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Jeremy Hunt letter

Jeremy Hunt letter

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Published by Jamie Hall

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Published by: Jamie Hall on Apr 21, 2011
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03/11/2014

 
Department for Culture, Media and Sport
2-4 Cockspur Street Tel 020 7211 6299Rt Hon Jeremy Hunt MP London SW1Y 5DH Fax 020 7211 6309Secretary of State www.culture.gov.uk 
CMS 172104/asg19 April 2011Ivan Lewis MPHouse of CommonsLONDONSW1A 0AADear 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 consultationand the details of the carriage and brand licensing agreements, and I have not reacheda 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 remainsto be determined. Going forward, the selection of the Board will be a matterfor the company to determine. As you will have seen, the UILs provide thatthe majority of the board should be properly independent. The Interpretationsection of the UILs sets out in some details what is meant by independentin this context.2.
What proportion of the Board will be independent non-executiveDirectors?
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 bedetermined, but I would note that the Chair of the Board must be anIndependent 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 anumber of variables but I can confirm that the carriage agreement willbe of key importance for Newco. The ten year carriage agreement andthe 7 years renewable brand licensing agreement are importantelements in ensuring that Sky News will be economically viable and socontinue to contribute to plurality. To the extent that Newco is able tosecure any significant new business, the balance of funding couldchange.b.
It will be dependent on News Corporation to distribute its TVnews output on the BSkyB network.
This is correct. In this respect, it is in exactly the same position as anyother broadcaster carried on Sky. It is important for plurality that SkyNews continues to be available on the Sky platform and this does notpreclude Sky News from being carried on other platforms such asVirgin.In terms of substantive dependency, I would note that the importanceof the carriage agreement with News Corporation for Newco has beenaddressed in the UIL by means of the fact that News Corporation canterminate the carriage agreement only in the event of a material breachthat has not been cured or in the event that Newco ceases to provideoutput which is branded "Sky News".c.
It will only be viable long-term if Newscorp are willing to renewthe Carriage Agreement.
It is not possible to predict with any certainty what the position will be inten years and whether Newco will enter into a new contract with NewsCorporation or obtain new or additional sources of revenue/business.You will recall that Ofcom advised me in its letter of 1 March that theUILs, including the 10 year carriage agreement, addressed its earlierplurality concerns.
 
Department for Culture, Media and Sport
5.
How is the proposed remedy consistent with the OFT’s gu
idance that itis rare to accept even interim purchase/supply arrangements betweenmerging partners and the divestment business given the requirementsfor 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 theguidance is tailored to those sorts of issues. Where merging parties and adivested business are direct competitors, I can understand that it may be rarefor purchase/supply arrangements to be accepted. Here, however, I amdealing with a plurality issues in circumstances where all of the competitionissues have been dealt with by the EU Commission, so the guidance is notquite on point. In addition, it is worth noting that whereas with the OFT, if itrefers a competition case to the CC, that is the end of its involvement, withplurality matters, the structure always leaves the final decision to me, even ifthe CC were to be involved. In any event, I have taken into account theadvice of both the OFT and Ofcom in this process.In the end, under the statutory scheme, I have to consider whether theproposed remedy prevents, mitigates or remedies concerns about plurality.The remedy in this case is designed purely to address the plurality issue. Tothat extent I am conscious of ensuring the Newco is a viable provider of news.Ofcom provided its report identifying its concerns regarding plurality which Itook seriously. Whilst there were issues in that Ofcom analysis about whichquestions might have arisen, in reaching the view that I should consult on theproposed remedy, I sought to ensure that the remedy dealt with the concernsidentified by Ofcom. I will, of course, consider carefully the issues raised inthe course of the consultation and will then reach my view whether theproposed remedy will fulfil the relevant statutory test..6.
Company Directors have a duty to act in the interests of their companyand shareholders. Therefore is it not the case that as Newscorp are themain customer and distributor for Sky News the Directors of Newco willhave 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 willclearly involve consideration of Newco's relationship with Newscorp as SkyNews' main customer, but decisions in each instance will depend onindividual circumstances. There could equally be circumstances in whichindependent directors advise the board to pursue a strategy that makesNewco less dependent on Newscorp. It is worth noting also that, as with anyother company, the directors of Newco will act in accordance with the Articlesof Association, which will have the provisions relating to independenceenshrined in them.

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