Newspaper ownership rules will be diluted

After a backlash from media owners, including Rupert Murdoch, the restrictions on foreign state ownership in British news organizations that were designed to stop the UAE’s bid for The Telegraph will be relaxed.

Officials were warned about the “unintended consequence” of new legislation if it was drawn too strictly by the lobbyists of the media mogul Lord Rothermere and his rival, The Daily Mail owner Lord Rothermere.

News Corp., the holding company of Mr Murdoch, listed in New York is said to be worried that its shareholders may accidentally breach a proposed cap of 5pc on foreign state shares.

News Corp. and DMGT (Lord Rothermere’s company) are said to have also protested against the very strict legislation that could prevent them from receiving future outside investment without state influence on their newspapers.

RedBird IMI, a bid backed by the UAE, was opposed by titles owned and operated by News Corp, DMGT (a potential bidder) and DMGT. The intense public controversy which led to the proposed laws on foreign state media ownership has effectively killed the bid. The Telegraph will likely be put up for sale in the next few weeks.

The Department of Culture is rushing to draft legislation following the House of Lords’ decision last month to force ministers to take action against the takeover. RedBird IMI, which is funded to the tune of three-quarters by Sheikh Mansour Bin Zayed Al Nahyan – vice president of the United Arab Emirates – has raised concerns over the impact the takeover bid might have on press freedoms.

A bill amendment is currently being drafted to prohibit foreign state influence or control over news websites and newspapers. But exceptions will be made via secondary legislation, and details are still being wrangled over.

Sources have said that in the next few weeks, the government will be preparing for a consultation to discuss its plans. This is expected lay the foundation for a more lenient regime.

Sources involved in ongoing discussions stated: “This is an intervention that is narrowly focused on protecting The Telegraph, but has wide-ranging consequences for the sector.”

Ministers told the parliament previously that passive stakes up to 5pc would be allowed as exceptions. News Corp is reported to argue that the cap was too low. This is partly because US regulations do not require investors disclose stakes lower than 5pc.

News Corp had previously received investment from Al Waleed bin Talal, a Saudi prince. The stake was crucial to the fight for control Mr Murdoch had with the phone hacking controversy. He ultimately won. Kingdom Holding, which was the vehicle used to invest, then cashed out the stake.

DMGT has broader concerns about sovereign wealth. This can be either through direct investments or private equity funds. It is a force that is growing in the finance industry, and news publishers shouldn’t completely isolate themselves from it.

Axel Springer is the German publisher that owns the online specialist publisher Politico. Axel Springer is in turn controlled by KKR, the giant buyout firm. KKR, like most private equity firms of its size, has raised billions in sovereign wealth over the past few years.

DCMS spokesperson said: “It’s vital to protect our newspapers and magazines from foreign state intervention, given the unique role that these publications play in democracy.

“The new measures only apply to foreign countries, foreign state institutions and related individuals. They will also include a special exemption for very low-level state owned investments such as sovereign wealth funds.

The measures are still under active development but we are committed in ensuring they don’t have any unwanted effects on foreign business investments in UK media.

News Corp. and DMGT’s spokesmen declined to comment.