The proposed £11.7 billion takeover of Sky by 21st Century Fox is not in the public interest as the combined group would have too much control over UK news media, the British competition watchdog has provisionally found.
The Competition and Markets Authority (CMA) said if Rupert Murdoch-owned Fox’s plan to take full control of Sky went ahead, it was "likely to operate against the public interest".
While it found there was not a lack of a genuine commitment to meeting broadcasting standards in the UK, its concerns over the impact on media plurality meant that overall it believed the deal was not in the public interest.
The CMA has put forward three ways it believes its concerns could be addressed - blocking the deal, spinning off Sky News, or "behavioural" changes to protect Sky News from direct influence from the Murdoch Family Trust.
But its findings come as Sky is set for a new owner, after Walt Disney agreed a £39 billion deal to buy Fox’s entertainment assets.
Anne Lambert, chairwoman of the CMA’s independent investigation group, said: "Media plurality goes to the heart of our democratic process. It is very important that no group or individual should have too much control of our news media or too much power to affect the political agenda.
"We have provisionally found that if the Fox/Sky merger went ahead as proposed, it would be against the public interest. It would result in the Murdoch family having too much control over news providers in the UK, and too much influence over public opinion and the political agenda."
Fox said it was "disappointed" at the provisional ruling.
The company said it will continue to engage with the CMA ahead of the publication of its final report, which has now been put back to May 1.
It added it still expects regulatory approval of the deal by June 30.
Sky said it "noted" the CMA’s initial findings and that the regulator is seeking submissions on possible remedies regarding its plurality concerns.
Shares in FTSE 100-listed Sky rose 3% after the provisional ruling.
Labour’s deputy leader and shadow culture secretary Tom Watson tweeted: "The Competition and Markets Authority is right to say that the Fox takeover of Sky would give the Murdoch family too much power. This is the right decision for the UK."
The CMA said it took into consideration the impending Walt Disney deal and the fact this would "significantly weaken" the link between Sky News and the Murdoch Family Trust.
But it added: "We cannot be sufficiently confident at this stage whether, when, or how the Disney/Fox transaction will complete."
It is looking at the possibility of a so-called sunset clause, which would mean that actions taken to address concerns, including blocking the deal, fall away if Disney’s takeover goes through on the same terms as currently planned.
The CMA said it could also ensure that any actions taken are then reviewed later if the Disney deal goes through.
In explaining its provisional decision, the CMA said "The MFT’s (Murdoch Family Trust’s) news outlets are watched, read or heard by nearly a third of the UK’s population, and have a combined share of the public’s news consumption that is significantly greater than all other news providers, except the BBC and ITN.
"Due to its control of News Corp, the Murdoch family already has significant influence over public opinion and full ownership of Sky by Fox would strengthen this even further.
"While there are a range of other news outlets serving UK audiences, the CMA has provisionally found that they would not be sufficient to moderate or mitigate the increased influence of the MFT if the deal went ahead."
The watchdog said it noted the recent fears that Sky News could close if the Fox deal is blocked.
But it added: "We do not see why, based on our considerations, Sky would wish to close Sky News in the event of a decision by the Secretary of State to prohibit the transaction as the continued operation of Sky News would be unlikely to represent an obstacle to the Disney/Fox transaction."
Rupert Murdoch recently said that Sky was the asset he is parting with most reluctantly under the Disney deal.
Disney made its swoop last month for a significant slice of the media mogul’s empire, including Fox’s film and television studios, cable entertainment networks and international TV businesses such as its 39% stake in Sky.
If backed by regulators and shareholders, the deal would reinforce Disney’s position as one of the world’s biggest media companies.