BSkyB after Murdoch

That James Murdoch is leaving Sky for News Corp, Sky’s largest shareholder, has shocked few in the industry, who say an expected five-year tenure has been cut short by acquisitions such as Dow Jones. That he will remain London-based, as News Corporation chairman and chief executive of Asia and Europe, rather than New York bound, is rather more surprising.

City analysts believe it is “positive” that Murdoch remains on Sky’s board as chairman, replacing his father, and that right-hand man Jeremy Darroch steps up from chief financial operator to chief executive. The move will not, they say, leave Sky bereft as it continues to battle with cable rival Virgin Media, not to mention a slew of regulatory issues being probed by Ofcom.

One analyst adds: “When James arrived, my view was ‘same organ grinder’ and, in a sense, the same could be said now.” 

Key Sky shareholder
Meanwhile, Legal & General, a key Sky shareholder, has expressed concerns that Darroch will not be able to operate “independently” with his former boss as chairman.

Industry insiders believe Darroch’s promotion – the first internal appointment to the chief executive’s post – will prove seamless. Darroch should continue delivering the style and strategy outlined by Murdoch.

Morgan Stanley analyst Sarah Simon says of Darroch in a briefing note: “While not as flamboyant as James, he presents well and generally gives the impression of being a straight talker.” SG Securities media analyst Anthony de Larrinaga points out that Darroch was the first senior executive hired by James Murdoch, in 2004. He says Murdoch was always “poised for the main event at the ‘family firm'”, with succession at Sky also presumably front of mind. “Darroch is more than just a ‘bean counter’ as finance director,” adds de Larrinaga.

Murdoch’s appointment in 2003 was clouded by industry and City scepticism, which deepened when ambitious plans to spend more money on marketing sent shares sliding. Yet he proved himself a tough operator, and the business has evolved from simply offering pay-TV to services such as broadband and home telephony, while continuing to build up subscribers even given the success of Freeview, a revitalised cable and rival industry entrants such as BT.

As one rival broadcaster says: “To dismiss him as simply in post by virtue of being Murdoch’s son would be naïve. He has proved himself a shrewd operator.” 

Commercial broadcaster
One of Murdoch’s boldest moves during his time at Sky was his audacious purchase of 17.9% of ITV shares in late 2006. Although the purchase remains the subject of a public interest probe – which could see Sky forced to offload some or all of the shares – it effectively blocked Virgin Media’s (at the time NTL:Telewest’s) ambitions to join up with the commercial broadcaster.

Other challenges Darroch faces include a review of the UK pay-TV market – including Sky plans to launch a pay service on Freeview – as well as relationship difficulties with Virgin Media over carriage of Sky’s basic channels on cable, and Murdoch’s ambitious subscriber target of 10 million (compared with 8.6 million now).

Darroch was the “unanimous” choice of Sky’s board, beating internal competition from highly regarded chief operating officer Mike Darcey and Tom Mockeridge of Sky Italia.

Providing there is little internal resentment over the new appointments, it seems it will be business as usual for Sky. As one media analyst suggests: “For the moment I don’t see that this signals a change in strategy or action or providing much help in dealing with the regulators either. There is, after all, still one Murdoch on Sky’s board.”