(Updates with News Corp. comment starting in third paragraph. For more coverage of News Corp., see EXT3 <GO>. To watch the Murdoch testimony before Parliament, LIVE <GO>.)
July 19 (Bloomberg) -- Rupert Murdoch’s News Corp., which already abandoned its 7.8 billion-pound ($12.5 billion) bid for full control of British Sky Broadcasting Group Plc because of a phone-hacking scandal, is now being challenged on whether it should be allowed to keep its existing stake.
An examination by regulators of BSkyB’s directors and owners may also determine whether James Murdoch can stay on as non-executive chairman of Britain’s biggest pay-TV operator. The younger Murdoch, who has overseen the News International U.K. arm since 2007, said this month the company misled Parliament and he regretted approving settlements to some hacking victims. Those alleged hacking incidents happened before he took over.
Ofcom, the U.K. broadcast regulator, has the power to revoke BSkyB’s license should it rule that executives are not “fit and proper” to hold it. Prime Minister David Cameron and opposition Labour party leader Ed Miliband have intensified calls to review the Murdochs’ influence in local media as the managers give evidence to a parliamentary committee today. News Corp. said today that the company has held U.K. broadcasting licenses for many years.
“News Corp. executives and non-executive directors have shown themselves completely unable to control what was going on in the paper and make sure the company’s acting within the law,” Chris Bryant, a Labour lawmaker, said in an interview. “That raises questions about whether they should have any stake in BSkyB.”
BSkyB rose as much as 2.4 percent to 730.5 pence in London trading and was up 2.2 percent as of 1:17 p.m.
“News Corp. has held a number of broadcasting licenses in the U.K. for many years. The company was the founding shareholder in BSkyB and has actively supported its development for more than 20 years,” News Corp. spokeswoman Miranda Higham said today via phone. “News Corp. has contributed greatly to the choice and quality of broadcasting in the U.K.”
Ofcom evaluates “any relevant misconduct” when deciding whether a license holder is “fit and proper.” The watchdog said late yesterday that it started meeting relevant authorities investigating the phone-hacking scandal as part of its own assessment of BSkyB and its owners. The regulator may act if it finds evidence that a person is unfit to own a license, even before the conclusion of a criminal investigation, it said.
“We strenuously refute any suggestion that Sky is not a ’fit and proper’ holder of a broadcasting license,” BSkyB spokesman Robert Fraser said in an e-mail. “No such claim has been made in over 20 years of operation.”
This is the first time Ofcom Chief Executive Officer Ed Richards has had to deal with a “fit and proper” test of this type. The test was used last year to revoke a license held by adult entertainment companies Bang Channels Ltd. and Bang Media Ltd. for airing too sexually explicit materials on their “Tease Me” channels for pre-watershed hours.
“He’s politically aware, but that doesn’t make him a political player,” Stewart Purvis, a former partner at Ofcom and professor of television journalism at City University in London, said about Richards’ role. “He has to make it clear that Ofcom knows what’s going on, but is also aware of the constraints which the law rightly puts upon them.”
Concerns about individual directors can be resolved by removing them from the board, said a person with knowledge of the matter who declined to be named because deliberations are confidential.
Dropped BSkyB Bid
News Corp. abandoned its bid for the remaining 61 percent in BSkyB on July 13 after the phone-hacking scandal caused unified opposition in the government to the deal. The scandal has wiped about $8 billion off News Corp.’s market value since the Guardian reported on July 4 that the News of the World tabloid in 2002 hacked into the voice mails of murdered schoolgirl Milly Dowler and deleted messages.
Bloomberg LP, the parent of Bloomberg News, competes with News Corp. units in providing financial news and information.
James Murdoch, 38, became CEO of BSkyB in 2003 and left that post in 2007 to run News Corp.’s television, newspaper and digital operations in Europe, Asia and the Middle East. At the time, he was named non-executive chairman of BSkyB.
In announcing the closure of the News of the World July 7, the younger Murdoch said that out-of-court settlements he approved while running News International were “wrong.” The settlements were criticized in Parliament during an emergency debate a day earlier, when Labour lawmaker Tom Watson said Murdoch should face criminal charges and was unsuitable to be a director.
“If James Murdoch were to be charged, then that would seem to me that you have a linkage,” City University’s Purvis said. “What would you do then, would you say BSkyB loses its license or would you say that you need to find a new chairman?”
Rebekah Brooks, the former News of the World editor who stepped down last week as News International CEO, was arrested in London July 17. Les Hinton, who was overseeing News International at the time of the alleged phone-hacking, resigned the same day.
Earlier this month, police arrested another former News of the World editor, Andy Coulson. Last week, police detained a former deputy to Coulson, Neil Wallis.
“What’s happened is a consequence of having very, very weak regulation of media ownership,” said John Cryer, a Labour lawmaker representing a London seat. “We’ve allowed Murdoch to buy up whatever he wanted, whenever he fancied. Other countries have far better rules to prevent individuals amassing stakes in the media. We’ve got to move toward that.”
News International also publishes the Times and Sunday Times newspapers in the U.K.
One of BSkyB’s largest shareholders is closely monitoring Murdoch’s position although it hasn’t held discussions with independent directors, a person close to the investor group said, declining to be named because the matter is not public.
In addition to the police and parliamentary probes, Cameron appointed Lord Justice Brian Leveson to conduct a judicial inquiry into phone hacking, the behavior of the press, police and politicians, and media regulation.
The U.K. government won’t give Ofcom’s Richards any instructions as the regulator an independent body, a person familiar with matter said yesterday.
Ofcom had initially investigated News Corp. when it attempted to buy BSkyB. As political pressure surrounding allegations that the News of the World had hacked into voicemails and paid police for stories mounted, Culture Secretary Jeremy Hunt asked Ofcom whether they could trust News Corp.’s proposed undertakings.
As the Murdochs appear before lawmakers today, at stake is not only the company’s reputation. James Murdoch’s future may also be on the line.
“If it’s proved in any way, shape or form that James Murdoch was aware of what was going on and he didn’t stop it, he has a problem,” said Steve Malcolm, an analyst at Evolution Securities who has a “reduce” rating on BSkyB shares.
--Editors: Simon Thiel, Kenneth Wong.
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