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Looking into Murdoch's plans: a blueprint for world conquest.

Author Larry Gelbart seems to have found inspiration for his HBO movie Weapons of Mass Distraction in the feud between Rupert Murdoch and Ted Turner.

In real life, Murdoch dwarfs any other media mogul in history. In the media empire that the 66-year-old Australian built, the sun never sets.

And, while Murdoch and Turner enact a real-life version of Gelbart's fictitious movie, in a small corner of the Fox Studios in Los Angeles, Fox's Greg Clark is planning a worldwide satellite TV strategy for Murdoch. It is possible, however, that even Clark is not fully aware of Murdoch's ultimate goals.

Preston Padden, Murdoch's No. 1 man in charge of developing satellite TV in the U.S., quit to join Disney's ABC after the failure of Murdoch's recent attempt to invest in EchoStar (nicknamed DeathStar after the announcement that Murdoch was interested in acquiring a 50 percent interest for $1 billion). The failure may have had something to do with Murdoch's reported intentions of replacing EchoStar's president and changing the digital technology EchoStar uses for its satellite service. EchoStar subsequently sued Murdoch for $5 billion in damages.

EchoStar is not Murdoch's only failed deal. In the U.K., Murdoch was forced to leave the British Digital Broadcasting (BDB) consortium, which had gotten a terrestrial TV franchise. A few months earlier, he pulled out of buying 49 percent of Leo Kirch's DF1. Other failed agreements involved Bertelsmann, Canal+ and Havas in Europe, TV Asahi in Japan and MCI (which is now teaming up with British Telecom to offer point-to-point satellite service in the U.S.). All of those plans involved the digital platform.

However, for each failed agreement, Murdoch secured another megadeal. The most recent ones were with British Telecom, Midland Bank and Matsushita for BIB (British Interactive Broadcasting, a $1.2 billion digital platform for Murdoch's BSkyB) and with Fuji and Sony for JSkyB. In addition, Murdoch negotiated a program supply deal with the BDB consortium.

To understand Murdoch's plans, one has only to look at the many "SkyB"s in his portfolio. One of Murdoch's primary interests is the U.K:s BSkyB, in which News Corp. owns 40 percent. The departure of "ferocious New Zealander" Sam Chisholm as CEO of BSkyB and the entrance of Murdoch's 28-year-old daughter, Elizabeth, as general manager has been viewed as the elder Murdoch's effort to seize back managerial control. Other Murdoch interests include Sky Latin America, a $1 billion partnership with Televisa, Globo TV and TCI; ISkyB, a $300 million investment that covers India as part of StarTV (the latter serves the whole Asian continent); the imminent JSkyB in Japan, of which Murdoch owns 20 percent; and ASkyB in the U.S., which may happen once Murdoch recuperates from the "retreat" from U.S. satellite operations dictated by the recent deal with PrimeStar.

An analysis published in Video Age in May put the value of the worldwide TV market to all U.S. production and distribution companies in 1996 at $ 3.85 billion.To this figure one can add $3 billion a year from theatrical and video revenues, for a total of roughly $7 billion a year, which is shared for the most part among some 20 large and medium-sized American companies. Compare this with European pay-TV revenues, which are expected to reach at least $18 billion by the year 2000. The TV advertising market in Germany alone is worth $5.5 billion a year. The real money is in the operation of TV networks worldwide, particularly if those networks are programmed with high-volume quality product already amortized in the U.S. market. And that is precisely what Murdoch wants to achieve.

In News Corp.'s 1996 annual report, Murdoch assured shareholders that "once we have established our [multimedia satellite] platforms around the world - a goal which is well within reach - the potential for our company and our investors is truly awesome." Meanwhile, Murdoch is paying for expansion with News Corp.'s stock, thereby watering down shareholders' investments. However, criticism is easily silenced by Murdoch's record. At one point, by overextending himself over BSkyB's $2.4 billion in accumulated losses, Murdoch risked financial collapse. Today, BSkyB can show pre-tax profits of $411 million on a turnover of $1.6 billion.

Now let's look at the steps Murdoch has taken and analyze how he can continue to implement his plan. In order to execute a plan of this magnitude, Murdoch had to enter the political and software industry arenas in a big way. These two key strategic areas allow him to feed his global TV networks and to influence the political powers on which the various networks depend.

To influence worldwide politics, Murdoch chose print media, lining up newspapers, magazines and book companies. This is an area in which Murdoch's designated heir, 25-year-old son Lachlan, is now being trained in Australia.

To feed and cross-pollinate his media empire, Murdoch relies on software: film and TV production and distribution as well as music and online content.

But in order to reach for the world, Murdoch had to succeed first in the U.S. Murdoch ultimately received a great deal from America. Banks rescued his company in 1990 when it was on the verge of collapsing under the weight of debt, high expansion costs and growing losses. In addition, the U.S. Congress has allowed Murdoch not only to own TV stations (even though the foreign investment limit in a station is 20 percent) but to own 22 stations covering 40.3 percent of the country, which is more than the 35 percent coverage limit. Murdoch acquired dual U.S.-Australian citizenship; however, News Corp. is in the jurisdiction of Sydney, Australia. Other privileges accorded Murdoch include ownership of a newspaper and a TV station in the same market (which isn't usually allowed) and a $30 million tax break (the government forgave the usual levy on a set of mergers and acquisitions). But Murdoch's privileges are not restricted to the U.S. In Murdoch's native Australia, despite rules on media ownership, Murdoch controls 70 percent of newspaper circulation.

Pleased with Murdoch, the Hong Kong government recently renewed Star TV's satellite uplink and downlink license for another six years. According to Star TV CEO Gary, Davey, Hong Kong is important as "our long-term home base" - this despite a reported $100 million in annual losses. Responding to the controversy that resulted when he dropped the BBC News from his satellite TV service in China, Murdoch stated that he "didn't like the BBC News service" and that there was never pressure from the Chinese government to remove the service.

Murdoch can be challenging. Recently he took the Indian government to court, claiming that its ban on DTH service, which affects his ISkyB, is illegal.

The American base is now the key to Murdoch's whole worldwideTV strategy. U.S. TV production has an annual volume of $11 billion and an annual advertising market of $34 billion. Murdoch received some 17 percent of the $14.7 billion in network ad spending and an estimated 8 percent of the $20.7 billion in local TV station ad spending. His operations attract 13 percent of network viewers and comprise 14 percent of the country's production resources. And this doesn't include Murdoch's portions of the $1.8 billion in barter and $6.8 billion in cable ad revenues. In addition, Murdoch has 16.1 percent of the U.S. theatrical market, which brings him about $900 million a year. (In total, News Corp:s annual revenue is now more than $13 billion.) This powerful American base allows Murdoch to generate a volume of already amortized quality film and TV product, which in turn allows him to program his international TV networks at low cost.

To ensure the success of his Fox network, which operates both as a cash cow and a high-volume product generator, Murdoch uses sports and blockbuster movies as drivers. Murdoch took the rights to National Football League games from CBS for $1.58 billion and acquired the rights to Major League Baseball for $575 million; both were four-year deals. Even though sports on the Fox network represent a loss of $100 million a year, those two popular American sports also allowed Murdoch to maximize revenues by creating (with Liberty Media) Fox Sports, which now competes with Disney's ESPN. Internationally, Murdoch has Sky Sports (Europe) and Fox Sports Americas (in Spanish). He also co-owns cable network the Golf Channel.

Murdoch, already part-owner of the New York Knicks and New York Rangers, is now negotiating to acquire the Los Angeles Dodgers baseball team and its stadium for $400 million. The Dodgers will allow Murdoch to compete more effectively with Disney, which owns the California Angels, and with Ted Turner, who owns the Atlanta Braves. Turner could complicate Murdoch's plans since, as one of the National League's 15 owners, he will vote on the Dodgers sale. Turner is reported to have said: "I don't like it. I don't want Rupert to own the Dodgers."

The antagonism between Turner and Murdoch started when the latter attempted to acquire Time Warner (in which Turner is now the main shareholder). Matters got worse when Murdoch created Fox News, which competes with CNN, Turner's personal pride. At that point Turner blocked Fox News' access to Time Warner Cable and TCI cable systems (TCI is a major investor in Time Warner). Fox responded by suing Time Warner for antitrust violations and by demanding $2 billion in damages.

Now, though, it appears that Murdoch will have to come to terms with Turner if he is to set up ASkyB and thus complete his worldwide satellite TV plans. Murdoch now reportedly says of Turner," I haven't made any answer or gotten into any debate with Ted at all." As far as the name calling is concerned, Murdoch has reportedly shrugged it off: "I've been called all sorts of things in my life and I guess Ted has too."

Hoping to mediate the Turner-Murdoch feud is money manager Gordon Crawford, a major shareholder in News Corp. He must prevent Turner from objecting to the agreement between Murdoch and PrimeStar, the satellite TV service owned primarily by Time Warner and TCI. A failed agreement or even a scaled back ASkyB-type of plan would force Murdoch to delve into his $2.5 billion cash reserve in order to fund the project, which is estimated to require up to $3 billion.

Murdoch is now selling off his U.S. satellite assets, which are co-owned with MCI and are valued at $1.1 billion, in exchange for a minority (non-voting, 30 percent) stake in PrimeStar, the U.S. cable industry's own satellite TV venture. This deal is designed to give Murdoch a way into the restricted U.S. cable market and, in the view of Chase Carey, co-COO of News Corp., "allow us to focus on our core content and programming business in the U.S." Even though it is a step back for Murdoch, the PrimeStar deal, which requires regulatory approval, is expected to face heavy scrutiny in Washington and strong protests from consumer advocates and satellite competitors, especially EchoStar. An EchoStar press release stated that "consumers would object if they understood [that] PrimeStar is a proposed combination of the five largest cable companies in the world, including the largest content providers [Warner Bros.], with the most powerful media mogul."

In political terms, even though Murdoch has personally donated $1 million to the Republican Party in the U.S., he is less a conservative than an opponent of the establishment, an establishment that he considers to be embroidered with the elitism of the liberals (this may explain his antagonism toward the Kennedys). However, when the conservatives in the U.K. became themselves too elitist, Murdoch had no problem backing the Labor Party's Tony Blair for prime minister in bestselling U.K. daily The Sun. Naturally, the victorious Blair has since greenlighted the BIB megaproject (which calls for private subsidization of BSkyB digital decoders). Murdoch also endorsed Australia's Labor Party in 1984.

The liberal (and thus, to Murdoch's mind, elitist) husband and wife team of Ted Turner and Jane Fonda could also be irritating Murdoch, who in the past has accused CNN of a liberal bias. Conversely, Turner has said that Murdoch "shamelessly uses the power of the media to advance his wealth and power." When Fox News was blocked from Turner-influenced cable systems in New York City (where it has since succeeded), Murdoch sought the help of Republican Mayor Rudy Giuliani, prompting Turner to comment that he "was appalled that Murdoch bought the government of New York City."A letter to The Los Angeles Times opined that U.S. House of Representatives Majority Leader "Newt Gingrich was bought by Murdoch with a $4.5 million advance on Newt's book."

Support from conservatives has often come in handy for Murdoch. Republican Los Angeles Mayor Richard Riordan, perhaps hoping to cast the planned acquisition of the Dodgers in a good light, stated publicly that Murdoch is "a very loyal resident of Los Angeles," even though Murdoch and his second wife, Anna Maria, 53, spend much of their time in New York. Current Dodgers owner Peter O'Malley had failed to win city approval to build a professional football facility next to Dodger Stadium, but Murdoch could make that facility happen. Political clout is now more necessary than ever, especially since President Clinton ordered a review of foreign interests in American satellite TV services.

Ultimately, Weapons of Mass Distraction is not just about Murdoch. The movie draws on a pattern of feuding between monopolistic media moguls the world over (e.g, Leo Kirch vs. the Bertelsmann brass in Germany). Indeed, according to The Los Angeles Times' Howard Rosenberg, the movie was inspired "in part by Italy in the mid-1990s, when then Prime Minister Silvio Berlusconi simultaneously controlled the state TV system and owned three commercial-TV stations." Such battles can have serious consequences. Some have attributed Italy's political instability to the feud between Berlusconi and media and political powerhouse Carlo De Benedetti (see article in Video Age's March/April '96 issue).
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Title Annotation:News Corp. Chairman Rupert Murdoch
Author:Serafini, Dom
Publication:Video Age International
Date:Oct 1, 1997
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