Murdochs' Fox empire boosted by sharp increase in fees from Sky
Sky has revealed it paid an extra £123m in programming fees last year to its biggest shareholder 21st Century Fox, where its chairman James Murdoch is chief executive. In its annual report for 2016, Sky said in the year to the end of June it had paid £398m for goods and services from Fox, up 45pc on the prior year.

The pay-TV operator buys rights to films and television programmes from Fox and is its biggest single customer.

The Murdoch dynasty's entertainment holding company owns 39pc of Sky, which has long caused discomfort among other investors given their close trading relationship.

The concerns resurfaced at the beginning of this year when James Murdoch was reappointed as Sky chairman, fuelling fears that Fox could benefit from its stake above and beyond the gains made by all shareholders.

Mr Murdoch regained the chairmanship nearly four years after he was forced to step down by the phone hacking controversy that engulfed his family’s British newspapers, which were at the time owned under the same umbrella as their stake in Sky.

Sky said that much of its increase in spending with Fox last year was accounted for by its £7bn takeover of Sky Deutschland and Sky Italia, smaller sister companies that Fox controlled.

The scale of the increase in spending nevertheless raised eyebrows in the City. Sky’s financial disclosures included only seven months of Sky Deutschland’s and Sky Italia’s bills from Fox.

According to previous financial reports and City sources, the continental operations’ programming costs should have resulted in an increase in Fox’s bill of between 20pc and 30pc. It also comes on top of an even sharper increase in 2015, when as a UK and Ireland operator, Sky’s bill from Fox more than doubled from £127m in 2014 to £275m.

Fox has enjoyed higher fees from Sky at a time when its non-sport programming budgets are under pressure from steep increases in the cost of football rights in the UK and Germany. Other pay-TV channel providers such as Discovery are facing significant cuts to their fees, according to industry sources.

Sky’s annual report said that its audit committee, led by non-executive director Adine Grate, had scrutinised quarterly reports of all related party transactions. It also reviewed all deals with Fox costing more than £10m and those where a recommendation to the main board of directors was required.

As well as fees from Germany and Italy it paid for Cricket World Cup rights and hit movies such as Gone Girl and Kingsman.

The pay-TV operator is still seen as a potential takeover target for Fox. The Murdochs’ previous bid to take full control of Sky in 2011 was another casualty of the phone hacking scandal.

Analysts at Macquarie recently suggested the time is now right for the “unfinished business” to be tackled, with Sky shares down 20pc since the turn of the year and sterling laid low by the EU referendum result.