Rupert Murdoch is nothing if not a gambler. He flies against conventional wisdom, and his daring usually pays off. A decade ago Hollywood scoffed when the Australian-born publishing magnate bought a string of television stations and called them a network. Today, Fox Broadcasting is threatening to turn the Big Three into the Big Four. Skeptics also looked askance at Sky Television, the money-losing British satellite service that helped drive Murdoch to the verge of bankruptcy. When he took the company public last December, it was valued at a whopping $6 billion. Last week Murdoch placed another big bet: MCI Communications Corp., the second largest U.S. long-distance company, agreed to invest as much as $2 billion in his holding company, News Corp. The partners want to do more than create yet another big entertainment, information and telecommunications empire. They aim to dominate the Information Highway.
Does the world really need another New Media megadeal? Many analysts doubt the two companies will enjoy the synergies Murdoch and MCI chairman Bert Roberts confidently foresee. But while MCI’s stock tumbled by 8 percent on the announcement, News Corp.’s stock surged. Wall Street analysts couldn’t quite make sense of the transaction, but one thing seemed clear: once again Rupert Murdoch had come out on top. For its money MCI gets at most a 13.5 percent stake in Murdoch’s family-con-trolled empire, which spans everything from the New York Post to book publisher HarperCollins to 20th Century Fox, one of only six major Hollywood movie studios. Nor can MCI vote many of its shares against Murdoch’s wishes. Observes one admiring Rupert watcher, “Murdoch gives up no control.”
Wall Street’s worry of the moment is what Murdoch will do with the cash. He doesn’t even try to conceal his desire to build the world’s leading news and entertainment network. Clearly, he has a shopping list. On Friday, Murdoch confirmed that he has discussed buying a controlling interest in former Italian prime minister Silvio Berlusconi’s sprawling Fininvest television network, reportedly for $2.8 billion. There’s also speculation that he covets Time Warner’s 20 percent interest in Turner Broadcasting System, the owner of Cable News Network. A stake in Turner would fill the biggest hole in Murdoch’s mammoth media complex, its lack of TV news coverage. “Who knows what opportunities may occur,” Murdoch joked last week. “Even Ted Turner may want to retire.”
Murdoch is also buying up television stations across Europe and Asia and contemplating a satellite TV service for Latin America, modeled after Sky and his Asian service, Hong Kong-based Star TV. And there seems little to hold him back. The biggest threat disappeared on May 4, when the U.S. Federal Communications Commission let him off the hook after a two-year investigation into charges that Murdoch had violated laws limiting foreign ownership in American broadcasting stations.
Last week’s deal shows the mogul thinking beyond the printed word and the television screen. The advent of the digital age, with all its hyperbolic talk of Info Highways, is changing the nature of publishing and broadcasting. Murdoch is far from the only media titan to be intrigued by the commercial possibilities of the Internet, the fast-growing global computer network, By teaming with MGI, one of the world’s biggest and most aggressive telecommunications companies, he’s betting that he can be among the first to exploit them profitably. Until now, he said last week, “no one has put together the right building blocks – programming, network intelligence, distribution and merchandising–to offer new media services on a global scale.”
So exactly what is it that Murdoch plans to sell over MCI’s cables and switches? It’s not clear what he has in mind, or what he could offer that wouldn’t be available from a dozen other purveyors of digitized Info Age “content.” Some 40 million computer users surf the Internet at least now and then, all potential customers for companies offering the right mix of news. information or entertainment. Forrester Research in Massachusetts estimates that commerce on the Internet – from home shopping to inter-active entertainment–will be a $10 billion-a-year business by 2000. At the moment, though, New Media is mostly a vision. There’s not much real business being done.
MCI is as far along as anyone. Over the past year, it has begun offering a range of new services, from electronic mail to inter-active shopping. It provides the software that individuals and businesses need to open “storefronts” on the World Wide Web, the commercial part of the Internet,so surfers can at least potentially order socks or check out new cars from the comfort of their computer terminals. Info MCI lets subscribers–mostly businesses–download information tailored to their interests, from stock quotes to specialized news, twice daily. News Corp.’s electronic venture, Delphi Internet Services Corp., has been less successful. With a scant 160,000 subscribers, it ranks a distant fourth to America Online, which claims 2.5 million users, Delphi plans to invest tens of millions of dollars this year to upgrade its service and add sexier offerings, including access to electronic versions of many of the 130 magazines in Murdoch’s domain. The linkup with MCI should help Murdoch expand Delphi’s reach at far less cost–and leapfrog larger rivals by finding ways to sell digital products based on News Corp.’s holdings in publishing and entertainment.
MCI’s chairman Bert C. Roberts is almost giddy about the prospects for the partnership. “Think of the incredible range of news and entertainment we can offer,” he told NEWSWEEK. He envisions a world where, within a year, customers will be able to receive a full range of “customized” news and information. There will be audio and visual clips from Fox. News and information from Reuters, which has a contract with News Corp. Research data. Magazine articles and book excerpts, all flooding in over MCI’s phone and satellite links. In the future, movies and TV will come into your home, over phone wires as well as television cable, and the MCI/ News Corp. link puts both the movies and the wires under one roof. “Bringing them together makes sense,” says Roberts. “Our relationship with News Corp. is in perfect sync.”
Not everyone agrees. The new digital landscape is already littered with the wreckage of visionary ventures. Bell Atlantic and Tele-Communications Inc. tried to merge last year and failed. Time Warner’s interactive television test in Florida is widely acknowledged to be a bust. MCI aborted its own effort to expand its reach by acquiring Nextel Communications, the fast-growing wireless-telephone company, and to make this latest venture work it must quickly build (and pay for) the expensive fiber-optic links to people’s homes and offices needed to carry the partners’ traffic. Murdoch may be luckier than other Info Age entrepreneurs, though not even he expects to make a lot of money on the venture–at least for a few years. On the other hand, that seems to be a pattern with Murdoch. Place a bet, lose lots of money, then cash in big.
JOHNNIE L. ROBERTS IN LOS ANGELES
Their announcement last week on a Washington stage wasn’t the first joint appearance by News Corp.’s Rupert Murdoch and MCI’s Bert Roberts. A week earlier the two had met in Los Angeles to hand checks to educators on behalf of a foundation bankrolled by disgraced junk-bond king Michael Milken. Like the teachers, Murdoch and Roberts know the thrill of getting cash from Milken. He helped finance their companies’ growth in the 1980s–and, if the Hollywood rumor mill is right, he helped plot MCI’s investment in News Corp.
Milken couldn’t be reached to confirm his role. But two years after his prison stay for violating securities laws, he is clearly back to dealmaking. He advised Oracle Corp. on the possible purchase of Apple Computer last year, and investment bankers say he shaped the $500 million deal between News Corp. and New World Communications, a TV programmer. Sources told NEWSWEEK that Milken recently explored buying the Six Flags theme parks from Time Warner. He owns a chunk of 7th Level, a hot interactive entertainment company, and controls a big stake in ICS Communications, which provides wireless cable-TV service to apartment buildings. Among his coprincipals: MCI. Whatever his reputation elsewhere, Milken has no shortage of friends in Hollywood.
