Murdoch seen as 'very unlikely' to seek full control of BSkyB

Everybody knows that the Murdoch family are desperate to own BSkyB outright. Or they thought they did, until recently.

When Rupert Murdoch faced the Leveson Inquiry in April 2012, he listed the decision to give up control of the pay-TV operator via a 1994 flotation as one of the great regrets of his more than 40 years in British media.

“With hindsight, I regret that I ever agreed to an IPO, although I admit that they were different times and there were probably monetary pressures which encouraged,” he told the inquiry.

By then News Corp’s attempt to buy the 61pc pf BSkyB it did not own had been exploded by the phone hacking scandal. Murdoch watchers nevertheless remained convinced he would return for it once the dust had settled.

Today the tectonic plates on planet Murdoch are shifting rapidly and speculating about the family’s intentions towards BSkyB is a more complex pursuit. Mr Murdoch has two massive deals in his in-tray.

BSkyB, in which Fox remains a 39pc shareholder, has agreed to buy Sky Deutschland and Sky Italia from Fox for £4.9bn. That deal, led by his son James, completes via a different route the same roll-up of European pay-TV assets that News Corp failed to achieve.

Meanwhile, the patriarch is himself working on an audacious takeover of Time Warner for at least $80bn (£47bn).

If it goes through, full control of BSkyB, or ‘Sky Europe’, would be almost unthinkable on competition grounds, according to regulation experts.

“It would be extremely difficult,” said a senior lawyer. “The market power calculations would look very different to last time.”

At any rate, according to other City sources, there are good business reasons why Mr Murdoch may no longer interested in pay-TV ownership.

Time Warner is by no means a done deal. Fox’s initial $80bn bid was rejected by Jeff Bewkes, the chief executive of Time Warner. He also said he would not negotiate.

In recent days though, moves by the two sides have looked a lot like a form of negotiations. Fox was reported to be willing to give Time Warner shareholders seats on the board of the combined company. Richard Parsons, a former Time Warner chief executive and chairman then appeared on television to proclaim that “the price offered is way off the mark and the form of currency is way off the mark”.

If the two sides do strike a deal they will create a true giant of content ownership in an industry that is already well consolidated. In film, for instance, the number of major studios would be reduced from six to five; Fox and Warner Bros have taken more than 36pc of the US box office so far this year.

It is this concentration of power that would make regulators bristle at any future Murdoch attempt to take over Sky Europe.

News Corp secured regulatory approval from the European Commission for its takeover attempt in 2010. Officials in Brussels waved it though, reasoning that under News Corp ownership BSkyB’s pay-TV rivals would still copete fairly to secure film rights deals with five other major studios.

Even if European watchdogs were to approve a bid for Sky Europe from a much-enlarged Murdoch empire, the takeover would still require the green light on media plurality grounds in the UK.

Last time, Ofcom resisted, and according to sources would be likely to again, in spite of the separation of News Corp into Fox and the publishing group ‘new’ News Corp.

Regulatory concerns aside, “the fundamental point is that the world has moved on quite a lot”, said one media dealmaker.

“The landscape was a lot more benign for BSkyB last time round and after a period of investment it was about to start generating pots of cash, which was very attractive to Murdoch. There was no BT throwing its weight around on content deals and it was before Liberty Global had come in for Virgin Media.”

“Pay-TV distribution has become much more competitive. I think it’s strategically very unlikely that they would come back for BSkyB now.”

There is plenty of evidence in the Sky Europe agreement and Time Warner bid to support such speculation. For Fox, the net effect of selling 100pc of Sky Italia and 57pc of Sky Deutschland, while maintaining a 39pc stake in BSkyB, is to pull $8bn out of pay-TV in Europe. It also takes Sky Italia’s debts off its balance sheet and increases cash flow across the Atlantic.

"We look forward to participating in Sky’s exciting next chapter under the leadership of Jeremy Darroch, along with the other senior leaders, colleagues and creative talent across all the European Sky businesses," said James Murdoch last week.

But it all helps fund a proposed takeover of Time Warner and taken together the deals represent a partial withdrawal from distribution and a massive bet on the value of content ownership.

For now, Fox remains a contented and influential minority shareholder in BSkyB, which is a very successful and growing company. But in the City at least, the betting is increasingly that Mr Murdoch will cash in on Sky Europe.

"It's relativelys small and focused on distribution. “It’s more likely than anything else now that he sells out of BSkyB,” said a media banker.