The Competition and Markets Authority (CMA), which is in the process of scrutinising the proposed £11.7 billion deal, said it has concerns about the impact the merger of the companies would have on media plurality.
The CMA highlighted concerns (324-page / 4.76MB PDF) about the extent of influence that the Murdoch Family Trust (MFT) and members of the Murdoch family might have over media outlets in TV, radio, online and newspapers in the UK should the deal go ahead.
"We have provisionally concluded that the transaction may be expected to result in insufficient plurality of persons with control of media enterprises serving audiences in the UK because it would lead to the MFT holding too great a degree of control over the diversity of the viewpoints consumed by audiences in the UK and would give the MFT too much influence over public opinion and the political agenda," the CMA said in its report.
"Overall, we have provisionally found that, on the balance of probabilities, the transaction may be expected to operate against the public interest, taking account of the need, in relation to every different audience in the UK or in a particular area or locality of the UK, for there to be a sufficient plurality of persons with control of the media enterprises serving that audience," it said.
However, the regulator said it is open to potential remedies (15-page / 493KB PDF) to address its concerns. One potential remedy could be requiring the spin-off or full divestiture of Sky News by Sky as a condition of the deal going ahead.
Other potential "behavioural remedies" to "insulate" Sky News from the influence of the MFT could also be applied, such as "restricting information flows and use of shared services, physically separating premises and staff, and regulating transfers of management and any permitted interactions between relevant staff", the CMA said.
In its report, the CMA also stated that the concerns relating to media plurality could "fall away" if The Walt Disney Company's proposed $52.4 billion takeover of Fox is sanctioned by regulators.
Fox's planned takeover of Sky was referred for the CMA's scrutiny by former UK culture secretary, Karen Bradley, after she said there were public interest concerns worth investigating relating to the impact the planned deal could have on media plurality and on the attainment of the objectives of the broadcasting standards outlined in UK communications laws.
While the CMA identified public interest concerns relating to media plurality, it provisionally concluded that there was no public interest barrier to Fox taking full control of Sky in respect of the impact on broadcasting standards.
A consultation on possible remedies is open until 6 February while submissions can be made on the CMA's provisional findings up until 13 February. A final report by the CMA's inquiry team on the deal must be submitted to the UK culture secretary, Matt Hancock, by 1 May 2018. Hancock's final decision should be made by 14 June as he has stated that he will make his decision within 30 working days of the CMA's final decision.
Competition specialist Alan Davis of Pinsent Masons, the law firm behind Out-Law.com, said: "This is a rare example of the CMA concluding that a media merger is 'not in the public interest' due to media plurality concerns. The last time a competition authority looked at media plurality was in relation to BSkyB’s acquisition of a 17.9% shareholding in ITV where both the secretary of state and the competition authority found that there were no concerns on media plurality grounds but did require remedies on the basis of competition concerns."
"Whilst these are provisional conclusions by the CMA, there is clearly considerable scope for Fox to be able to find a way to address the CMA’s concerns between now and 1 May when it reports to culture secretary Matt Hancock, who will make the final decision on whether the transaction should be allowed to proceed. Moreover, if Disney’s takeover of Fox proceeds, the CMA has confirmed that it will take this into account on the basis that it would 'significantly weaken' the link between the Murdoch Family Trust and Sky which is at the heart of the CMA’s concern regarding media plurality," he said.
Anne Lambert, chair of the independent investigation group at the CMA, said: "Media plurality goes to the heart of our democratic process. It is very important that no group or individual should have too much control of our news media or too much power to affect the political agenda. We have provisionally found that if the Fox/Sky merger went ahead as proposed, it would be against the public interest. It would result in the Murdoch family having too much control over news providers in the UK, and too much influence over public opinion and the political agenda."
"Our in-depth investigation also considered whether the deal would be against the public interest regarding broadcasting standards. Due to their existing track record in the UK, and the range of policies and procedures the companies involved have in place to ensure broadcasting standards are met, we did not find public interest concerns in this regard," she said.