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Foxtel merger with Fox Sports in jeopardy as owners News Corp and Telstra clash over Sky News fees

Foxtel’s owners News Corp and Telstra are locked in an 11th-hour standoff over carriage fees for Sky News, in a row which may scupper plans to merge Fox Sports and Foxtel ahead of an ASX float, Mumbrella can reveal.

With just 11 days remaining until the current deal for Sky News expires, a failure to reach a new arrangement might eventually see the channel go dark. But more significantly, the issue could also stall the planned Fox Sports – Foxtel merger, Mumbrella understands.

The contract is set to expire on December 31

The development comes a fortnight after the Australian Competition and Consumer Commission cleared the proposed merger, ruling it would not significantly decrease competition in the market.

Sky News Australia launched more than 20 years ago. It was initially jointly owned by Seven, Nine and the News Corp-aligned British satellite broadcaster BSkyB.

But this time last year, News Corp managed to take 100% ownership of Sky News, buying out the other owners for a reported $20m. News Corp was able to achieve the relatively cheap price because of the looming end of the news network’s carriage contract on Foxtel which could have seen the network end up with no value if Foxtel pulled the plug in preference for a new News Corp-owned channel.

Mumbrella understands there has not been an increase in the annual fee paid by Foxtel to Sky News – understood to be just over $30m – for more than a decade. Outside of sport, Sky News is one of Foxtel’s top rating channels.

News Corp sought a large jump in the fee paid by Foxtel. But Mumbrella understands that fellow shareholder Telstra has blocked the proposal, counter-proposing a much lower sum.

If the situation goes on until December 31, the existing contract will allow Sky News to continue to air on Foxtel for a number of weeks, Mumbrella understands.

However, insiders close to News Corp suggest that the impasse could stall the planned Foxtel and Fox Sports deal. News Corp currently owns 100% of Fox Sports.

Both Telstra and News Corp have entered into what was described as “a binding process agreement”.  Under the proposal for the Foxtel and Fox Sports merger, News Corp would hold 65% of the merged entity while Telstra would have 35%. The plan was intended to allow for shares in the combined Foxtel – Fox Sports offering to potentially be floated on the ASX.

However, in a major change in circumstances since the deal began, News Corp’s sister company 21st Century Fox  has agreed to sell most of its entertainment assets to Disney Co. The move would see Murdoch’s News Corp focusing on the news business around the world and having less interest in entertainment, raising questions about whether it would still want the merger to go ahead.

A News Corp spokesperson confirmed to Mumbrella negotiations were “continuing” but declined to comment further. At the time of posting Telstra had not responded to requests for comment.

UPDATE 4:48PM:

Telstra has also confirmed negotiations are ongoing, but will not provide further comment.

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