MacFormat 1996 July/macformat-039.iso/DATABASE/POWER/MURDOCH.TXT

Text File | 1996-01-29 | 24.4 KB | 552 lines | [TEXT/MSWD]

1.5
Since inheriting one
Australian daily paper
in the Fifties from his
father, Rupert
Murdoch, chief
executive of The News
Corporation, has built
one of the world's top
five media empires
with significant
businesses in four
continents. He realised
early the global
potential of the mass
entertainment
revolution for a company marketing newspapers,
magazines, books, films and television. In the US, News
Corporation (in which his family has a shareholding of 32
per cent) owns Twentieth Century Fox; in Britain it owns
The Sun and the News of the World, the biggest selling
daily and Sunday papers in the English-speaking world (as
well as The Times, The Sunday Times and Today). Its
Harper Collins is one of the largest English-language book
publishers in the world. News Corporation has diversified
from newspapers, films and books into television, with the
development in the US of Fox Television which Murdoch
built into America's fourth network. He also launched Sky
Television, now British Sky Broadcasting, Britain's major
satellite television station. When Murdoch moved from
unionised Fleet Street to Wapping, shedding 5500 print
workers, he transformed the fortunes of the British
national newspaper industry, opening the way to
competitors at even lower costs than his own. In the
Nineties, Murdoch has expanded News Corporation's
worldwide television presence by buying the Hong Kong-
based satellite channel, STAR Television, which broadcasts
to 53 countries in Asia, and buying a 49.9 per cent share of
India's Zee TV, which broadcasts  in Hindi. He has also
taken a ride on the telecommunications super highway,
making a $2 billion dollar deal with  the US telecom group
MCI, and thereby gaining access to cable and on-line
communications systems. Murdoch's ruthlessness is
legendary; less well known is his personal charm and his
reputation among businessmen as a man whose word is his
bond
@
2.2
Mr Rupert Murdoch's publishing career began in 1952 on
the death of his father, Sir Keith Murdoch, founder of the
family newspaper empire. Yet after death duties had been
paid, the only paper left to the young Mr Murdoch was The
News, in Adelaide.

On that slender base he built a publishing empire that was
to extend across all Australia's main cities. It consists of
four daily and evening papers, three of them in Sydney,
three Sunday papers, two television stations and two
magazines, including the country's best-selling television
guide.

Most of the Australian papers rely on a combination of sex
and sensationalism, which is the hallmark of his British
publications, although The Australian is a middle-brow
paper, in British terms a cross between The Daily
Telegraph and the Daily Mail.
 @
3.1
Rupert Murdoch and Marvin Davis, joint owners of 20th
Century Fox, yesterday agreed to buy six American
television stations for more than $1.5 billion.  With these
they plan to create a fourth American TV network,
challenging the might of the big three, CBS, ABC and NBC.

Rupert Murdoch the chief executive of News Corporation,
has agreed a $1.55 billion take-over which will create a
major new rival to America's three television networks.
Last night Murdoch signed a deal to buy six TV stations
from Metromedia, a New Jersey-based communications
company.  Together, the stations reach nearly a quarter of
all American homes.

The take-over is being done in concert with Marvin Davis,
the American oil man.  Murdoch and Davis already own
20th Century-Fox, the film and television production
company.  By using Fox's studios to produce original
programmes for the TV stations, Murdoch and Davis will in
effect, have created a fourth television network in
America.

Acquiring Metromedia means that Murdoch, an Australian,
will have to become an American citizen.  The Federal
Communications Act restricts foreign ownership of
American TV stations to 20% direct or 25% indirect control.

A member of the Federal Communications Commission
(FCC), the government body which regulates American TV,
said on Friday night that Murdoch had told the FCC that he
will become an American citizen before applying for the
transfer of ownership of the TV stations.  Speculation that
Murdoch might opt for dual nationality was discounted in
Australia last night, where it was said that the Canberra
authorities would not sanction such an arrangement.

The take-over also puts a question mark over Murdoch's
continued ownership of some of his American newspaper
interests.  Two of the Metromedia stations which Murdoch
and Davis are acquiring are in cities where News
Corporation owns major newspapers: New York, where it
owns the Post, and Chicago, where it owns the Sun-Times.
FCC rules forbid ownership of both TV and newspaper
interests in the same city, though there are some
exceptions (the Chicago Tribune, for instance, has TV
interests).

Last night, it was not clear how this was to be resolved.  In
New York, FCC sources suggested that Murdoch would
probably be allowed some time, possibly as much as 18
months, to work out a solution.  In fact, it is likely that
Murdoch will go for a two-year waiver of the FCC rules to
allow the matter to be resolved.  The FCC is currently
reassessing its regulations in this area and its
TV/newspaper ownership rules may shortly be relaxed
anyway.

Murdoch is understood to be particularly anxious to hold
on to the New York Post.  That could mean that he might
prefer to keep the Post and dispose of the city's TV station,
particularly if he could find a friendly owner who would
effectively keep it part of his new network, taking films
and productions from Fox studios.  Murdoch's avant-garde
New York weekly, The Village Voice, is more likely to be
sold.  In Chicago.  Murdoch could well plead the precedent
of the rival Tribune with its WGN (short for World's
Greatest Newspaper) station.  Murdoch's British newspaper
interests (he owns The Sunday Times, The Times, the Sun
and the News of the World) remain unaffected.

The take-over of Metromedia and the matter of a change
in citizenship, also pose problems for Murdoch's TV
interests in Australia, which includes Channel Ten-10 in
Sydney and Channel ATV-10 in Melbourne.  Australia, like
most countries, insists its television channels are controlled
by Australian citizens.

News Corporation is therefore likely to come under
pressure to make some changes.  It could restructure the
ownership by hiving off the TV interests into a new
company and taking in Australian partners.  Alternatively,
Murdoch's Australian TV stations could be disposed of
altogether.

The acquisition of the Metromedia stations is not being
done by 20th Century-Fox but through a new company
which will be jointly owned by Murdoch and Davis.  The
arrangement is for it to acquire seven Metromedia stations
for $2 billion.  But one of these, the successful Boston one,
will immediately be sold to the Hearst group for $450m,
leaving a net outlay for six stations of $1.55 billion.

Murdoch and Davis will join the board of the new TV
company, as will Barry Diller, the chairman and chief
executive of fox, who has been sorting out Fox. Since Davis
and another partner bought it for $725m in 1981 Fox has
run into serious problems.

Murdoch and Davis will inherit a substantial amount of
debt along with their new TV stations: $1.3 billion of
Metromedia's bonds, part of what was issued to finance
the buy-out by management and others of Metomedia last
June, will become the new owners' responsibility.  This
means that at least initially, the new company will carry a
heavy debt servicing burden, and will have to generate a
substantial cash flow to meet it.

Yesterday New York analysts were pointing to the obvious
synergy of the deal.  Murdoch and Davis have acquired the
largest group of television stations in America outside the
CBS, NBC and ABC networks.  Metromedia is also a major
syndicator of  programmes to independent stations in
cities which reach over 80% of the American population.
In the past, however, these independent stations have
been short of programmes to rival the network offerings.
They used to be dismissed as "junk" stations, because of
their reliance on dated films and re-runs of old network
programmes.  Metromedia, however, has in recent years
developed a more imaginative programme schedule.

It will be further enhanced by access to the products of
20th Century Fox.  This, in turn, could transform the
finances of Fox.  The film studios have been suffering
recently because of a lack of box-office successes and were
recently shored up by a $120m advance from a joint
venture with CBS and a $132m capital injection when
Murdoch bought his half stake from Davis (for $162m in
cash plus an $88m loan) in March.

Fox, despite its financial problems, has fine studios and a
large library of films and videos.  The Metromedia stations
will now become the primary outlet of its library and new
productions.  Murdoch and Davis are also said to have their
eyes on other independent stations, either to acquire
directly or to persuade them to join a network which they
hope will one day rival the giants of the business, ABC, NBC
and CBS.

The price Hearst will pay for Metromedia's Boston station
WCVB reflects the booming market for broadcast
properties.  John Kluge, chairman of Metromedia, bought it
only three years ago for $225m.  Now it will fetch exactly
twice that from the Hearst media conglomerate.

Kluge owns 76% of his company and controls 93% of the
votes.  He is generally agreed to have done well out of the
overall deal.  At a stroke he is able to get rid of his huge
debts, and have plenty of cash to spare.  According to one
source yesterday, he will put the money back into media
interests,  especially telecommunications.  But he is also a
big spender on his own comforts: he has recently allocated
$25m to landscape his back garden in Virginia, using
British landscapers.

Besides the stations in New York and Chicago, the other
stations acquired by the new Murdoch/Davis company are
in Washington, Los Angeles, Dallas and Houston.

Analysts in New York yesterday suggested that fresh
capital might be needed in view of the debts which both
Fox and the newly-acquired TV stations are burdened
with.  Fox, before Diller arrived has been struggling and
with the exception of the film, Romancing the Stone, has a
poor record at the box office.
@
3.3
THE News Corporation has acquired a majority stake in
Star Television, the Hong Kong-based satellite broadcaster,
whose programmes are already received by 45 million
viewers across 38 Asian countries.

News Corp and its associated companies have paid Li Ka-
shing, the Hong Kong property tycoon, and Hutchison
Whampoa, his publicly quoted telecommunications
company, US$525 million for a 63.6 per cent holding in
HutchVision, the parent company and supplier of
programmes to the Star Television network.

The purchase price, half to be paid in cash and half in
News Corp ordinary shares, values HutchVision at US$825
million.  The cash payment will be financed by an issue of
convertible preference shares.

News Corp is the parent company of News International
which owns The Times.

Rupert Murdoch, chairman and chief executive of News
Corp, said last night, from his yacht, off Corsica, that he
concluded the negotiations personally with HutchVision's
Richard Li last Thursday.

"This deal completes the picture for News Corporation.  It
gives us world-wide distribution for television production,
which nobody else has.  It is a logical extension," he said.

Mr Murdoch said that Star was well placed to increase the
number of channels it offers.  "Star has US$5100 million in
the bank," he said.  Star intends to introduce some pay-
channels within the next year, Mr Murdoch added.

News Corp will be banking on the massive potential
revenue flow from Star.  The broadcaster is widely
considered to be the Orient's most dynamic operator.  Its
satellite footprint stretches across 38 countries, from
Turkey to Japan, via India.  It reaches an estimated 13
million households in an area where the potential audience
is growing by 20,000 a day.

The opening up of China and the emergence of a booming
middle class in India is creating a new market for Western
consumer goods and advertising, reaching up to a third of
the world's population.

Dish ownership in the region is rising at a rate of
approximately 160 per cent a year, and satellite television
has the additional advantage of helping advertisers get
around domestic bans for promoted imported products
such as alcohol.

Star operates five main channels - news, sports, general
entertainment, films and a Chinese-language service.  Its
most popular channel is Zee TV, a sixth service carried in
India only, which is broadcast in Hindi and claims 40 per
cent of Indian viewers.  The BBCs World Service Television
network is part of the package, providing stiff competition
for Cable News Network, the American operator.

Christopher Irwin, chief executive of BBC World Service TV
said: "This supports our long-held view of Star TV's
potential.  BBC WSTV has been the engine of Star's success
in key regions of Asia.  We intend to drive on."
@
4.1
IT WAS the turn of Rupert Murdoch and Robert Maxwell
last week to suffer the fate that has befallen so many of
the acquisitive, entrepreneurial high-flyers of the 1980s:
the investment community, worried by the size of their
debt, turned on them.

Once among the best-performing shares in the world, the
fall in the share price of News Corporation, the
international media group that owns The Sunday Times,
was so precipitous that the Sydney Stock Exchange
demanded an explanation.

Murdoch, in Australia, could only reply that he knew of
none.  Nothing materially had altered in the affairs of the
company.  What had altered was the way in which
investors, and the investment analysts who lead their
opinions, viewed the company.

The same pattern has occurred again and again in the past
year, as the investment community has turned on its
former favourites,  in 1933, when Murdoch and Maxwell
were at their most acquisitive, interest rates were half
what they are now, the banks were competing fiercely to
lend money, often for the most expensive of acquisitions
and management buyouts, and prices were forced to levels
which could not be justified by even the most optimistic of
earnings projections.

It was a seller's market; and dozens of over-ambitious
companies, spurred by their advisers, went beyond what
they could afford when the climate changed.  The high
interest rates of the past year, plus the growing recession
in America and Britain, have exposed the highly geared.

The harsher economic climate has also started a more
cynical game by the market-makers who need activity
shares moving up or shares moving down, they do not
mind to earn a living.  In these markets they focus on the
vulnerable, often the same companies they were
supporting so enthusiastically just two years ago.

In the two weeks since he published the latest accounts of
News Corp, Murdoch's shares have fallen in London from
463p to 288p.  At 234p, the shares of Maxwell
Communications are now little over half of this year's.  In
both cases the reason for the fall is similar: debt taken on
to finance huge acquisitions.  Asset disposals, used
successfully by both Murdoch and Maxwell to reduce their
debt, have become more difficult as the big American and
Japanese banks have withdrawn from the market.  The
earlier enthusiasm for their largest acquisitions, Murdoch's
$3 billion bid for Triangle, publisher of TV Guide in
America, and Maxwell's $2.6 billion take-over of the
Macmillan publishing house, also in the United Sates has
faded to concern over how they can service and repay
their borrowings.

For a man as apparently beleaguered as the headlines
suggested, Murdoch on Friday was relaxed and confident.
The hump of his huge capital expenditure programme in
new printing presses (more than 500 million pounds in
Britain alone) and in Sky Television is now passing, he
said; but there would be a gap before the benefits of that
flowed through to the profit and loss account.

He could probably have avoided the fall in the share price
if he had been more clever in his management of News
Corp's debt, he admitted.  But he miscalculated the length
of time interest rates would stay high.  Earlier this year he
took the view that rates, particularly in America, would be
much lower in the second half, and he wanted to take
advantage of it, exchanging some high coupon debt for low
coupon money.  That meant keeping a large chunk of
borrowings in the form of short-term bank loans, ready to
be swapped into cheaper, longer term money.

Events did not work out that way.  Interest rates stayed
high, and began to move even higher.  By summer, when
American, Japanese and German rates looked as if they
were set for a further rise, he "capped" the rate he was
paying, protecting himself against a further rise.  But his
financial year-end June 30 left him with short-term debts
on the balance sheet of $2.9 billion (1.2 billion pounds), a
six-fold increase from the previous year.

Publication of the accounts coincided with another event
which turned investment sentiment against Murdoch.
Seeking a means of widening his capital base without
disturbing his control of the company (45% of which is
owned by his family), he proposed to issue new non-voting
shares to existing shareholders.

But this aroused the wrath of the Australian institutions,
which accused Murdoch of a dangerous precedent: there
was no history of non-voting shares in Australia, the
institutions did not like them, and the Australian stock
Exchange indicated it did not want to quote them.

The rise in short-term debt, revealed in the report and
accounts a fortnight ago, caught at least one leading
investor by surprise.  The giant fund management group,
Fidelity, holder of some 8.8m shares, decided to sell, and
others, frightened by the fall, joined in.  Murdoch had
suddenly joined the long list of stock-market stars whose
personal fortunes, at least as measured by the share price,
had stumbled.  In a fortnight the value of his personal
holding dropped by 200m pounds.

Like so many others, Murdoch had been unable to do any
wrong in the years when he made take-over after take-
over, building what he himself describes as "the most
versatile and skilled media company in the world".

Between 1986 and last year, revenues and profits before
interest more than doubled, while assets increased four-
fold.  But debt also increased four-fold, partly because of a
huge world-wide investment programme but more
especially because of the deal which the investment
analysts are now accusing Murdoch of having paid too
much for: the $3 billion take-over of Triangle, publisher of
the  TV Guide in America.

Last year TV Guide actually turned in record profits.
There is nothing wrong, as the analysts acknowledge, with
it as a business it is just that, judged by today's harsher
climate, they believe Murdoch paid too much for it.
@
4.3
Scarcely 60 seconds after seeing in "a new era in British
television" at the launch in London yesterday of nine new
satellite channels, Rupert Murdoch, chief executive of The
News Corporation, was on the telephone to one of his
offices in the United States setting up his next deal.  Again.

Anybody else might have allowed themselves the
afternoon off, or at least a few minutes'' break.  After all,
Mr Murdoch has spent the past few weeks extending his
domination of the world's media.  Less than a month ago
he clinched a $525 million deal for a controlling stake in
STAR TV, the Hong Kong-based satellite broadcaster which
commands a potential audience of 45 million viewers.

Last night he announced, to an audience including Michael
Howard, Lord Rees-Mogg and Maurice Saatchi, a series of
new partnerships which will ensure that News Corp
remains at the cutting edge of the communications and
consumer electronics industries.

He is hoping, however, to find time next week to squeeze
in an appearance at his daughter Elizabeth's wedding in
Los Angeles.

Mr Murdoch, speaking at the Queen Elizabeth II conference
centre, was relaxed - apparently looking forward to the
inevitable media reaction, a good deal of it probably
critical, to last night's speech at the Banqueting hall in
London.

His new partnership with British Telecom, in particular, is
bound to attract a few brickbats from those who already
believe that with five national newspapers (including The
Times) and a clutch of satellite television stations, Mr
Murdoch - an American citizen - already has far too much
power.

At its most basic, the BT partnership enables the two
companies to explore ways of using Telecom's cable
network to deliver electronic information and pictures into
every household with a telephone.

At present, BT's licence prevents it from operating a cable
entertainment service, such as a television channel.  but
the potential mutual benefits of the deal are still huge.
News Corp's television service, BSkyB, will benefit from
BT's considerable marketing muscle, while BT will get
possibly its biggest avenue for diversification to help it
make up for some of the ground it is losing to cable
telephone and television companies.  Crucially, both
companies will gain access to each other's client base.

"No doubt the paranoid will see it as a carve-up or alliance
between British Telecom and us, but it is not," Mr Murdoch
says.  "It is still at an embryonic stage, but we hope to
develop a system which enables us to offer news and
financial information on BT's cables.  The regulations don't
stop us doing that."

Developing a theme that has now become his leitmotiv, Mr
Murdoch explains that he is pioneering new technology,
which others can then exploit - if they are quick enough.
The new multi-channel television package he launched on
BSkyB (50 per cent owned by News Corp) yesterday is an
illustration that this principle can work.  Only two of the
14 paid-for stations offered belong to Sky: the others are
owned by rivals, such as United Artists, or are jointly
owned with competitors.

"The BT deal is not exclusive.  I hope there will be room
for everyone in the market place," Mr Murdoch says.  "In
any case, if others want to link up with British Telcom then
they should have got in there before us."

At the heart of both the BT agreement and a batch of
others revealed in Mr Murdoch's Banqueting Hall speech
last night is the development of what President Clinton has
called the "digital super highway of the future."  This is Mr
Murdoch's new "vision" (he claims to be a follower of
visionaries rather than a visionary himself).  The idea is to
give consumers as much choice as possible by developing
as many different new technologies - the so-called "super
highways" - for delivering information, images and sound
to their homes.

Part of that choice includes making more, new television
programmes.  The deal announced last night between Mr
Murdoch's American television company, Fox Broadcasting,
and Televisa, the Mexican broadcaster, will provide
hundreds of hours of new programming.  Under the co-
production deal, the two companies will produce a series of
100-episode novellas at a cost of around $50,000 per hour
(against $1 million per hour for a Hollywood production) in
Spanish and English.

The principle of extending consumer choice is based on
two visions.  Mr Murdoch explains: "In one vision there
will be a single cable going into every home delivering a
wide range of services (telephone, television, database and
so on).  In the second, vision information is transmitted
digitally by satellite."

Whichever of these visions becomes reality, Mr Murdoch
intends to have a large slice of the action.

Mr Murdoch says he is aware of the enormous
responsibilities that such dominance includes.  He is
promising new educational channels, including an open
university and an arts station.  And however many
services are launched on the subscription and encryption
services, there will not be a pornographic channel.  "They
tried, but I would not have it.  I'm not a total libertarian,
you know, there has to be a line drawn somewhere," he
says.

Ultimately, he believes, technology will force through
changes in the regulations restricting telecommunications.
"You can never get rid of the regulators...but they couldn't
stop satellite dishes going up in former East Germany,
could they, even though they shot at people who put them
up?"