Problems facing media moguls Rupert and James Murdoch in the United Kingdom and the United States have yet to have an impact in Australia.
But if recent speculation is true that News Limited might be a buyer for James Packer’s 25 per cent Foxtel stake, Murdoch could find himself in a forest of acronyms as various regulatory agencies – the Australian Consumer and Competition commission, the Australian Communications and Media Authority and the Foreign Investment Review Board – take an active interest.
The continuing storm over the handling of the UK phone hacking scandal has seen a British parliamentary committee find Murdoch senior is not a fit and proper person to run a multinational media company.
The phone-hacking and police bribery scandal has led to more than 40 arrests in Britain and to a Sky news reporter admitting to hacking emails in pursuit of a story.
These revelations have also led to low-level investigations of News operations in the US. In July last year, the FBI was reportedly opening an investigation of allegations that News reporters may have hacked the phones of victims of the 9/11 terrorist attack in New York and Washington.
There is no recent information to confirm that any investigation is ongoing in the US. However, American politicians – always on the look out for a media opportunity – have signalled they are taking a keen interest in the British parliamentary report and the Leveson inquiry. A Washington ethics lobby group has also written to the US Federal Communications Commission seeking an inquiry into Murdoch’s control of the Fox network.
Citizens for Responsibility and Ethics in Washington want the FCC to revoke Foxtel’s broadcasting licences. A US senator has also written to the chair of the Leveson inquiry seeking any information that might suggest American laws have been broken by News journalists.
Even is there is no illegality, Murdoch does face some problems in the US. Under American law, the finding that he is not a fit and proper person to run a business in the UK can be used to trigger an inquiry in the US.
These ongoing worries are more than an embarrassment to the octogenarian patriarch; they are a debilitating overhang that could ultimately affect the fate of News Corporation – the parent company that manages the family’s global media business interests, including News Limited in Australia and News International in the UK. For example, BSkyB shares took a hit on UK markets after the email hacking story came to light.
There is no suggestion at the moment that News Limited staff ever engaged in phone-hacking or other illegal behaviour in Australia and so far there has been no real damage to Murdoch’s assets here.
The Independent Media Inquiry (the Finkelstein inquiry) was convened to examine issues of standards and accountability in the Australian news media, but its terms of reference did not mention News Limited in particular. The inquiry’s report is largely forgotten and the Convergence Review recommendations are unlikely to have much impact over the next 18 months.
However, in the last two weeks speculation about James Packer’s possible sale of his company’s stake in Foxtel has in turn led to further questions about whether an embattled Rupert Murdoch would be in a position to pick up the shares and increase News Limited’s holding in Foxtel.
Currently telecommunications provider Telstra holds 50 per cent of Foxtel, with James Packer’s Consolidated Media Holdings and Murdoch’s News Corporation holding the balance in their joint-venture Sky Cable.
Media industry analysts are so far suggesting that there won’t be a round of mergers or sales in the short term; partly because of uncertainty about the fate of Convergence Review reforms, but also because no one is particularly cashed-up at the moment.
The main bidders for Packer’s stake in Sky Cable are likely to be News Corp or Telstra and the sale could attract some interest from various business and media regulators – particularly in regard to competition and media diversity. At some point too, a suitability test could be applied – but perhaps not directly to Rupert Murdoch himself.
But unravelling the regulatory strings is not easy as the transaction would be covered by several pieces of legislation, each administered by a separate arm of the bureaucracy.
Foreign Investment Review Board
The Broadcasting Services Act of 1992 does not place any restrictions on foreign ownership of media assets – this is covered under the Foreign Acquisitions and Takeovers Act of 1975 and government policy.
Ultimately the Foreign Investment Review Board might take a view on any sale or merger involving Foxtel as Murdoch himself is now a "foreigner” in Australia having taken out US citizenship in the 1980s.
Australian Communications and Media Authority
The Broadcasting Services Act does have a section allowing ACMA to administer a "suitability” test for licence holders. This test is not the same as the "fit and proper” person test that the British regulator Ofcom is currently considering in the BSkyB case.
The suitability test would apply to the licensee company – in the Australian case Foxtel – and would only be triggered if the ACMA believed there was a "significant risk” that provisions of the Broadcasting Services Act might be breached by Murdoch or anyone else buying the CMH shares.
In the context of a sale of some or all of Packer’s shares to Foxtel, the provisions of section 98(3) of the Broadcasting Services Act could deal directly with questions about Rupert Murdoch as it requires the regulator to take into account the "business record” of anyone in a position to "exercise control” over the subscription service licence. At this stage all that ACMA will say is that it is monitoring the British situation but making no further comment.
Australian Competition and Consumer Commission
The ACCC deals with issues of competition, oligopoly and monopoly and recently decided not to stand in the way of Foxtel’s acquisition of ailing subscription TV competitor Austar. Foxtel gave some guarantees that it would not monopolise content (particularly in sports, drama and movies) which satisfied the commission.
Under current boss Rod Sims, the ACCC is taking a "light touch” approach to regulation and the ACCC is really only interested in ensuring there is competition in the delivery of content. If there is no lessening of diversity in terms of content, then the ACCC has no role in preventing News Limited from increasing its control over Foxtel.
So, what next?
For the time being Rupert Murdoch’s Australian empire – the birthplace of his wealth, ambition and influence – seems safe and intact. He is not personally under attack here and neither Foxtel nor News Limited appear in any immediate or medium term danger of attracting any adverse interest from regulators.
Over the longer term, however, the danger could be a domino-effect if shares in the various arms of the News Corporation octopus start to suffer a value decline as a result of more bad news in the UK – such as Ofcom refusing to allow the BSkyB acquisition to proceed – or a ramping up of any US investigations into alleged phone-hacking or other potential criminal activity in that jurisdiction.
One American investment adviser has already downgraded News Corp and has written that the company may be in danger of losing faith with important institutional investors.
Late last year both Rupert and James copped an angry serve from investors at News Corp’s AGM and four months later James stepped down as head of BSkyB in the UK.
It is not likely that the Murdochs will lose control of News Corp – they own nearly 40 per cent of voting stock – but the company could be damaged if the share price falls or long-term institutional investors walk away. Just last month Murdoch’s stranglehold on the voting stock in News was further weakened when one of his major shareholder allies, Prince Alwaleed bin Talal lost voting rights temporarily, but perhaps indefinitely. It appears there has been a technical breach of US law and some Class B voting stock has been suspended until the breach is overcome.
Prince Alwaleed bin Talal is a member of the Saudi royal family and News Corp’s second biggest shareholder with around 7 per cent of voting rights. The loss of his support could affect Murdoch’s ability to hang on in a tight shareholder tussle.
It is indeed a tangled web that the 81-year-old has spun around himself and the News Corporation empire. Now it seems some threads are perhaps choking Murdoch while, at the same time, others are unravelling around him.
Martin Hirst is associate professor at Deakin University. This story first appeared on The Conversation. Reproduced with permission.
Will Murdoch face an Australian inquisition?
So far in Australia Rupert Murdoch has avoided the sorts of threats and restrictions his empire has faced overseas. But a bid for Foxtel might once again place him in a regulatory and PR tangle.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free