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Update on Proposed Fox-Sky Merger Process

Volume 783: debated on Tuesday 12 September 2017


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

“Mr Speaker, I am here to give an update on the proposed merger between 21st Century Fox and Sky plc, and my decision whether or not to refer the transaction for a full six-month investigation by the Competition and Markets Authority.

I should first remind the House that in my quasi-judicial role, I must come to a decision on the basis of relevant evidence, act independently in a process that is fair and impartial, and take my decision as promptly as is reasonably practicable. I am committed to transparency and openness in this process and have been clear that my decisions can only be influenced by fact, not opinions, and by the evidence, not who shouts the loudest.

Turning first to the question of media plurality, I can confirm that none of the representations received has persuaded me to change my position. Accordingly, I can confirm my intention to make a referral on the media plurality ground to the CMA.

Turning now to commitment to broadcasting standards, over the summer my officials reviewed the almost 43,000 representations received. A significant majority were campaign-inspired, arguing against the merger going ahead, but generally without providing new or further evidence or commenting on Ofcom’s approach.

Overall, around 30 of the 43,000 representations were substantive, raising potentially new evidence or commenting on Ofcom’s approach. Almost all were related to the question of commitment to broadcasting standards. In light of these representations I asked Ofcom to provide further advice, and I put on record my gratitude for Ofcom’s efforts in responding to the questions raised.

I am today publishing the exchanges between my department and Ofcom. In these I sought clarification on the threshold Ofcom applied to its consideration of the commitment to broadcasting standards ground; the consideration made of broadcasting compliance; and the consideration made of corporate governance issues. I also asked Ofcom to consider whether any of the new, substantive representations I received affected its assessment.

I have taken careful account of all relevant representations and Ofcom’s advice and, as required by the legislation, have today written to the parties to inform them that I am now minded to refer the merger to the CMA on the grounds of genuine commitment to broadcasting standards.

I will now set out the technical reasons for this decision. Questions were raised about the threshold for referral. The legal threshold for a reference to the CMA is low. I have the power to make a reference if I believe there is a risk—which is not purely fanciful—that the merger might operate against the specified public interests.

In its original report, Ofcom stated that,

“we consider that there are no broadcasting standards concerns that may justify a reference”.

At the time Ofcom appeared to be unequivocal. Following the additional representations, Ofcom has further clarified that,

“while we consider there are non-fanciful concerns, we do not consider that these are such as may justify a reference in relation to the broadcast standards public interest consideration”.

The existence of non-fanciful concerns means that, as a matter of law, the threshold for a reference on the broadcasting standards ground is met. In light of all representations and Ofcom’s additional advice, I believe these are sufficient to warrant the exercise of my discretion to refer.

The first concern was raised in Ofcom’s public interest report: that Fox did not have adequate compliance procedures in place for the broadcast of Fox News in the UK and only took action to improve its approach to compliance after Ofcom expressed concerns. Ofcom has now confirmed it considers this to raise non-fanciful concerns but which are not sufficiently serious to warrant referral. I consider that these non-fanciful concerns do warrant further consideration. The fact that Fox belatedly established such procedures does not ease my concerns, nor does Fox’s compliance history.

Ofcom was reassured by the existence of the compliance regime which provides licensees with an incentive to comply. However, it is clear to me that Parliament intended the scrutiny of whether an acquiring party has a “genuine commitment” to attaining broadcasting standards objectives to happen before a merger takes place.

Third parties also raised concerns about what they termed the “Foxification” of Fox-owned news outlets internationally. On the evidence before me I am not able to conclude that this raises non-fanciful concerns. However, I consider it important that entities which adopt controversial or partisan approaches to news and current affairs in other jurisdictions should, at the same time, have a genuine commitment to broadcasting standards here. These are matters the CMA may wish to consider in the event of a referral.

Turning to the question of corporate governance failures, Ofcom states in its latest correspondence that these raise non-fanciful concerns in respect of the broadcasting standards ground. However, it again concludes that these concerns do not warrant a reference. I agree that corporate governance issues at Fox raise non-fanciful concerns, but in my view it would be appropriate for these concerns to be considered further by the CMA.

I agree with the view that, in this context, my proper concern is whether Fox will have a genuine commitment to attaining broadcasting standards objectives. However, I am not confident that weaknesses in Fox’s corporate governance arrangements are incapable of affecting compliance in the broadcasting standards context. I have outstanding non-fanciful concerns about these matters and I am of the view that they should be further considered by the CMA.

Before I come to a final decision I am required, under the Enterprise Act 2002, to allow the parties to make representations on my proposed decision, and this is the reason my decision at this stage remains a “minded to” one. I have given the parties 10 working days to respond. Following receipt of any representations from the parties, I will aim to come to my final decision in relation to both grounds as promptly as I can.

I would remind the House that should I decide to refer, on one or both grounds, the merger will be subject to a full and detailed investigation by the CMA over a six-month period. Such a referral does not signal the outcome of that investigation. Given the quasi-judicial nature of this matter, my decision cannot be guided by the parliamentary timetable. If I come to my decision during recess I will write, as I have previously, and return to this House at the earliest possible opportunity to provide an update. I commend this Statement to the House”.

My Lords, that concludes the Statement.

My Lords, I welcome the Statement that the Secretary of State is minded to refer the bid to the CMA on broadcasting standards grounds as well as those of media plurality. In its first report, Ofcom said there were no broadcasting standards concerned that may justify a reference. It has now admitted that there are “non-fanciful” concerns. On that basis, the Secretary of State had to refer the bid, she has done so, and we on these Benches certainly welcome that.

The Murdochs have a long history of regulatory non-compliance and corporate governance failure, at both 21st Century Fox and News Corporation. Just last week, News Group settled in 17 cases relating to allegations of criminality at the Sun, ensuring that James Murdoch will not have to appear in court later this year.

The Secretary of State has done her job and now, as the noble and learned Lord, Lord Keen, said, the CMA must do its job. However, we need to be assured that it will be a comprehensive look at the corporate governance issues. The Secretary of State has said—and the noble and learned Lord repeated this—that the issue is a matter of evidence. One way to gather that properly, and to inform the CMA, would be to commence the second part of the Leveson inquiry. I hope the noble and learned Lord will be able to reassure the House on that matter.

When previous Statements have been made to the House on this issue, I have sought reassurance from the noble and learned Lord in relation to data. How data are mined, used and abused in terms of media plurality is particularly an issue in relation to Fox News. I would be grateful if the noble and learned Lord could repeat what he said to us before—that the issues of,

“data-scraping or data accumulation … are matters that the Competition and Markets Authority will take into account in arriving at any decision”.—[Official Report, 20/7/17; col. 1749.]

I hope the noble and learned Lord can reassure us on that.

My Lords, like the noble Lord, Lord Collins, I welcome this Statement and I am grateful to the Minister and the Secretary of State for the thorough way that she has kept those of us interested briefed as she has come to these decisions. I also welcome the revised advice from Ofcom. I was part of the committee that created Ofcom and have always been proud of the way it has developed as a regulator. I have to say that its first advice on these matters came close to being equivalent to what the Premiership seems to think of as fit and proper to run a football club. The revised advice gives some credibility back to Ofcom in these matters, and it should be grateful to the Secretary of State.

I am a little worried about the sudden appearance of the term, “non-fanciful”. I am not sure that the Minister, with his long and distinguished legal career, would be able to tell me how “non-fanciful” is weighed in matters of judgment. As the noble Lord, Lord Collins, asked, would worries about data mining and abuse of data be dismissed as “fanciful”? When we bandy terms such as non-fanciful about, we should remember that most of the accusations made about News International in the past 10 years were initially dismissed as fanciful—as being made up by enemies of the Murdochs—but then turned out to be true. I am not so sure that “fanciful” and “non-fanciful” should be used in the work ahead.

In taking its decisions, the review should look at the threat to the UK media industry. Our media in all their aspects are among the least protected of national media from predatory attack. As the value of the pound falls, there is good reason for being careful about the message that we send out about our determination to defend the integrity of our media.

I associate myself also with the call made by the noble Lord, Lord Collins, for the second part of Leveson to go ahead.

As a Fox subscriber, I was interested to learn that Sky thought that Fox News was so little to the taste of the British viewer that it has taken it off its platform, whereas it has left on it the Iranian and Russian news channels.

My Lords, I begin by responding to the point raised by the noble Lord, Lord McNally, on what is “fanciful” or not, because it goes to the heart of the decision-making process addressed by the Secretary of State. It is a term with a legal basis that is linked to the statutory test for a phase 2 referral in public interest cases. I mention in passing the Court of Appeal decision in the case of the Office of Fair Trading v IBA Health. I shall not elaborate on the dicta in that decision, save to mention that there is a legal basis.

The Secretary of State must believe that the merger operates, or may be expected to operate, against the public interest. In her coming to her view that the evidence meets the test of “non-fanciful”, it should be noticed that that is a relatively low threshold. It is not necessary that the Secretary of State should be satisfied on the balance of probabilities or beyond reasonable doubt; the belief must be reasonably and objectively justified by the facts. In other words, there must be an evidential basis for the Secretary of State’s concern, but the concern itself does not need to be proven. That is essentially the approach that underpins the Secretary of State’s decision-making process here.

On broadcasting standards, I emphasise to the noble Lord, Lord Collins, that we are dealing at this stage with the Secretary of State’s “minded to” decision. It is not a final decision. There is now a 10-day process, pursuant to Section 104 of the Act, whereby the parties can respond and make submissions before any final decision is arrived at.

As regards evidence and data in the context of media plurality, it is premature for me to elaborate on what has already been said on these matters because a final decision has not been made on the second ground of broadcasting standards. If and when such a decision is made, there will in any event be a reference to the CMA, and it will be for the CMA to discharge its statutory functions. It would not be appropriate for me at this stage to anticipate how the CMA should go about its own statutory task. That would be to intrude into its territory. With all due respect, I hope the noble Lord accepts that it would not be appropriate for us to tread on that lawn, as it were.

On the question of Leveson 2, we have clearly progressed a long way since the first part of the Leveson inquiry was set up over six years ago. We have witnessed the completion of three detailed police investigations, extensive reforms to practices involving the police and some significant changes to press regulation. We have put this matter out for consultation and are considering the responses to it. We will publish a response in due course.

Leveson 2 is very important to many of us, but I ask the noble and learned Lord, Lord Keen, to be clear about public interest broadcasting. Fanciful journalism has troubled me for many years; good journalism checks its sources and stories, and at a time when the press is in decline and the popular culture of Facebook and so on is rising, it becomes more important for us to have a reliable source of news. We get that in public service broadcasting. That must be our first priority, and I ask the noble and learned Lord to do everything in his power to protect and enhance that.

We are determined to deal with the difficult issue of fake news, as it is sometimes termed, and to maintain broadcasting standards, particularly in news. I would not suggest that those standards are maintained only in public broadcasting; those standards are generally maintained. I accept we must be vigilant because of the dangers that have emanated from the development of false news, not only in immediate broadcasting, but online as well.

I welcome this Statement. I ask the noble and learned Lord, Lord Keen, to convey the thanks of many people in this House for what I consider to be one of the most principled Statements I have ever heard in the 20 years I have been here. This is a very difficult issue. It could not have been easy for the Secretary of State and, irrespective of the outcome of the CMA inquiry, I think she has done herself and the prospect of a proper democracy in this country a great favour.

I am obliged to the noble Lord, Lord Puttnam, for his observations. That message will be conveyed to the Secretary of State. I would add only this: no final decision has yet been made by the Secretary of State on broadcasting standards. We must bear that in mind.

My Lords, will my noble and learned friend confirm that, with the facts as they are in front of this Secretary of State, it is not open to her—and would not be open to anybody else who might be Secretary of State—to have come to any different conclusion from the one that has been reached?

The Secretary of State is exercising her independent judgment on the basis of the evidence placed before her.

There is a very important sentence in the Statement, which says:

“I consider it important that entities which adopt controversial or partisan approaches to news and current affairs in other jurisdictions should, at the same time, have a genuine commitment to broadcasting standards here”.

While recognising that this is a “minded to” Statement, and following the questions of my noble friend Lord Soley, what kind of standards test would the Government expect the CMA to ask for with respect to that undertaking?

I am obliged to the observations of the noble Baroness, Lady Jay. Again, it would not be appropriate for me at this time to intrude on the CMA’s territory and the manner in which it will approach its determination of broadcasting standards, in the event that that matter is referred to the CMA, following the Secretary of State’s “minded to” decision. As the statement made clear, a broadcaster’s conduct without the United Kingdom may raise questions as to the standards it is apparently willing to adhere to if and when it comes to broadcast within the United Kingdom.