IT WOULD seem to be a stunning comeback for Rupert Murdoch and his clan. Five years ago News Corporation was engulfed by scandal. One of its British papers, the News of the World, had routinely hacked private phones. In the aftermath the company gave up a bid it had made for BSkyB (now simply called Sky), a satellite broadcaster in which it had a stake. A parliamentary report declared Mr Murdoch unfit to lead a large company. James Murdoch, his son, resigned as chair of BSkyB and chief of the newspaper division. Ofcom, Britain’s media regulator, eviscerated his leadership as “difficult to comprehend and ill-judged”.
Now the Murdoch empire appears to be striking back. On December 9th, 21st Century Fox, the Murdochs’ entertainment business, had announced a preliminary deal to buy the 61% of Sky it does not already own, and this week it made a formal offer, of £11.7bn ($14.8bn). James Murdoch is ascending once more: indeed, this deal is chiefly his doing. Last year he succeeded his father as boss of 21st Century Fox, and in January he reclaimed his Sky chairmanship. But the show of strength comes with new weaknesses.
Much has changed in five years. In 2012 Rupert Murdoch moved to quarantine his scandal-wracked newspaper business. 21st Century Fox would henceforth house the company’s entertainment companies, including dozens of cable television networks, Fox Broadcasting and a film studio; News Corporation would keep the company’s newspapers. Investors cheered the split. Even before the hacking scandal, many had urged Mr Murdoch to divide his ageing print assets from his faster-growing entertainment business.
Now the entertainment business has woes of its own. Consumers spend less time watching television, choosing streaming video on their phones and tablets instead. If they do watch TV, they are inclined to record shows and fast-forward through ads. It is not a problem that is unique to Fox. The firm has the benefit of a strong brand, a lucrative conservative news network, and the leadership of James Murdoch, who is seen as a strong manager. Even so, Fox’s television business has disappointed investors.
Sky has recently struggled, too. Between 2015 and 2016 the share of customers dropping their subscriptions ticked up in each of its markets—Britain, Ireland, Italy, Germany and Austria. Investors fret over the rising cost of buying the rights to broadcast sport in Britain, Sky’s biggest market. And fewer people are watching its best-known football programmes in Britain (see chart), which suggests that more subscribers might leave.
Whether 21st Century Fox’s purchase of Sky—if it comes off—would do much to change all of this is a matter of debate. Sky is cheaper than it would have been not long ago, thanks to a falling share price and the weak pound. Having all of it could be better than owning just 39%. In narrow financial terms, Fox is currently taxed twice on Sky’s earnings, and that would end.
Others see far less benefit. Marci Ryvicker, an analyst at Wells Fargo, a bank, had thought that, given the choice of buying all of Sky or selling its stake, Fox might actually choose the latter. The two businesses are largely complementary, so a deal is unlikely to bring big savings beyond the tax advantage. And it is unclear if Sky will be of much help with Fox’s biggest headaches—its battle against Netflix, for example, and Amazon’s many video offerings. Sky does have a streaming service, Now TV, but it may be small: it does not disclose its number of subscribers.
It is also an open question if the deal will actually close, and by the end of 2017, the timeframe set by James Murdoch. Now that the formal offer is in, the government will have to decide whether to refer the bid to Ofcom to investigate whether there would be a reduction in media “plurality”. The Murdochs can argue that the deal will not stifle competition: 21st Century Fox does not own British papers. They can also point out that the share of news consumption accounted for by News Corporation and Sky is about half what it was in 2010, thanks to dwindling newspaper circulation and the end of the News of the World, as well as Sky News’s lower share of total news viewing as people switch to online information. That will help the case for a merger. But it points to ebbing power, too.
Update (December 16th): This piece has been amended to include mention of the formal offer from 21st Century Fox.