UK Media Gang-Up On Murdoch – Oh What A Lovely War!

Philip Stone October 13, 2010 (Follow on Twitter)

Getting British media to agree on anything is near impossible, but now newspapers ranging from the far right to the far left are united against a common enemy – Rupert Murdoch. And the referee in this fight is a decidedly uncomfortable coalition government that probably wishes the whole thing would just go away.

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The cause that has united the media:  that under no circumstances should the government allow Murdoch’s News Corp to buy up the 61% of shares it does not already own in BSkyB, the sole British satellite broadcaster. The opposition may couch all of this in terms of Murdoch having too much power in the media market (he also owns four national newspapers) but the simple truth is the opposition is having nightmares over the marketing bundling possibilities Murdoch will have in offering pay TV, Internet  and newspaper subscriptions. No other newspaper can offer that combination.

And the language is getting pretty blunt. Perhaps the juiciest description comes from The Spectator, “Not since (The Battle of) Waterloo (in 1815) has more motley a coalition been scrambled to resist a ravening tyrant.”

And in the middle is the government that ultimately decides whether Murdoch gets his way. No doubt Prime Minister David Cameron would favor the deal as payback for Murdoch having all four of his UK newspapers back the Conservatives in last May’s general election. Perhaps some of that payback is already in place – the head of the Downing Street press office is Andy Coulson, a previous Murdoch editor of the Sunday News of the World tabloid, but Coulson may be on thin ice because of a telephone hacking scandal (link here) that occurred when he was the News of the World editor. He fell on his sword over that but Cameron did Murdoch the favor of picking him up off the floor. Now Parliament is investigating the hacking yet again and Cameron, who previously had stoutly defended Coulson, now says that “no one is unsackable” – a great example showing that English and American are different languages – the American translation is that Coulson has no safety net.

But now Cameron has the far left press (Trinity Mirror – Daily Mirror) saying the deal shouldn’t go through, but he doesn’t really care what they think, and the Guardian group which is left of center and he probably doesn’t care too much about them, either, although The Guardian has the most read UK newspaper online site and it has flooded its pages daily with multiple diatribes against the merger which could affect public opinion. But more important to Cameron The Daily Telegraph and The Daily Mail (staunch Conservative backers) say the deal shouldn’t go through and he does care about them; he also has the BBC saying it shouldn’t go through although he probably doesn’t care too much about that (there’s a lot of bad blood between BSkyB and the BBC). But another biggie is BT, the largest British telephone operator which is now into big-time delivery of TV services, and it is also against and it does have a lot of corporate influence and Cameron does care about that. The Financial Times did not sign the letter, but it has editorialized against the buyout and there is a great deal of corporate influence there, too.

The decision actually falls to Vince Cable, the Business Minister, who happens to be a Liberal Democrat and since Murdoch didn’t support that party then Cable doesn’t really owe Murdoch anything. On the other hand, in the May election The Guardian that has always been pro-Labor came out in favor of the Liberal Democrats and since The Guardian is so full of venom on this deal, maybe Cable does owe there.

Cable will probably refer the issue to the Office of Fair Trading (OFT) that looks at consumer protection and competition law, and reviews proposed mergers.  Usually the minister will abide by what the OFT says but no guarantee. And at the end of the day although the Prime Minister usually rubber stamps whatever his Business Minister decides it is within his province to make the final decision.

It all first actually goes to the EU and it would make everyone’s life in the UK (except for the Murdoch camp) much easier if the EU just says no before it even gets back to Britain. News Corp. lawyers will be working hard to get the EU to conduct just a low-level “phase one” cursory examination and approve the deal quickly, but it is very unlikely that the EU, finally given a golden opportunity to really take a look with a microscope at News Corp. business in Europe will give up that chance.  Murdoch owns satellite TV broadcasters in Germany and Italy and the EU might want to investigate what effect, if any, total UK ownership may have on how those businesses continue operating, including, probably, what buying leverage they might employ (if you don’t sell a program to us in the UK we won’t buy in Italy or Germany, etc.)

That would mean a “phase two” investigation that would take many months and the EU could ask for so much information that it basically X-rays or scans the company, seeing right inside every nook and cranny. Which is probably why the UK government’s position for now is to confirm that it has received the media’s letter objecting to the deal but that it’s too early to make any decisions.

BSkyB is a huge success story with near 10 million subscribers paying on average some £500 (€550, $765) annually – yes, that means subscriptions brings in close to £5 billion annually (€5.5 billion, $7.65 billion) and there are advertising and ISP revenues on top of that which really makes the £1 billion (€1.1 billion, $1.5 billion) the four Murdoch UK national newspapers bring in annually look miniscule.

But how many people can remember back 20 years ago when Murdoch almost lost his entire empire over British satellite TV? There were two money-losing competitors – Sky and British Satellite Broadcasting (BSB) – and both were hemorrhaging big-time (BSB some £8 million a week; Sky some £2 million) and Murdoch was down some £400 million. That was no longer viable and survival meant a merger, but both sides played hardball until the very last minute. The whispers at the time said Murdoch’s financial situation was so precarious he had a cushion with his banks of just a few hours before he would have thrown in the towel when the merger was finally agreed. The rest, as they say, is history; Sky turned its first operating profit in 1992 and never has really looked back since.

How important is owning all of BSkyB to Murdoch? The bid is 700 pence a share for the outstanding 1.07 billion shares not already owned for a total cost of £7.5 billion (€8.2 billion, $11.5 billion) of which about half would be borrowed (the dollar cost has gone up a few percentage points since the June e offer). BSkyB’s independent directors are said to be looking for another 15% and the feeling is the deal, if allowed, will be done somewhere in the middle.  Both sides have agreed that the regulatory permission process can start while the final price is worked out.

But with BSkyB churning out £5 billion annually already with still plenty of room for growth, and if  Murdoch can then start bundling TV, print, and Internet and mobile services then the cash cow looms even larger which is why at first glance the price offered does look low. And the rest of the media, without TV or Internet services to offer, feel they would be in dire straits if the deal went through. But is that really so? BT had signed the letter. BT is big into delivering TV over fiber optic and mobile and all the rest. Cannot newspaper marketing geniuses figure out there is a bundling deal there just waiting to happen?  Of course BT buys various popular broadcast services from Sky so there would need to be protection that Sky doesn’t increase its price to BT so that it cannot be competitive, but that is why they have regulators.

What is a bit scary about all this is just how powerful that BSkyB cash machine has become. The way it did it was to buy up the sports rights to the major events the Brits flock to and this caused so much consternation over the years that there is a list of protected sports such as Wimbledon that must be shown on free-to-air TV. But a proposal to expand that list, recommended in 2009, was deferred in July until 2013 by the new Conservative sports minister – perhaps that was Cameron’s first gift as Prime Minister to Murdoch?

And with so much cash BSkyB easily outbids the BBC and commercial networks on programming it buys in. The BBC, for instance, has shown Mad Men free-to-air for four seasons to decent ratings and now suddenly BSkyB comes in with a bid for season 5 said to be 25% higher than what the public broadcaster has bid. Since the BBC is now doing all it can to cut costs (it has just made redundant its deputy director-general) it now looks like fans of that free-to-air program will now have to pay for a Sky subscription if they want to continue with it. It’s doubtful the BBC will match BSkyB’s bid, and even if it did the satellite broadcaster would just bid more for it knows full well if it truly wants something it can outbid anyone.  

And that may well be the real point in questioning just how powerful the Murdoch machine can become. In our capitalistic system money speaks louder than words and BSkyB even more so will flex its financial muscles outbidding anyone for anything it wants. True capitalism at play or does there need to be some more protection for those who have only free-to-air TV?

There is a real sense that the newspapers opposing the Murdoch buyout are doing so more to protect their own sales than to protect the public.  On the other hand, the UK has 11 national paid-for daily newspapers and that serves the cause of democracy very well. If newspapers are afraid the Murdoch bundling possibilities with TV and the Internet will cause circulation erosion then now is the time to not only get in bed with others that can provide those missing services but also it’s time to reinvest in their editorial products. Then they can prove to the public “You get what you pay for!”

Murdoch has been very quiet throughout this whole process which is probably a sign that News Corp recognizes its boss is probably a bull to the European regulators red flag, and because of the telephone hacking cause célèbre in the UK News Corp. is currently not seen in the best of lights there right now so now is not the time to rattle any more cages than necessary.

But if Murdoch and his minders feel enough is enough and he wants to let loose then he has a perfect opportunity October 21 when he gives the inaugural Baroness (former Prime Minister Margaret) Thatcher lecture in London – ostensibly it is to honor her but it would give him a podium to fire back at his media critics if he really wants to. Few media eyes will be absent from that one.

See also in ftm Knowledge

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