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Sky News spun out as BSkyB takeover OK'd, more or less

Rupe gets Hunt thumbs up

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News Corporation's buyout of satellite payTV operator BSkyB has been accepted in principle by the Culture Secretary, following advice from UK regulators Ofcom and the Office of Fair Trading. News Corp has agreed to spin out and fund the Sky News operation for 10 years.

Although the European Commission has said the buyout would not impede competition, an alliance of UK commercial rivals that vowed to stop the takeover, has hinted at legal challenges to the deal.

Culture Secretary Jeremy Hunt announced a consultation on media plurality issues raised by the proposed acquisition, declaring himself satisfied that the deal doesn't merit referral to the Competition Commission. Ofcom's advice [pdf] was based on a calculation that News Corp's reach would rise from 32 per cent to 51 per cent of consumers.

The nitty gritty can be found in this document. Sky News will be spun out into an independent publicly traded operation called Newco, with the same ownership shares it has today, with Sky owning 39.1 per cent. News Corp undertakes to pay for carriage for 10 years, and not touch the ownership arrangement for the same period. Sky News will receive a seven-year brand licence to carry on being called Sky News, and using the brand for related products and services. On Ofcom's recommendation, Newco will be overseen by an independent board.

News Corporation founder Rupert Murdoch cuts a powerful mythical figure among rivals and political opponents in the UK, and the takeover created a powerful alliance of rivals, including BT, DMGT (owners of Associated Newspapers), Trinity Mirror and the Guardian and Telegraph groups. "I have declared war on Mr Murdoch and I think we are going to win," Business Secretary Vince Cable boasted to undercover reporters, after he referred the merger to Ofcom.

But the myth is slightly undermined by the facts. News Corp posted a staggering operating loss of $5.6bn in 2009, on revenue of just $30bn. It ended the year with $6bn in cash, a fraction of the $30bn income that the BBC has been guaranteed, for example. The European Commission examined competition fears raised by the takeover and found them to be exaggerated. In its summary, the EC noted that newspaper subscriptions amount to only 6 per cent of the market, and that Sky's small share didn't allow it to hike advertising rates, or negotiate unfairly with European rights holders.

"What we are looking at is a complex, hybrid, potentially damaging solution that was never really necessary," former BSkyB's former head of programming David Elstein said today. ®

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