Media Forum: Should market fear Sky bid?

Is News Corp swoop cause for concern for advertisers, Alasdair Reid asks.

If the general response to Rupert Murdoch's latest cunning plan has been muted (and you can certainly argue that it has), then this is surely not just a testament to his all-round wiliness but also a measure of the extent to which his critics, for a decade or more, have been crying wolf.

For donkey's years, the anti-Murdoch faction has made News Corp synonymous with Rupert and Rupert synonymous with BSkyB. It's an easy enough mistake to make, given the fact that Murdoch personally launched one of its predecessor companies, Sky Television, which merged with British Satellite Broadcasting in 1990. And his continuing influence has been apparent at many points since; for instance, having his son, James, parachuted in as BSkyB's chief executive between 2003 and 2008.

So, when News Corp announces that it would quite like to buy the 60.9 per cent of BSkyB that it does not already own, it's really rather hard to pretend to be shocked.

The potential for surprise is even more diminished if you have a penchant for conspiracy theory. It had always been assumed in some quarters that, having backed the Tories this time around, the Murdoch interest would be rewarded if the party won the General Election. (Or, as it turned out, didn't lose.)

And from a News Corp point of view, a takeover would be a classic "no brainer". BSkyB has already proved itself to be recession-proof and is better placed than most to take advantage of the upturn - profits are expected to almost double to £1 billion in the next couple of years.

A free run at this deal will add up to a rather nice political quid pro quo. But actually, it's shaping up to be a good deal more complicated than that. For a start, the News Corp bid has, so far, only served to prove how independently minded (on the surface at least) the BSkyB board is. The initial offer of 700p a share was rejected out of hand and there have been mutterings that the board will also seek assurances about the editorial independence of the likes of Sky News.

And then there are indications that regulatory clearance will not exactly be a breeze either. True, the Culture Secretary, Jeremy Hunt, has indicated he'd like to liberalise cross-media ownership regulations - but if there are wider market dominance concerns, this could go to the competition authorities at both a UK and European level. At which point, the issue goes beyond the simplistic concerns of political horse trading.

So, should advertisers worry about the increased leverage that News Corp might acquire? Nick Theakstone, the chief executive of Group M, points out that News International and Sky have always talked about being joined up in their thinking - but the reality is that this notion has never really achieved any momentum. Yet he adds: "Sky is the dominant pay-TV group and Sky Media, when you factor in the Viacom and Virgin channels that it now sells, has 18 per cent of the market. That combined with the UK's leading newspaper publisher would be a very strong proposition."

Meanwhile, Nigel Walley, the managing director of Decipher, can see at least one possible upside. He explains: "If this allows News Corp to consolidate its TV holdings in Germany, Italy and the UK into one pan-European platform, this may be of interest to pan- European broadcasters like MTV and Discovery, and media buying groups with pan-European clients; for instance, Mindshare and Unilever. The ability to buy across Europe on a single set of channels would be interesting."

Steve Platt, the trading director of Aegis Media, agrees that, though they've made some interesting noises in the past, Sky and NI have never managed to act effectively in tandem. "It's true that it's not always easy to sell across different media. It's not as easy as it is to leverage a big share of the TV market," he points out. But in the final analysis, Platt says that the market has every right to be worried.

Yet Mark Henshaw, the head of media and entertainment at Grant Thornton, doesn't believe there's a danger of advertisers being held to ransom. He thinks that, long term, this is motivated by a desire to cross-sell subscriptions.

He concludes: "It will be interesting to see whether an online paywall at The Times and The Sunday Times will gain more revenue through subscriptions than it loses in advertising revenue. Subscriber revenue is a more stable and reliable source of income than advertising revenue ... and News Corp will be able to bundle subscriptions to their publications in with BSkyB packages."

YES - Nick Theakstone, CEO, Group M

"NI has 30 per cent of the newspaper market. That's a dominant position. If it's all joined up and can represent itself (formally) as one organisation alongside Sky, then that becomes a powerful proposition. That could become a genuine worry."

MAYBE - Nigel Walley, MD, Decipher

"NI behaves as if it owns BSkyB already. If you see a presentation from Sky Media at the moment, they talk about cross-selling with News Corp properties like The Times and The Sun."

YES - Steve Platt, trading director, Aegis Media

"It's true that NI is more dominant in newspapers than Sky Media is in TV - but the deal would create all sorts of competition issues and advertisers would have every right to be concerned about it."

NO - Mark Henshaw, head of media and entertainment, Grant Thornton

"A combined BSkyB and News Corp would have greater buying power for their own (marketing initiatives) ... but there is no commercial reason why ad rates (at NI and Sky) should increase at least in the short term, as it is not easy to see the leverage."

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