Murdoch’s Bid for Full Control of Sky Is Dealt a Blow by U.K. Regulator

LONDON — Rupert Murdoch’s yearslong effort to secure an even larger presence in the international media market suffered a new setback on Tuesday, when a British regulator provisionally rejected 21st Century Fox’s bid to acquire full control of Sky, the British satellite broadcaster.

Murdoch has made multiple attempts to acquire the part of Sky not already under his control, only to find himself thwarted by a phone-hacking scandal and the British authorities.

The regulatory decision announced on Tuesday was the latest blow to 21st Century Fox’s bid to buy the 61 percent of Sky it does not now own. The decision could also affect Murdoch’s agreement last month to sell most of his entertainment empire — including his 39 percent stake in Sky — to the Walt Disney Co.

The regulator, the Competition and Markets Authority, said that Murdoch, an executive chairman of 21st Century Fox, would have too much control over Britain’s media landscape if the deal for Sky were to go through. For that reason, it described the proposed $16.3 billion transaction as “not in the public interest.”

The deal’s fate is now in the hands of Britain’s culture minister, Matt Hancock, who must rule by May 1 on whether to let it proceed.

For Murdoch, 86, the deal for complete control of Sky was part legacy-building, part competitive defense.

Since starting the satellite broadcaster in 1989, he has become all too familiar with the regulatory issues affecting media markets across Europe. His latest attempt to acquire all of Sky was part of a push to burnish his company’s global reach.

The acquisition would give 21st Century Fox control of a Pan-European satellite network, and broadcast rights for lucrative content like Premier League soccer matches in England and other European leagues’ games.

In moving to buy the rest of Sky, Murdoch’s company was also seeking to add muscle to compete against digital rivals like Amazon, Apple and Netflix.

Those companies have used streaming video services to win over customers who are increasingly comfortable watching movies and television shows on smartphones and tablets. Netflix on Monday reported faster-than-expected subscriber growth — 24 million new customers in 2017 — that helped push its market capitalization past $100 billion for the first time.

Full control of Sky would give 21st Century Fox not only a vast satellite network but also Now TV, the satellite broadcaster’s online streaming service. Now TV is a relative minnow compared with behemoths like Netflix, which added more subscribers last year than Sky had overall. But Now TV and its sister services in Germany and Spain would provide a foundation from which to expand.

Media industry analysts said the provisional rejection of Murdoch’s latest bid to bring Sky completely into his corporate fold would probably have little, if any, impact on Disney’s planned $52.4 billion acquisition of 21st Century Fox.

Brian Wieser, an analyst with Pivotal Research, said that, in his view, the Fox-Sky bid was “not fully dead yet, but it will die a death at some point in the weeks ahead.” As to whether Disney — after the expected approval in the United States of its planned acquisition of 21st Century Fox — would try to buy the coveted 61 percent stake in Sky, he added, “Disney very well may proceed with it, but in that case you could see other bidders for Sky.”

Disney’s aspirations for Sky, Wieser said, could affect the role that James Murdoch — the younger of Rupert Murdoch’s two sons and 21st Century Fox’s chief executive — ultimately takes in an expanded Disney. “One could speculate that they won’t announce any role for him until after any Sky deal,” he said.

Michael Nathanson, an analyst with MoffettNathanson Research, saw Disney’s potential involvement as creating a more favorable scenario for a Sky deal to pass regulatory scrutiny.

“If anything, it would seem that the U.K. regulators would encourage Disney to control Sky, as it increases the plurality of voices in the U.K. market,” he said. Rupert Murdoch is a divisive figure in Britain, where his newspapers include The Times, a right-of-center broadsheet newspaper, and The Sun, a right-wing tabloid. He abandoned an earlier takeover bid for Sky after 21st Century Fox’s predecessor company was caught in a firestorm over phone hacking by news outlets in Britain.

During that scandal, it emerged that The News of the World, the Sunday sister paper of The Sun, had hacked into the mobile phone of a kidnapped British teenager and had listened to her voice mail messages, inciting outrage in Britain. The teenager, Milly Dowler, was later found dead.

The backlash led to the closing of The News of the World and affected other parts of News Corp.'s publishing business in Britain.

Murdoch revisited the bid for Sky in December 2016, agreeing to a deal worth 11.7 billion pounds, or about $16.3 billion at current exchange rates, for the remainder of the company. European Union antitrust authorities approved the deal in April, saying it raised no competition concerns in Europe. Sky has more than 22 million customers in Austria, Britain, Germany, Ireland, Italy, Spain and Switzerland.

British authorities have been more circumspect. In June, Britain’s media regulator ruled that, while 21st Century Fox executives were “fit and proper” to hold broadcasting licenses in the country, a sexual harassment scandal at Fox News amounted to “significant corporate failures.”

Much has changed since Murdoch made his latest bid for Sky — in particular, his decision to sell most of 21st Century Fox to Disney in a move widely seen as an admission that traditional Hollywood companies had to grow significantly to compete in a shifting entertainment landscape. The announcement on Tuesday further complicates the path ahead for Murdoch.

The Competition and Markets Authority expressed concern that allowing the takeover of Sky to proceed would give him too much control over the British media and, as a result, would give the Murdoch family “too much influence over public opinion and the political agenda.”

The regulator further noted that Murdoch-controlled outlets were already consumed by nearly a third of Britain’s population. That is a larger substantially larger share than all but two organizations, one of which is the state broadcaster, the BBC.

Notably, the competition authority said the sexual harassment allegations at Fox News were “serious” but did “not call into question” 21st Century Fox’s commitment to British broadcasting standards.

In a statement, 21st Century Fox said it was “disappointed by the CMA’s provisional findings,” adding that it still expected the takeover to win regulatory approval by the end of June.

Sky noted in a separate news release that, although the merger had been provisionally rejected on media plurality grounds, the regulator had “set out possible remedies relating to these concerns.”

In effect, the regulator said that there were three possible options: halting the deal entirely; requiring Sky’s news channel to be spun off or divested; or insulating Sky News in some way from the rest of the Murdoch media empire. The satellite broadcaster has itself offered the possibility of closing down the news channel to help push the deal through. The provisional decision was praised by longtime ideological foes of Murdoch, including Tom Watson, the deputy leader of Britain’s opposition Labour Party. Watson called the announcement “a victory for the thousands of people who joined the campaign and forced the government and the regulator to stand up to the Murdochs for once, instead of simply waving this bid through.”

Claire Enders, founder of Enders Analysis, told the BBC that the decision did not mean that the proposed transaction was dead, given that the regulator had not blocked it on broadcast-standards grounds and had cited the single issue of media plurality. “Had it blocked on both grounds, the transaction would have been stone dead,” Enders said.

She cited an increase in Sky’s share price on Tuesday — it was up about 3.2 percent by day’s end — as noteworthy.

“You can see a market enthusiasm for a conclusion in which the original transaction is actually moving in the right direction, although far from being concluded,” Enders said.