Protests at Murdoch’s return to chair Sky
JAMES MURDOCH has returned as chairman of Sky almost four years after he was forced to resign by the phonehacking scandal, prompting immediate protests from shareholders.
The appointment has been seen as a potential precursor to a renewed attempt by Fox, a 39pc shareholder in Sky, to take full control.
Mr Murdoch was chairman of the pay-TV operator when scandal engulfed his family’s British newspapers and contributed to the failure of a takeover bid by News Corp. He retreated to a non-executive board seat and has maintained a relatively low profile in the UK as News Corp split and he was made chief executive of Fox.
The 43-year-old’s return as Sky chairman is the latest stage of a reemergence of key figures in Rupert Murdoch’s empire. Rebekah Brooks, chief executive of the newspaper group News International when the crisis hit, was restored to her job last year.
There has been intense City and media industry speculation over whether the Murdoch family was more likely to make a takeover bid for Sky or to sell Fox’s stake.
Mr Murdoch appeared to scotch talk of a sale, saying: “As chairman, I look forward to working with the board and management as they continue to deliv- er a great service for Sky’s customers and create value for all shareholders over the years to come.”
The appointment has revived longstanding governance concerns around Sky, which as well as being a potential takeover target for Fox is also its biggest commercial customer.
Ashley Hamilton Claxton, of Royal London Asset Management, said: “The reappointment of Mr Murdoch as chairman is inappropriate in our view. Should Fox make a bid for Sky, investors need a strong independent chairman to protect the interests of minority shareholders and negotiate the best possible deal.”
Royal London owns 0.27pc of Sky’s shares, worth nearly £50m.
In an attempt to ease concerns, the company also announced that Martin Gilbert, chief executive of Aberdeen Asset Mangement, will become Sky’s deputy chairman. Nick Ferguson, who was chairman, is leaving the board.
Sky also unveiled half-year results, reporting a 5pc increase in sales to £5.7bn. Pre-tax profit was down sharply to £414m from £1.2bn last year, when it was boosted by the sale of stakes in ITV and National Geographic. But operating profit in the first six months increased 12pc to £747m, after the costs of integrating Sky Deutschland and Sky Italia were stripped out.
In the UK, 337,000 new customers signed up in the second quarter as it aggressively marketed broadband.
Jeremy Darroch, Sky’s chief executive, dismissed suggestions that Mr Murdoch re-emergence could distract the company or undo his work to distance the operator from the controversy attracted by his family.
FOR students in the kremlinology of the Murdoch clan, the news that Rupert’s youngest son James is returning to the chairmanship of Sky is likely to have come as no surprise. Those who have studied the family’s comings and goings over the past decades will know that the Murdochs are all about the long game.
James’s four years in the wilderness have hardly seen him disappear from the satellite broadcaster’s stratosphere. And although he stood down from the role at the height of the post-phonehacking row that saw News Corp drop its then £8bn-plus bid for the 61pc of Sky it doesn’t own, Murdoch Jnr has been far from idle.
When “JRM”, as he likes to sign internal memos, resigned as chairman in April 2012, he remained on the Sky board as a non-executive director. Having served as first chief executive of the broadcaster for four years until 2007, followed by five years as chairman, he knows the company, and its employees, intimately.
He worked closely with Jeremy Darroch, who was his chief financial officer for three of the four years he ran the business, and took the reins when he moved upstairs. The two men remain good friends. Indeed, Murdoch’s departure from Sky was never about a loss of interest in the business. As he wrote in his resignation letter at the time, it was more “to ensure that there is no false conflation with events at a separate organisation” – namely, News International.
His return will lead many to think he has come back to finish the job he started, bringing Sky fully into the fold. Given Murdoch Jnr has added the role of chief executive of the demerged 21st Century Fox to his résumé in the intervening four years, that thought will seem all the more prescient.
The governance issues his new role throws up – Sky is Fox’s biggest customer and an asset it may want to buy – aside, in that intervening fouryears, Sky, and perhaps more importantly the landscape around it, has changed dramatically.
Once the best-funded company in UK broadcasting, allowing it to pick up the spoils when it came to the Premier League or other assets, it is now competing against a Virgin Media which is part of Liberty Global, and a resurgent BT with deep and ambitious pockets. As such, it can no longer have its own way.
Although money has been invested in expanding its offering, through its tie-up with HBO for Sky Atlantic, and by commissioning original drama and comedy such as Fortitude and Stella, Sky is still heavily reliant on its football offering as its main draw.
What is more, the desire for a relatively expensive Sky package, and the need for a satellite dish on one’s house, is increasingly less relevant to many consumers.
Strong figures from Netflix 10 days ago were a reminder, were any needed, of the strength of online streaming. The internet television service now has 43.4m paid subscriptions in the US, out of a total 123.2m households. Internationally, its footprint is newer, but growing. And Netflix is just one of a number of online video services – Amazon Prime and Sky’s own Now TV being two others – which target a generation of consumers who may never watch television traditionally. And that’s before YouTube is even mentioned.
Traffic from this group accounted for more than 70pc of US downstream viewing in peak evening hours at the end of last year – up from 35pc five years ago. At the same time, the number of cable connections – the traditional favoured form of US television viewing – has fallen from its peak in 2010; although a study by the Leichtman Research Group late last year did find that 83pc of households still spent money on TV each month.
Despite those obvious challenges – Sky launches its hyper-connected Sky Q box next week in order to combat some of them – the company’s share price has only risen over the time Murdoch Jnr has not been chairman. If 21st Century Fox wanted to have a second bite of the Sky cherry, doing so would cost 52pc more, based on last night’s share price, than back in 2011.
But for JRM, given all that he has contended with to date, that may be a price worth paying to gain full control of his beloved British broadcaster.
In those intervening years the landscape around Sky has changed dramatically