British media lines up against Murdoch

They battle his bid to buy BSkyB outright

Rupert Murdoch’s attempt to own BSkyB outright has created strange bedfellows as opposition to the £8 billion ($12.6 billion) deal mounts.

Last week an unlikely alliance of media groups wrote to the British government to demand a probe into News Corp.’s attempt to buy the 61% it doesn’t already own in the dominant pay TV platform.

BSkyB’s rivals, led by the BBC and Channel 4, plus the left-leaning Guardian newspaper are obvious opponents to the proposed takeover.

But also lined up against Murdoch are film producer David Puttnam, British Telecom, and the companies behind right-wing newspapers the Daily Mail and the Daily Telegraph. Both are supporters of Prime Minister David Cameron who, in turn, is supported by Murdoch in Blighty. The Mirror and the Financial Times are also signatories to the letter.

So far, the only significant media players not to climb aboard the bandwagon against Murdoch are Northern & Shell (owners of Channel Five and the Daily Express) and ITV — in which News Corp. holds a stake of around 7%.

This is an extraordinary anti-Murdoch alliance, unprecedented in the 42 years the tycoon has operated in the U.K.

Murdoch might argue that this group is motivated by commercial self-interest — the Mail, Telegraph and Mirror have all suffered in the past when he cut the price of his newspapers, the Times and the Sun — or are there genuine principles at stake?

The media firms in the anti-Murdoch camp say they fear that a 100% News Corp.-owned BSkyB could have “serious and far-reaching consequences for media plurality.”

Aside from market leaders the Sun and the Times, Murdoch also owns the Sunday Times and the News of the World, and there are fears that with such market dominance News Corp. could bundle together its offerings in one digital package.

BSkyB subscribers, say, might get preferential rates if they sign up for online versions of the newspapers.

But as Murdoch already controls BSkyB, what difference would 100% ownership make?

“On balance it is typical British paranoia about Murdoch,” observes media commentator Raymond Snoddy. “Murdoch is simply behaving as he always does. He has sniffed a good business move. BSkyB is doing well and he would like more of it.”

So well in fact that analysts predict the pay box, which boasts some 10 million subscribers, will shortly report annual profits of around £1 billion ($1.6 billion).

Think what News Corp. could do with that, not just in the U.K. but in other parts of its far-flung empire.

“Arguably, Murdoch’s desire to own all of BSkyB is a sign of his weakness, rather than his strength,” adds Snoddy.

He argues that Murdoch overpaid for the Wall Street Journal when he shelled out $5 billion in 2007 while his Italian pay TV platform Sky Italia is facing increased competition from Silvio Berlusconi’s Mediaset TV group, which recently bowed its own pay TV offering.

“Being able to pocket BSkyB’s profits as the firm’s outright owner would underpin News Corp.’s global cash flow,” Snoddy says, in much the same way Rupe’s cash-cow newspapers bankrolled BSkyB in its early days.

BSkyB is expected to file for regulatory approval for the deal with the European Commission in the next week or so.

U.K. business minister Vince Cable then has 25 days to intervene. If he decides to do so, media regulator Ofcom, no stranger to scrutinizing News Corp.’s British activities, would investigate if the proposed deal compromises media plurality.

To date, News Corp.’s public statements in this escalating spat have been restricted to a terse comment pointing out that the company has not finalized its plans — its original $1.11 a share bid for the BSkyB stock was rejected, and Murdoch may have to pay as much as $1.43 — and that its critics are also commercial rivals.

However, it is not only rival U.K. media groups that are beginning to raise questions about News Corp’s growing power.

U.S. distributors are privately worried about BSkyB’s dominance of commercial broadcasting, since it now owns the Living suite of channels following the purchase of Virgin Media Television for $253 million.

“By taking out a competitor, of course we have one fewer U.K. channel to sell our shows to,” said one studio sales chief.

“But it also means there is less diversity across U.K. TV.”

The fact that BSkyB was easily able to outbid two channels, including the BBC, for the rights to “Mad Men,” paying an estimated five times the original licence fee, suggests the kind of market muscle it now flexes.

The betting is that the government will intervene and Murdoch’s rivals will then have to wait and see if Ofcom derails the proposed deal.

But even some of the mogul’s fans think it is time to rein in his might in the U.K. market.

Writing in the Guardian, ex-Times editor Simon Jenkins said, “Maintaining a diverse media is a crucial underpinning of democracy. As for Murdoch, the sun has shone and he has made hay. It is time he heard a regulator knocking at his door.”

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