News Corp withdraws its undertakings: but why?

by Carl Gardner on July 11, 2011

This changes everything. As Culture Secretary Jeremy Hunt said in the House in his statement this afternoon, News Corporation has withdrawn its proposed “undertakings in lieu” in relation to BSkyB. These were its undertakings, for instance “spinning off” Sky News to make it independent, and protect it from News Corp dominance.

Since it was that package of undertakings that led Hunt to say he was minded to let the deal through, it follows that he must now refer the bid to the Competition Commission. He is free to do so purely on grounds of media plurality. There can be no accusation that he’s acted unlawfully or departed from the proper legal procedure.

But why on earth would News Corp do this? As I wrote last week, the law was on the side of their bid. A couple of things occur to me.

First, in spite of the strength of their legal position, Rupert Murdoch and News Corp must have feared that, the political temperature on this issue being so high, there was a risk that ministers might feel obliged to “find a way” to block the bid, and try to call Murdoch’s legal bluff, or gamble that they might, just, successfully defend a judicial review in these extreme circumstances. Ofcom’s consideration of BSkyB’s “fitness” might just have provided some cover for ministers, as might any revised view from Ofcom or the OFT on the credibility of News Corp’s undertakings. There might even have been a very remote risk of ministers taking my advice and changing legislation urgently and getting clearance from the European Commission to rely on new public interest considerations. From News Corporation’s point of view, while today’s move puts the bid on the back burner (as many MPs have been demanding) it does not kill it; it leaves open the possibility that News Corp could once persuade the Competition Commission, as it persuaded the OFT and Ofcome, and that the bid could go through one day, when perhaps the heat has subsided. While we’re used to thinking about Rupert Murdoch’s power over  government, the truth is government has a great deal of power over him. He might well choose to do them a favour rather than raise the stakes yet higher at this moment of danger for his whole empire.

From ministers’ point of view, the decision comes like a prayer being granted. It gets Jeremy Hunt completely off the immediate legal and political hook. His transparent decision to delay a decision – by relying on the number of responses he had to his last consultation – was not unsustainable in the short term politically, and in the longer term legally. This gives him much more room for manoeuvre. It allows him to give in to Ed Miliband’s demands, while saving a little face. It allows the government to avoid a vote in the Commons this week, in which most Liberal Democrats might well have voted with Labour.

So it suits both News Corporation, and the government. The question has to be: was this a deal? I suppose it’s conceivable that it was a decision taken unilaterally by News Corp, without consultation with anyone in government or the Conservative Party. That may even be true.

But in my view, one of the inquiries announced last week by the Prime Minister must look into all contact between News Corp and everyone and anyone in government and Parliament last week and this. The public must know if this was yet another stitch-up between News Corp and politicians.


{ 5 comments… read them below or add one }

1 txwikinger July 11, 2011 at 20:21

I think the reason is very obvious. It is PR.

The best thing in public relations is to be or to appear like to be in the driving seat. Obviously, NI has lost the driving seat in these days of turmoil. Hence the current reactions are not attempts to gain at least the appearance to be in the driving seat.

It started with the closure of the NoTW. This makes legally no sense. While they are apparently paying the staff 90 days in order to comply with a statute requiring consultation when laying off more than 100 positions, it has already been raised in the press that this might not comply with the requirements, and may trigger another 90 days after it.

So why would they create a situation to pay staff half-a-year of salary without any income from it? Well, because it make them look like being in the driving seat, being pro-active, still running the ship.

I see the decision to force the government to now refer to the Competition Commission in the same light. It gives them a breezing space and makes them look like they control the process. They have at least 6 month to get the media to calm down about the story… after all how many days does a scandal usually last? The media always has ADHD. In 6 month, most people, and hence most media may have other scandals to get excited about. However, since this is a media war, maybe this may be an exception.

On the other hand, what could be the outcome from the Competition Commission. Maybe they say everything is fine, maybe they say, NI must spin off Sky News, or sell a certain number of news papers instead. In the first case, they are not worse off than today, they offered that anyway, but have now gain time to steady the ship. IN the other case, maybe the strategy is all along to get rid off the old-fashion newspaper industry. Maybe they are far more interested in digital media than old fashion papers, and such a potential ruling would give them an excuse to do what they plan to do anyway.

While it seems a risky move in some sense, it seems to be very strategic indeed. Gaining time, steadying the ship, appear to be in control, and take on the problems when it is easier to do so.

Btw., a question a little degressing? Can NI increase their shares by buying from the stock market, or are they under any regulation to do so? Otherwise, the current loss of value of BSkyB shares could allow them to buy some more ownership cheaper than anticipated.

2 ObiterJ July 14, 2011 at 10:46

In legal terms, serious reform of the concepts of “fit and proper person” and “media plurality” is required. Far too vague and elastic as they stand.

3 Kelvyn Gardner July 14, 2011 at 16:54

Well, with NI now withdrawing their bid for BSkyB, we enter new territory. I don’t see this as the end of Murdoch’s desire to buy BSkyB, owning it 100% makes too much sense from his point of view, rationalising what otherwise is a big hole in his international satellite broadcasting network. This is the ‘long game’ out in the open. PR is important and he has concluded that there is simply far too much noisy opposition out there right now to make the takeover feasible. Don’t forget, even the Tories have made worried noises about what happened to Cadbury after the hostile takeover by Kraft, so there is ‘Big PR’ to be won ( to paraphrase Cameron ) in attacking NI’s bid. We may well see stirrings in the USA that may well kill it once and for all, otherwise exect a new bid in late 2011.

4 txwikinger July 14, 2011 at 18:59

Another theory could be attached to all of this.

Bullies are more often than not very insecure people whose whole identity and confidence are based on the fact that they are able to bully other people around. It also often creates an aura of invisibility and power due to the fact that very few people are willing to stand up to people seen to bully others (this phenomena seems even more extreme in the UK than in a lot of other places).

When bullies are challenged they due as much (often everything, maybe even some illegal act) as they can to show they are the ones with the power, however when the veil of invincibility is somehow pierced bullies fall back to their original insecurity and retreat.

Without claiming this being a fact, since I do not know any of the persons involved, there could be such a pattern in this case that might explain some of the events. In contrast of a strategic retreat this might be an outright retreat trying to hide from the consequences of the actions that had been taken before.

Just another theory, anybody is invited themselves to look at the evidence and decide if this might be true or not.

5 Kelvyn Gardner July 15, 2011 at 10:26

Well, Rebekah Brooks has resigned, so that’s the last layer of corporate buffer gone, leaving the Murdochs with no more barriers between them and their sundry attackers. Now we’ll hear even less at the select committee hearing, unfortunately.

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