The Murdoch family and its media group News Corp. had a narrow escape today, when the U.K.'s broadcasting regulator, Ofcom, found that the profitable satellite TV company, British Sky Broadcasting Group Plc, is still "fit and proper" to hold a license. But only just and only for now.
The most important finding in the 10-page decision may well be the first: namely, that a phone hacking scandal at News Corp.'s tabloid newspapers is relevant to deciding whether Sky is fit to hold a broadcasting license, even though Ofcom says the newspapers' misdeeds had no bearing on the performance of broadcasting functions at Sky.
The mechanism for that link, Ofcom explains, is the fact that James Murdoch is a director of Sky and of News Corp., which owns 39 percent of Sky. So whatever the nature of his involvement in the phone hacking scandal might say about Murdoch's personal fitness would matter in determining Sky's fitness as a broadcaster. And Ofcom doesn't think too highly of Murdoch.
After running through the highlights of the who-knew-what-when timeline in the phone hacking scandal, Ofcom finds that Murdoch didn't meet standards of competence or responsibility expected of a chief executive, but that it couldn't conclude on "the evidence available to date" that he deliberately engaged in wrongdoing.
News Corp. welcomed the approval of Sky's license, but said Ofcom's criticisms of James Murdoch weren't based on evidence. (News Corp. competes with Bloomberg LP in the provision of business news.)
All of this is a little weird when you think it through. James Murdoch was chief executive of Sky from 2003 to 2007 and chairman from 2007 to 2012, when he stepped down from that post to become a non-executive director. That is a period in which the company went from strong to stronger. By 2011, News Corp.'s share in Sky accounted for 18 percent of News Corp.'s net income; the U.K. satellite company had more than 10 million subscribers. Sky's aggressive moves to buy exclusive rights to soccer coverage helped to revolutionize English football, by making the Premier League clubs rich. Plus, says Ofcom, "Sky's compliance record in broadcasting matters has been good." If that's incompetence, then let's have more of it.
Ofcom's conclusion, though, didn't come from an assessment of how Murdoch ran Sky. It came from his account of how he didn't know what was going on at News Corp.'s U.K. newspapers, which he also ran starting in 2008. Not only have News Corp. newspaper reporters and executives been charged with illegally hacking into the cell phones of hundreds of people, but dozens of journalists have been arrested for bribing U.K. officials to get stories.
If the U.K. should be examining News Corp.'s fitness to run any part of its business, that surely should be its newspapers. But Ofcom doesn't regulate that.
Murdoch's defense in the phone hacking scandal is that he was unaware of its extent until it was publicly confirmed, because he didn't read the full text of a key e-mail sent to him, didn't ask enough questions when the Guardian and the New York Times published allegations and didn't read the legal advice before signing off on a £625,000 ($1.01 million) payment of damages and costs to settle an early phone hacking suit.
So to accept Murdoch's account of his role in a phone hacking cover-up, Ofcom had to conclude that he was incompetent and irresponsible. "We recognize that whether it is appropriate for James Murdoch to be a director in light of the events is a matter for the board and the shareholders of Sky," says the Ofcom decision, in what looks from here like a heavy hint on which way they should jump.
Ofcom finishes by saying that further evidence may emerge in the phone hacking affair, in which case the regulator would be obliged to consider the new data and reopen Sky's "fitness" question.
Sky may have received a clean bill of health to keep its broadcasting license, but don't expect this to be the last of it for James Murdoch. And don't expect News Corp. to succeed any time soon in its quest for permission to buy the rest of Sky.
(Marc Champion is a member of Bloomberg View's editorial board. Follow him on Twitter.)
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