Murdoch undaunted by investors questioning future: succession talk casts shadow on the empire.

Every October, Rupert Murdoch returns for a day to Adelaide, a sleepy Australian provincial city where, in 1953, he inherited following the death of his father a daily newspaper with a circulation of 75,000.

The occasion is the annual meeting of News Corp., the business Murdoch has built into an empire with $75 billion in market value. News Corp. includes television stations, movies and newspapers that reach 400 million people in North and South America, Europe, Asia and Australia.

Murdoch, 72, told shareholders that he wasn't celebrating his half a century in control of News Corp. "I didn't even know about it until somebody pointed it out," he said in unemotional, Australian-accented tones. "What truly drives us are the opportunities for the next 50 years."

Investors say their view of the company depends on the answer to the question about who will eventually succeed Murdoch.

The News Corp. chief stirred criticism with his recent decisions to make his son Lachlan, 32, deputy chief operating officer of News Corp., and son James, 31, chief executive of British Sky Broadcasting Group Pie, which is 35.4 percent owned by News Corp.

"By putting his sons in charge of key News Corp. assets, Murdoch has hurt the stock," says Uri Landesman, who helps manage $200 billion, including News Corp. shares, at Pittsburgh-based Federated Investors Inc. "All in all, I'd rather have people without the last name Murdoch. That someone else isn't going to wind up as CEO is a disaster."

That view is shared by many investors, says Neil Chenoweth, author of "Rupert Murdoch: The Untold Story of the World's Greatest Media Wizard" (Crown Business, 2001). "They believe in the father, but not the sons," he says. "It's not going to work once Rupert's not there."

No retirement plans

Murdoch, who has made himself a billionaire seven times over and gone to the brink of bankruptcy and back again, says he's going to make more profits by beaming top sports events, movies, reality TV shows and other entertainment via satellite to three-quarters of the world's population.

In April, he agreed to pay $6.6 billion in cash and stock for control of El Segundo-based Hughes Electronics Corp., owner of DirecTV, the largest U.S. satellite broadcaster, with 12 million subscribers.

Murdoch has said succession isn't an issue, because he doesn't plan to retire. The recent birth of two daughters by his third wife, Wendi Deng, 36, has postponed his retirement plans "forever," he told reporters in Adelaide.

Besides, Murdoch recently told The New York Times, succession talk just breeds politics. "People say, 'I want to be on the James wagon' or 'the Lachlan wagon,' and it is just terribly self-destructive," he explains. Another less-mentioned possibility: Murdoch's daughter Elisabeth, who started a television production company in England called Shine.

Stocky, gray-haired and craggy-faced with bloodhound jowls, Murdoch traverses an empire on which the sun never sets in one of two corporate jets: a Gulfstream 4 and a Boeing 737 with sleeping quarters and a boardroom. He bases himself mostly in New York, working in a functional office on the eighth floor of News Corp.'s--and the New York Post's--midtown headquarters on the Avenue of the Americas and living in a three-story apartment near Lachlan in trendy Soho.

Murdoch, who battled prostate cancer in 2000, has longevity in his genes. Although his father died at age 67 of a heart attack after also suffering from prostate cancer, his mother, Elisabeth, is alive and active at 94. In a 2002 television documentary produced by Australian Broadcasting Corp., in which he is seen pumping iron, boxing with a personal trainer and running on a California beach, Murdoch said he hoped to live to be 120--"but certainly 100."

Murdoch's attempts to promote his family's interests resulted in two shareholder revolts in 2003. At the News Corp. annual meeting in October, Murdoch said opposition by Australian institutional shareholders he didn't name had forced him to withdraw a plan to grant stock options to six executives, including Lachlan and James.

At BskyB's annual meeting a month later, large U.S. and British institutional investors signaled that they opposed James Murdoch's appointment as CEO by voting against his election to the board.

"The whole process has shown a complete disregard for 64.6 percent of shareholders," Daniel Summerfield, representing California Public Employees' Retirement System, America's biggest retirement fund, and Universities Superannuation Scheme Ltd., Britain's third-largest, told the BSkyB annual meeting. James was elected by a 77-23 percent margin.

Murdoch replies that his companies' earnings speak for themselves, and investors who don't like it can sell their stock. "If you are not satisfied, look for something better," he told one shareholder at the News Corp. meeting.

News Corp. reported an annual profit of $1.05 billion for the year ended June 30, 2003, compared with a $6.27 billion loss in the previous year. The 2002 loss--a record for an Australian company--reflected the $5.8 billion writedown of a 42 percent stake in Gemstar-TV Guide International Inc.

Mixed performance

For 2003, News Corp.'s American depositary receipts, each equivalent to four common shares, rose 37.5 percent to $36.10, from $26.25. That compares with a 26.38 percent rise in the S&P 500 Index and is better than the 8.5 percent increase in shares of Viacom Inc.

Buying Hughes--for which Murdoch paid a 22 percent premium over the stock market price--may add $1 billion in cash flow annually for News Corp., says Larry Haverty, who helps manage $47 billion, including $175 million worth of Murdoch company shares, at Boston-based State Street Research & Management.

Haverty estimates News Corp.'s share price will rise by at least 50 percent in the next two or three years, adding $20 billion to $25 billion to the company's $40 billion market value, thanks partly to the increasing profitability of BSkyB. "It's pretty clear they've hit a home run," he says.

Paying high prices to ensure he acquires assets he wants is a strategy Murdoch has used many times throughout his career, Haverty says. "Relative to other people in the industry, he tends to think in terms of much longer cycles," he says. "His horizon is longer than Wall Street's."

Murdoch can afford to think long term because he retains control of his companies even though he owns a minority of the stock. His family investment company, Cruden Investments Ltd., controls 30 percent of the voting shares of News Corp. and only 17 percent of the total stock. That makes the Murdochs the second-largest holder, behind investor John Malone's Liberty Media Corp., which owns 18 percent. Liberty Media's shares are nonvoting.

On the horizon

For now, Murdoch aims to add to his fortune via his latest acquisitions. DirecTV, which lost $893 million last year on revenue of $8.9 billion, should make a profit, says Haverty.

Federated Investors' Landesman says Fox has a better chance of maintaining its stream of profits because it's in both sides of the television business: content and distribution. By contrast, rival Viacom mostly creates content, and other competitors such as Comeast Corp., America's largest cable operator, and EchoStar Communications Corp., the second-largest U.S. satellite distributor, specialize in delivering it to viewers' homes.

"Rupert was the first to understand the value of mixing content and distribution," Landesman says. Murdoch also controls a company, NDS Group Pie of London, that provides the technology that enables viewers to access pay TV services through set-top boxes.

Some investors say they're prepared to live with nepotism so long as Murdoch continues to deliver profits. "Let's face it: Rupert Murdoch has done a fantastic job at BSkyB," says Colin Morton, who helps manage $681 million at BWD Rensburg Ltd. in Leeds, England. "If they can continue to run the business as efficiently as they did in the past years, then we're fine."

That's a big if. "I have an ambiguous opinion," says Patrick Wollenberg, who helps manage $15 billion, including shares of BSkyB and Fox Entertainment, at Robeco Group in Rotterdam. "Murdoch has done a better job in terms of value creation than a number of media executives, but there is always the risk that he is putting his own interests above those of other shareholders." As long as Murdoch's succession plans remain unclear, the company's stock price will reflect that ambiguity.