Can News Corp salvage the Sky takeover?
Ofcom's verdict on News Corporation's £7.5bn plan to buy the 61% of British Sky Broadcasting it doesn't already own is unambiguous (as I said it would be on 13 January).
Here is what Ofcom's report on the proposed deal says:
"The proposed acquisition may be expected to operate against the public interest since there may not be a sufficient plurality of persons with control of media enterprises providing news and current affairs to UK-wide cross-media audiences."
Which is why Ofcom recommends that there should be "a fuller second stage review of these issues by the Competition Commission to assess the extent to which the concentration in media ownership may act against the public interest".
Now under the 2002 Enterprise Act, as amended by the 2003 Communications Act, Jeremy Hunt, the culture secretary, does not have to take Ofcom's advice. But at first glance, his statement this morning suggests he is taking this advice.
Mr Hunt says that having had talks in recent days with BSkyB and News Corporation, he intends "to refer the merger to the Competition Commission".
Which seems pretty clear. Except that it isn't. Because Mr Hunt adds:
"News Corporation says that it wishes me to consider undertakings in lieu which it contends could sufficiently alleviate the concerns I have such that I should accept the undertakings instead of making a reference (to the Competition Commission). It is appropriate for me to consider such undertakings."
So what on earth does it all mean?
News Corporation has a couple of weeks or so to come up with a scheme to overcome the objection raised by Ofcom that the full takeover of BSkyB would reduce the number of providers of news and current affairs services to an unacceptable extent.
What kind of remedy would that be? Well given that Ofcom is primarily concerned that Sky News would not remain a powerful independent voice, News Corporation would presumably have to come up with a wheeze to demonstrate that Sky News's distinctiveness and autonomy would not be compromised.
How could News Corporation achieve that? Well the obvious thing for Rupert Murdoch's vast media conglomerate to do would be to sell Sky News - though I have no sense of enthusiasm on the part of News Corporation that it wishes to do that.
To be clear, selling Sky News would not be easy, because it is a consumer of cash, not a profit centre. Finding a buyer with deep enough pockets to guarantee that Sky News could thrive in the long term would be quite a challenge.
Anyway let's assume that News Corporation comes up with undertakings to guarantee Sky News' independence, what would happen then?
Well Mr Hunt would then ask for the advice of both the Office of Fair Trading and Ofcom whether News Corporation had done enough to maintain plurality or choice in the provision of news and current affairs. And he then would make the final decision.
Here's the thing. Mr Hunt insists he is simply acting according to the spirit of the Enterprise Act, drafted by the previous government. That gives him the ability to do such a deal with News Corporation to avoid the need for a lengthy investigation by the Competition Commission.
As for concerns that he might act in a biased manner or capriciously in making the ultimate ruling, he would say that his decision to ask the OFT and Ofcom to review any compromise put forward by News Corporation should allay those fears.
Except that critics of News Corporation's determination to own all of BSkyB won't see it that way. They'll allege that a government whose Tory ministers are on friendly terms with News Corp's senior executives is bending over backwards to help News Corp.
To be clear, it's pretty hard to judge whether Mr Hunt is being kinder to News Corporation than he needs to be, because we are in new territory. Although the law that set up the plurality test of media takeovers was enacted in 2003, it has never been used in a takeover of this size and importance.
Which means that it is altogether plausible that if Vince Cable hadn't been sent off the field of play by the prime minister following his injudicious remarks that he had gone to war with Mr Murdoch and News Corporation, he might well have given News Corporation less opportunity to manoeuvre around the Ofcom blockage.
But why on earth does it matter to News Corporation whether or not the planned takeover is put on hold for another six months or more by a reference to the Competition Commission?
Well, according to bankers close to BSkyB, there is a risk that the intrinsic value of the television giant would rise so much in the course of 2011 that BSkyB's independent directors would demand a price that News Corporation either could not or would not pay.
Those independent directors have already turned down a price of 700p a share offered by News Corporation. And BSkyB is apparently performing so well, and generating so much cash, that those independent directors could well reject a bid of 800p per share in a few months time.
So time is very much of the essence for News Corporation if it wants to acquire all of BSkyB at what it believes to be an acceptable price.
Which means that although News Corporation is hopping mad with Ofcom and believes that the regulators' recommendations, analysis and conclusions are prejudiced and wrong, it is probably going to have to swallow its pride by making credible concessions to ensure that Sky News' independence, impartiality and financial strength are seen to be guaranteed.
Update 12:22: Here are a one or two further thoughts about Ofcom's report and Mr Hunt's response.
First Ofcom makes an important point that is only tangentially related to News Corp's bid for Sky.
The regulator says that - with the technology of news distribution changing so fast, the rise of the electronic tablet (iPads et al) and all of that - there is a risk that one or two companies could come to dominate the provision of news and current affairs, irrespective of whether there are further takeovers.
But there are no legislative provisions for addressing damaging reductions of plurality or choice for consumers in those circumstances.
Ministers can only intervene when plurality is imperilled by a takeover (which is what Ofcom alleges could happen if News Corp buys all of Sky).
So Ofcom urges the government to consider whether it should take new powers to intervene in the market for news if it sees the creation of excessively powerful news providers.
Second, I should point out that Ofcom's statistical analysis of how News Corporation would acquire what it sees as too much clout in the provision of news through the Sky acquisition does highlight that there is only one true giant in news.
That is not News Corp or Sky - it is the BBC, whose share of "reach" and "share of reference" is massively greater than any other news provider. In fact the BBC's share is somewhere between 50% and 90% greater than even the combined forces of News Corp and Sky.
News Corp sees Ofcom's statistical analysis as fundamentally flawed, but I don't think it would disagree with that point.