BSkyB Inquiry to Sour Rupert’s Birthday Bash

By Glenn Dyer, Crikey, 9 March 2012

As Rupert Murdoch celebrates his 81st birthday this weekend, there’s an unwelcome development in Britain that threatens not only son James, but News Corporation itself. In fact, it is another telling example of how the scandal is now out of the control of News Corp and the Murdochs. They can’t call in political favours, threaten politicians with exposure, or try to pressure public servants. They are on their own, defenceless and friendless.

According to media reports, Britain’s media regulator has lifted the intensity of its examination of whether BSkyB is “a fit and proper” owner of a UK broadcasting licence. Such an inquiry is significant because News and the Murdochs control BSkyB through a 40% shareholding.

BSkyB is the best-run media business in the UK and, up to last year, was the great white hope for a new lift in revenues and earnings for News Corp via a long mooted $A17 billion takeover bid. That bid was aborted due to the News of the World phone-hacking scandal last year.

The expanded UK probe is in effect an examination of whether James Murdoch and News Corp are “fit and proper” people to control a UK broadcaster. It takes the whole Murdoch/News of the World phone-hacking-and-corruption scandal to a new level where a huge financial loss could be in store for the parent company, plus the loss of a key controlling role for a Murdoch scion in one of the group’s most important investments.

Forget criminal charges (although any conviction of News International people and others would increase pressure on News and the Murdochs), the real crunch for Rupert Murdoch and News Corp has always been protecting the family and the group’s assets, especially BSkyB, which is as close to Rupert’s heart as the newspapers. Many people have forgotten that BSkyB was his vision, his big passion in the 1980s and ’90s when he drove a truck through UK media regulation and the broadcast industry (and that of Europe) by taking over a competitor in British Broadcasting, forcibly merging it into Sky and creating (with the help of Sam Chisholm) a new company that changed the UK and European media industries forever.

Now Rupert and News Corp are powerless to protect that heritage, and the future and reputation of James and that of News Corp. A finding that the company was not a fit and proper person to hold a broadcast licence would reverberate throughout the world, even in places where such as test is no longer part of media law (such as Australia). Such a finding would call into question the future of the Fox TV network and cable businesses in the US, Foxtel in Australia through the stake and management control of the Pay TV business, Star in Asia, Sky Italia and Sky Deutschland and Sky in New Zealand.

In the US, News and Murdoch learnt this week, via media reports, that the FBI has stepped up its investigations in the US into bribery and corruption claims not only in the UK, but also in Russia in an outdoor advertising company that News sold two years ago. That inquiry will be hard to defect or influence, especially in an election year.

After a preliminary examination last year, the UK regulator, Ofcom, set up a team early this year (theFinancial Times says the Ofcom investigation team is called “Project Apple”) to examine all the material flowing from the Leveson inquiry into phone hacking, computer hacking and allegations of bribery and corruption by journalists at News Corp-owned papers (The Sun and the now defunct News of the World, as well as The Times).

This dedicated team was unknown until a freedom of information request revealed details of the group and their purpose. Ofcom was set to rule last year on whether News Corp was fit and proper because of the mooted bid from the Murdoch master company for all the shares in BSkyB it didn’t own at the time (about 61%). But it never got to rule on this point after the dramatic expansion of the hacking scandal when it became known that phone messages of murdered UK schoolgirl Milly Dowler had been hacked by News of the World journalists

James Murdoch chaired the London-based News International newspaper unit from 2007 until February 29 this year and is chairman of BSkyB. He remains chairman despite a protest vote by some shareholders at the broadcaster’s AGM late last year.

That role in London puts James directly in the firing line because of his increasingly murky role in the phone hacking. His chairmanship is a key part of his new role in New York which involves looking after pay TV businesses, of which BSkyB is the most important. If he is removed from that role because he is not fit and proper, it would call into question whether he could continue as an executive in charge of media businesses where government approvals are needed.

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