News Corp’s Bid For BSkyB Up In The Air Again, May Blow Up

The fire that has engulfed The News of the World newspaper over the phone hacking scandal has threatened to spread to the rest of News International and the business interests of its parent News Corp (NSDQ: NWS). One significant deal that looks like it could become a casualty of the scandal: the company’s ardent desire to buy the 61 percent of the UK broadcaster and satellite TV provider, BSkyB (NYSE: BSY), that it does not already own.

This was something that until this week, nearly looked like a done deal, even thought it did always have its opponents (including the paper that started the latest wave of coverage, The Guardian.). But since the phone hacking scandal caught fire again earlier this week, people high and low — from the protest group Avaaz to politicians like former Deputy Prime Minister and current MP John Prescott — have been calling for the UK government to block the BSkyB deal, citing the scandal as the chief reason. And now their complaints have been amplified and galvanised by the public outcry over News Corp stablemate NOTW, and the executives running the show.

Before the paper’s closure was announced, BBC reported that Jeremy Hunt, the UK’s Culture Secretary, was flooded with over 100,000 submissions over News Corp’s bid for BSkyB — a number that has likely increased as the day has worn on. Although a final decision was supposed to be reached this week, in light of these events, it now looks like a decision may not come until September — delayed by the flood of comments, more than government concerns over the actions.

That should come as bittersweet relief to News Corp right now, as a decision made in the heat of the moment, in a climate that is particularly charged against the media company, could well see it failing to get full control of its prized UK TV asset.

On one hand it’s easy to wonder what the connection is between a hacking scandal (and the moral and criminal transgressions that may have taken place as a result of that) at one media property and owning another — as one observer described it “I can’t help feeling the backlash against Murdoch is slightly unfair. Surely the Sky deal is a different issue entirely?” That’s not an uncommon sentiment.

But critics can argue that a company that has demonstrated a severe lack of oversight in its practices — or even worse had its executives leading the charge — has provided grounds for questioning whether be allowed to extend its media control.

Although that concern has not been factored into the evaluation of the deal so far, it will be worth watching to see if it is going forward.

Cutting off the now-toxic NOTW may ironically end up helping News Corp’s bid for the broadcaster. It’s still a valuable asset for it — no backlash yet on advertising as was witness with NOTW, and it has still only lost five percent of its share value this week. In its last results, reported at the end of April, BSkyB reported operating profits of £261 million, up from £249 million the same quarter a year before.

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