Can Murdoch retain hold on BSkyB?

Ofcom could force him to divest key piece of his empire


Despite negative U.K. headlines on Wednesday, Rupert Murdoch received a vote of confidence from the News Corp. board of directors, while pay TV platform BSkyB continued to perform strongly and London’s financial community mulled the long-term effect of this week’s blast from a Parliamentary select committee.

In results presented Wednesday, BSkyB operating profits leapt by 25% to £939 million ($1.5 million) for the nine months to March 31, and CEO Jeremy Darroch insisted the satcaster was “a fit and proper” broadcaster.

Since November, BSkyB’s stock price has been moribund, hit by the ongoing hacking scandal at News Intl.’s now defunct News of the World and concerns over negotiations for the next round of U.K. Premier League soccer rights.

The price is down 10% in a market up 5% and is not expected to go anywhere until media regulator Ofcom unveils the results of its probe into whether News Corp. should hold a U.K. broadcast license.Darroch said: “It’s important to remember that Sky and News Corp. are separate companies.”

Ofcom — which forced BSkyB to scale back its stake in U.K. free-to-air web ITV from 17.9% to less than 7.5% in January 2010 — may take a different view. News Corp.’s controlling 39.1% stake in the highly profitable satcaster BSkyB is coming under intense scrutiny.

The phone hacking imbroglio ended News Corp.’s £8 billion ($12.8 billion) bid to own BSkyB outright last July.

Regulators could now insist that News Corp. reduce its stake in the paybox or, worse still for the Murdochs, force the company to exit BSkyB altogether.

It emerged April 26 that Ofcom had beefed up its probe by asking to see more of the documents disclosed in the civil cases related to the phone hacking.

“I think the parliamentary report into phone hacking increases the pressure on Ofcom by a small degree,” said Richard Nunn, an analyst at Charles Stanley Securities. “To be honest you could argue it either way.”

Greg Dyke, the former BBC director-general, disagrees. “I think in the end it is difficult to see how the Murdoch operation can continue to own the number of shares it owns in BSkyB,” he said. “It will be in BSkyB’s interest to offload News Corp. and the Murdochs. I think they are now damaging BSkyB, and it is a really good business.”

Toby Syfret of Enders Analysis thinks the importance of BSkyB, now worth £7 billion ($11.3 billion) to News Corp., is difficult to overestimate. “I am sure News Corp. wants to hold on to it,” he said. “It is of enormous global significance to its business. Remember News Corp. also runs Sky Deutschland and Sky Italia. It is all about global scale. You have to look beyond BSkyB’s revenue to its profits. It is a really big chunk.”

The phone hacking and police corruption scandal at the News of the World — shuttered last summer when Murdoch admitted that he panicked — becomes more toxic as the months go by and is likely to end up in criminal prosecutions of execs involved.

“There is a world of difference between a blatantly politically partisan select committee report and what happens both at Ofcom and in a court of law,” one City analyst told Variety.

This is a reference to the report published Tuesday by the cross-party group of pols on the culture and media committee who concluded that Murdoch wasn’t fit to have stewardship of an international conglom.

The separate Leveson inquiry into press ethics is not expected to report until the fall.

As for the impact of the phone hacking scandal on the succession at News Corp., there is a view in London’s financial community that Murdoch will tough it out.

James Murdoch, who recently resigned as chairman of BSkyB, is thought likely to mount a comeback within five to 10 years.

“He is not yet 40. Even now there is talk that once Rupert Murdoch goes, James will re-emerge to run the television businesses, while his brother Lachlan gets to be in charge of all the other assets including Dow Jones,” said one City analyst. “People in the media have very short memories.”

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