Watchdog announces inquiry putting BSkyB deal in doubt

Rupert Murdoch's hopes of owning BSkyB outright suffered a blow today when Ofcom announced it would investigate his media empire.

The broadcasting regulator indicated that a "fit-and-proper" test of ethics at News Corp was "highly likely".

The disclosure followed BSkyB boss James Murdoch's extraordinary admission that he sanctioned pay-offs to "cover-up" criminal phone-hacking at the News of the World. He then said he was not in possession of the full facts.

The Liberal Democrats questioned whether BSkyB should be stripped of its broadcasting licence.

Deputy leader Simon Hughes wrote to Ofcom asking it to consider whether the company could continue broadcasting to the nation with Mr Murdoch's son, James, at its helm. Shares in BSkyB had earlier tumbled as analysts slashed the odds of News Corp pulling off its £8 billion takeover of the satellite broadcaster.

At their worst point the shares were down 47.5p to 764.5p, their lowest level since February.
James Murdoch rushed to the News International's headquarters in Wapping as senior executives struggled to contain the most damaging crisis to hit the family's vast business empire.

Until this week it had been widely assumed that Culture Secretary Jeremy Hunt would wave through the News Corp takeover after BSkyB pledged to hive off its Sky News arm.

Labour leader Ed Miliband said David Cameron should now refer the take-over bid to the independent Competition Commission rather than "rely on an insider, cosy process" led by Mr Hunt.

The Prime Minister insisted Mr Hunt was following "the proper legal processes and procedures".
He added: "What we have in this country is proper bodies to look at competition, plurality, fitness and properness. They must all do their job, based on the relevant and up-to-date information."

Mr Hunt has already said his decision will be delayed until September because of the unprecedented deluge of submissions to the public consultation. His office is thought to have received up to 200,000.

In his letter to Ofcom, Mr Hughes highlighted allegations made in the Commons by Labour MP Tom Watson against James Murdoch, who is also chairman of News International, which owns the News of The World.

Mr Watson claimed James Murdoch had "personally, without board approval, authorised money to be paid by his company to silence people who had been hacked, and to cover up criminal behaviour within his organisation".

In his statement yesterday on the hacking scandal, James Murdoch accepted the way out-of-court settlements he approved had been paid was "wrong" but insisted he did not have a "complete picture" when he did so.

News Corp declined to comment today. Although the doomed 168-year-old newspaper makes up only a small part of the overall Murdoch empire, analysts said the closure costs would run to tens of millions of pounds.

Economist John Simpson said: "The News of the World was a profitable title, and doing away with it will have an immediate cost to their revenue. There will be all sorts of impairment charges to be carried by News Corporation from a decision like this."

But media analysts said the losses would make little financial impression on the global finances of the media giant.

One said: "I'm guessing the newspaper does £50 million-ish of revenue. But Sky is £8 billion of revenue, £1 billion of profit. You make a very public and obvious scapegoat of an influential but very small profit centre."

With advertisers quitting the News of the World, analysts said closing the paper had limited the immediate potential for contagion to spread to other Murdoch titles in the UK such as The Times and the Sun.

Claire Enders, head of media consultancy Enders Analysis, said: "The stain on the brand was going to be permanent, and this is a sensible decision."

However, there will be more concern about the global collateral damage to the reputation of the Murdoch name, particularly in America where the mogul owns the cable broadcasting network Fox, the Wall Street Journal and the New York Post.