Department for Culture, Media and Sport 2-4 Cockspur Street Tel 020 7211 6299

Rt Hon Jeremy Hunt MP London SW1Y 5DH Fax 020 7211 6309
Secretary of State www.culture.gov.uk

CMS 172104/asg

Ivan Lewis MP
House of Commons
LONDON
SW1A 0AA
19 April 2011

Dear Ivan

NEWS CORP ACQUISITION OF BSKYB AND NEW COMMUNICATIONS ACT

Thank you for your letter of 30 March.

I think it is simplest if I answer your questions in order. Before doing so, though,
I should stress that we are still considering the representations on the consultation
and the details of the carriage and brand licensing agreements, and I have not reached
a final decision on this matter.

1. Who will appoint the Board of Newco?

How the initial Board of Newco will be appointed is something that remains
to be determined. Going forward, the selection of the Board will be a matter
for the company to determine. As you will have seen, the UILs provide that
the majority of the board should be properly independent. The Interpretation
section of the UILs sets out in some details what is meant by independent
in this context.

2. What proportion of the Board will be independent non-executive

Directors?

The majority will be independent.

3. Who will appoint the independent Chair of the Board?

The mechanism for appointment of the Chair of the Board is to be

determined, but I would note that the Chair of the Board must be an
Independent director, as set out in the UILs.
Department for Culture, Media and Sport

4. Do you accept the following in relation to Newco?

a. It will be dependent on a contract with News Corporation for 85%

of its revenues and 25% of its costs.

The precise figures are commercially sensitive and will depend on a

number of variables but I can confirm that the carriage agreement will
be of key importance for Newco. The ten year carriage agreement and
the 7 years renewable brand licensing agreement are important
elements in ensuring that Sky News will be economically viable and so
continue to contribute to plurality. To the extent that Newco is able to
secure any significant new business, the balance of funding could
change.

b. It will be dependent on News Corporation to distribute its TV

news output on the BSkyB network.

This is correct. In this respect, it is in exactly the same position as any

other broadcaster carried on Sky. It is important for plurality that Sky
News continues to be available on the Sky platform and this does not
preclude Sky News from being carried on other platforms such as
Virgin.

In terms of substantive dependency, I would note that the importance

of the carriage agreement with News Corporation for Newco has been
addressed in the UIL by means of the fact that News Corporation can
terminate the carriage agreement only in the event of a material breach
that has not been cured or in the event that Newco ceases to provide
output which is branded "Sky News".

c. It will only be viable long-term if Newscorp are willing to renew

the Carriage Agreement.

It is not possible to predict with any certainty what the position will be in
ten years and whether Newco will enter into a new contract with News
Corporation or obtain new or additional sources of revenue/business.
You will recall that Ofcom advised me in its letter of 1 March that the
UILs, including the 10 year carriage agreement, addressed its earlier
plurality concerns.
Department for Culture, Media and Sport

5. How is the proposed remedy consistent with the OFT’s guidance that it
is rare to accept even interim purchase/supply arrangements between
merging partners and the divestment business given the requirements
for a clear cut remedy in lieu of a Competition Commission reference?

The OFT's guidance relates to different issues from those I have to deal with.
The OFT remedies are designed to solve competition concerns and the
guidance is tailored to those sorts of issues. Where merging parties and a
divested business are direct competitors, I can understand that it may be rare
for purchase/supply arrangements to be accepted. Here, however, I am
dealing with a plurality issues in circumstances where all of the competition
issues have been dealt with by the EU Commission, so the guidance is not
quite on point. In addition, it is worth noting that whereas with the OFT, if it
refers a competition case to the CC, that is the end of its involvement, with
plurality matters, the structure always leaves the final decision to me, even if
the CC were to be involved. In any event, I have taken into account the
advice of both the OFT and Ofcom in this process.

In the end, under the statutory scheme, I have to consider whether the
proposed remedy prevents, mitigates or remedies concerns about plurality.
The remedy in this case is designed purely to address the plurality issue. To
that extent I am conscious of ensuring the Newco is a viable provider of news.

Ofcom provided its report identifying its concerns regarding plurality which I
took seriously. Whilst there were issues in that Ofcom analysis about which
questions might have arisen, in reaching the view that I should consult on the
proposed remedy, I sought to ensure that the remedy dealt with the concerns
identified by Ofcom. I will, of course, consider carefully the issues raised in
the course of the consultation and will then reach my view whether the
proposed remedy will fulfil the relevant statutory test..

6. Company Directors have a duty to act in the interests of their company

and shareholders. Therefore is it not the case that as Newscorp are the
main customer and distributor for Sky News the Directors of Newco will
have a duty to respond positively to the interests of Newscorp?

The directors of Newco have a duty to act in the interests of Newco. This will
clearly involve consideration of Newco's relationship with Newscorp as Sky
News' main customer, but decisions in each instance will depend on
individual circumstances. There could equally be circumstances in which
independent directors advise the board to pursue a strategy that makes
Newco less dependent on Newscorp. It is worth noting also that, as with any
other company, the directors of Newco will act in accordance with the Articles
of Association, which will have the provisions relating to independence
enshrined in them.
Department for Culture, Media and Sport

7. Finally, you have confirmed that it is the Government’s intention to

introduce a new Communications Bill. Will you accept my offer to work
with you to ensure the Act can be passed by 2013 rather than 2015?
Creating a new regulatory environment is a jobs and growth issue and
therefore we should move quickly. In light of the very real issues of
impartiality that have arisen in relation to this case, will you consider
including provisions in the Bill which would in future remove politicians
from having any quasi-judicial role in relation to specific plurality and
cross media ownership decisions?

I am grateful for your offer to work constructively on a new Communications

Bill. In view of the importance of the issues involved though I do not think the
timetable you suggest is realistic. As we have seen from the Digital Economy
Act, the last time Government rushed through legislation in this area, hastily
constructed legislation can cause problems that take time to resolve. In
addition I thought you had only just started a policy review into this sector
and so I am uncertain what exactly you are calling for. But I can assure you
that I share your view of the importance of the legislation and will want it
introduced as soon as is realistically possible. I will certainly be considering
whether we need to introduce new provisions in respect of media plurality.
I will be publishing a green paper by the end of the year and seeking views
this year in order to scope what it should include. Following the green paper
consultation we will look to make necessary changes as soon as practicable;
not everything will necessarily require primary legislation and we are open to
looking at what can be done more quickly where appropriate.

Rt Hon Jeremy Hunt MP

Secretary of State for Culture, Olympics, Media and Sport