to reach a decision on that point and it has done so in a number of different contexts and for a number of years without the requirement for Leveson 2. But ultimately that is a matter for Ofcom. If it felt it was not able to arrive at a conclusion without Leveson 2, I have no doubt it would have said so.

My Lords, I endorse and repeat the request that Leveson 2 be regarded correctly, as the noble Lord, Lord McNally, said, despite the Minister’s answer just then. I understand the difficulties and respect the problem that he faces.

There is another extraneous point which is not germane and material to this but is none the less a realistic factor in the outside world. The noble Lord, Lord Collins, referred at the end of his remarks to the non-UK taxpaying element of these owners of British media. I declare an interest because I also live in France, mostly, and my friends in Paris politics often say it is extraordinary that the owners of the right-wing media in this country almost without exception do not pay UK personal taxes. Of course, one of the biggest examples is Rupert Murdoch and his family members because of the spread and size of their media empire. I know this is not central to what the Minister has been saying today—I do not wish to be unfair—but I would be grateful if he felt able to make an extramural comment on something that is very disturbing to many members of the British public.

With respect to the noble Lord, I do not consider that in the present context and for present purposes it is appropriate to go into the corporate structure or the trust structure of the various bodies that ultimately own the organs of media and broadcasting in the United Kingdom. Certainly, I do not feel that at this stage it would be appropriate to address the question of their tax liabilities, whether they arise within the UK or elsewhere.

My Lords, I took an initial interest in Ofcom when, as shadow Minister, I scrutinised the original Bill setting up Ofcom, and I commend its decision and its role in this regard. In its report, Ofcom states that it has identified,

“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”.

I commend the Statement that my noble and learned friend the Minister has repeated to the House. I understand that this is a preliminary decision and does not reflect the Secretary of State’s final decision, but could he elaborate a little on Sky’s increased concentration of power in its online presence were this sale to go ahead? In this digital age, the BBC has a very strong online presence, Sky News has a very strong online presence and newspapers accept that their online presence is going to increase rather than decrease in relation to the printed media. We have already seen one newspaper go online completely. Would my noble and learned friend care to comment on what the Secretary of State’s thinking will be with regard to a potential diminution of competition and an increased concentration of power in the hands of one family, were this sale to go ahead, and the impact that that would have on the online media?

I am obliged to my noble friend. Clearly, at this stage, the Secretary of State has made only a “minded to” decision and it would not be appropriate for me to anticipate how she will then proceed in light of further representations between now and 14 July. Ofcom recognised the materiality of Sky and Fox’s presence online. Indeed, that is an increasing issue in the context of news media. Of course, an online presence can take a number of forms. It can be aggregation or it can be the establishment of an independent online body of news. Very often, when one is talking about online, one is talking about Facebook or other forms of media that are simply passing on news that is available offline as well. At this stage I cannot elaborate much further, except to notice that Ofcom took account of Sky’s presence online as well as its presence in terrestrial television broadcasting and newsprint.

My Lords, to an extent I think we have to welcome the fact that Ofcom has behaved independently and that the Secretary of State has taken guidance on plurality. But it underlines the fact that if you want a genuinely free press, you have to have a variety of opinion, and to have that, you must have a wide variety of ownership. If this merger goes ahead, it will restrict that variety of ownership. I hope that when the Minister and his colleagues reflect on this decision as the various stages go forward, they will look again at whether the plurality process and the plurality provisions of the various pieces of broadcasting and competition legislation are adequate to provide a range of opinion, not only in broadcasting in its traditional sense but, as the noble Baroness, Lady McIntosh, has just said, particularly in the online presence, where the corporate behaviour of Fox in America has been deeply suspect. I hope the Minister’s department will look at these longer-term issues in the light of the issues that have been thrown up today.

I am obliged to the noble Lord. As regards the process, let us see how it works its way through in the context of the present proposed merger. As regards plurality in general, clearly that may properly be judged once we see the outcome of the present process.