ZEEBRAZONE

November 04, 2010, 8:18 PM EDT By Robert Hutton and Jonathan Browning

Nov. 5 (Bloomberg) -- News Corp.’s proposed 7.8 billion- pound ($12.7 billion) takeover of British Sky Broadcasting Group Plc may be hampered by the political power Rupert Murdoch has spent his life accumulating.

With Business Secretary Vince Cable asking regulators if owning all of BSkyB would give the 79-year-old Australian-born U.S. citizen too much media control, Murdoch must persuade them he isn’t too powerful. He owns four of the biggest-selling U.K. newspapers and 39 percent of BSkyB, which produces Sky News, the first 24-hour U.K. news channel. Murdoch was one of the first people to visit David Cameron after he became prime minister.

Competitors in U.K. media say possible cross-promotion between Murdoch-owned newspapers and television stations would unfairly increase his influence. Some lawmakers involved in probes of his News of the World tabloid say Murdoch’s properties have already tilted the playing field against them.

“Given the profile of the businesses involved and the expected opposition from a number of third parties, News Corp. and BSkyB are likely to face an uphill battle,” said Gustaf Duhs, senior associate at law firm Stevens & Bolton LLP. “A lengthy legal process is fairly certain to follow.”

News Corp. would add 10 million subscribers with a takeover of BSkyB. It already controls more than a third of the national newspaper market in Britain with publications including The Times, News of the World and The Sun.

Cable’s Case

Cable intervened in the case yesterday, within a day of News Corp. formally asking the European Union to approve its bid. New York-based News Corp. is seeking the steady subscription business of Britain’s biggest pay-TV operator. BSkyB in June rejected the initial bid of 700 pence a share, or 7.8 billion pounds, for the 61 percent of the company that News Corp. doesn’t already own, saying it was too low.

“On the basis of the information and submissions available to me, I have decided that it is appropriate to issue an intervention notice in this particular case,” Cable said as he asked the regulator Ofcom to investigate “the public interest consideration of media plurality.”

Opposition to the proposed offer has mounted with U.K. newspapers, the British Broadcasting Corp. and BT Group Plc signing a joint letter to Cable calling for the bid to be challenged by the U.K. government.

News Corp. said yesterday the proposed offer “will not adversely affect media plurality in the United Kingdom,” adding that it “looks forward to discussing any substantive issues with the relevant authorities.”

ITV Decision

U.K. regulators have already considered the level of control held by Murdoch over BSkyB when looking at the variety of voices in the media.

BSkyB’s purchase of 18 percent in U.K. broadcaster ITV Plc prompted the Competition Commission to say in a 2007 report that it “assumed the News Corporation had material influence over BSkyB.”

Meanwhile, Labour lawmakers, who saw the Murdoch newspapers turn against them ahead of the May election after more than a decade of support, are questioning his power.

“We are afraid,” Labour’s Tom Watson told his fellow lawmakers in a Sept. 9 debate on the News of the World. “It is almost laughable that we sit here in Parliament, the central institution of our sacred democracy -- among us are some of the most powerful people in the land -- yet we are scared.”

Ofcom Probe

Following that debate, Parliament voted to hold its fourth probe into the News of the World. In 2007, the tabloid’s then- editor, Andy Coulson, resigned after Clive Goodman, one of his reporters, and Glen Mulcaire, a private investigator working for the newspaper, were jailed for illegally intercepting voicemails of celebrities, politicians, and members of the Royal family.

Coulson, 42, who has denied he knew what was going on, became Cameron’s head of communications later that year.

Ofcom will today set out the terms of its probe, which it aims to complete by the end of the year. On the basis of its report, Cable must decide whether to refer the bid to the Competition Commission, which could take months to come to a conclusion. After he receives its report, it will ultimately be for him to decide whether to allow the deal to go ahead.

Cable is a Liberal Democrat member of a coalition with Cameron’s Conservatives. While their partners were endorsed in the May election by the Sun and Times newspapers, the Liberal Democrats were criticized. The Sun characterized them as the “Lib Dumbs,” attacking both Cable and leader Nick Clegg.

Cameron’s spokesman Vickie Sheriff distanced the prime minister from the investigation. “The prime minister is on the record saying this is a matter for the Business Secretary, and the Business Secretary has made his decision,” she said. She said Murdoch’s son James, who’s the chairman of BSkyB and the head of News Corp.’s operations in Europe and Asia, has not been to No. 10 Downing Street.

called Cable on June 15, the day the initial bid was announced, according to the Department for Business, which described their conversation as “a short introductory phone call.”

--With assistance from Erik Larson in London. Editors: James Hertling, Vidya Root

To contact the reporter on this story: Robert Hutton in London at rhutton1@bloomberg.net To contact the reporter on this story: Jonathan Browning in London jbrowning9@bloomberg.net.

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net Vidya Root at vroot@bloomberg.net