Withdrawn BSkyB Bid May Open Door for Other Media Aquisitions by News Corp.

The News of the World, shut down Sunday, was caught hacking into the phone systems of U.K. politicians and bribing police. U.S. lawmakers began asking the Justice Department to look into the business practices of News Corp. and its subsidiaries. House Homeland Security Committee Chairman Peter King, R-N.Y., also called for further scrutiny, asking the FBI to look into the alleged hacking of 9/11 victims’ phones in the U.S.

Three senators called for Justice investigations into the phone hacking to see if News Corp. violated the Foreign Corrupt Practices Act. Sen. Barbara Boxer, D-Calif., and Senate Commerce Committee Chairman Jay Rockefeller, D-W.Va., wrote jointly to Attorney General Eric Holder and SEC Chairman Mary Schapiro asking them to look at the bribing allegations and if they constitute a FCPA violation. They also asked Holder and Schapiro to investigate whether 9/11 victims had their phones hacked and if any U.S. citizens had their privacy violated. Tuesday, FCC Chairman Julius Genachowski said his agency had no role in investigating any hacking in the U.K. (CD July 13 p12).

News Corp., while unlikely to get back into the U.S. pay-TV business, may use some or all of the $12.6 billion it would have spent for BSkyB to buy cable channels in the U.S. or in other markets, industry executives said. They agreed that the company’s 2008 sale of a large stake in DirecTV to Liberty Media signals that News Corp. Chairman Rupert Murdoch isn’t interested in getting back into the U.S. DBS business. Cable content outside the U.S. and especially in developing countries where News Corp. already owns assets, such as India, may be more attractive to the company, said a longtime media investor and the CEO of a small American cable operator.

"We believed that the proposed acquisition of BSkyB by News Corporation would benefit both companies but it has become clear that it is too difficult to progress in this climate,” said News Corp. Chief Operating Officer Chase Carey in a written statement Wednesday. “News Corporation remains a committed long-term shareholder in BSkyB. We are proud of the success it has achieved and our contribution to it.” News Corp.’s bid for BSkyB hadn’t been accepted, though the two companies agreed to seek regulatory approval before reaching an agreed-upon price. News Corp. had no comment for this article.

"It seems unlikely News Corp would jump back into U.S. DBS, since they sold DirecTV not too long ago,” said President Robert Gessner of Massillon Cable, with about 45,000 video subscribers in Ohio. The country’s subscription-video business has matured further in the last three years, with few households not buying TV, and programming costs have gone up, said Leichtman Research Group President Bruce Leichtman. Such factors make buying such a provider unattractive, said Leichtman. The consultant sells some research reports to units of News Corp. but doesn’t work specifically for that company. Of Murdoch and DirecTV, “I don’t think he was thrilled the first time around, so it’s hard to see him come around a second time,” Leichtman said: “It’s a very saturated market now” for U.S. pay-TV, not because of cord cutting but because about 90 percent of consumers subscribe and household growth has been low, making it “very difficult” to expand. Maury Mechanick, a satellite lawyer at White & Case, agreed that reentry into U.S. DBS is unlikely. If News Corp. did show interest in going after Dish Network, “I can’t see Charlie Ergen selling,” Mechanick said of Dish’s chairman. More likely, Murdoch will wait until the controversy blows over, before re-examining the marketplace for another shot at BSkyB, said Mechanick.

News Corp.’s many investments in cable programming worldwide would be bolstered by an acquisition using some of the cash freed up from not buying BSkyB, said industry executives not privy to Murdoch’s strategy. They said that in the U.S., that could mean the company would consider buying cable channels, but actual systems are unlikely to be considered in that country or anywhere else. “They certainly are more familiar” with cable content, so a deal there is possible, said Gessner. And it’s always possible News Corp. would eventually try again to buy BSkyB, he and others said. “Who else is going to be interested?” asked Gessner.

Sen. Frank Lautenberg, D-N.J., also wrote Schapiro and Holder, saying accounting rules for public companies with securities listed in the U.S. and covered by the FCPA require keeping “complete and accurate books detailing their transactions and sufficient internal accounting controls within the organization.” If “bribes were made and not properly recorded, this too may be a violation of law,” he said.

News Corp. isn’t likely to pursue any major deals for now, since it’s focused on responding to the hacking allegations in the U.K., executives said. “They have their hands full right now -- I think their first question is to make sure that the company is not blamed for the actions of employees” in the U.K., said longtime media and technology investor Morris Mark, president of Mark Asset Management. “My guess is if they were going to try to grow externally, they would probably try to get more content” through acquiring channels in Europe or elsewhere, he said. DirecTV has “a long-term problem” because it can’t directly provide broadband at speeds comparable to wireline U.S. ISPs, Mark said: DBS in the U.S. “increasingly will face technology obsolescence.”