News Corporation: The Difference

Michael Hedges June 15, 2010 Follow on Twitter

Corporate strategies among the biggest media companies are remarkably consistent. Those traded publicly, or significantly so, trade on a stony conservatism that resists risk. News Corporation has always been different.

UK pay-TV broadcaster BSkyB’s board rejected (June 15) News Corporation’s offer of £7.8 billion (€9.4 billion) for outstanding shares. News Corporation owns 39% of BSkyB and made the offer last week. Rupert Murdoch is News Corporation chairman. James Murdoch is BSkyB chairman. They are father and son, but you knew that.

"We believe that this is the right time,” said News Corporation COO Chase Carey in a statement, “for BSkyB to become a wholly-owned part of News Corporation with its greater scale and broader geographic reach. For News Corporation, our proposal presents an opportunity to consolidate a core business with which we have been closely associated for over two decades."

BSkyB’s independent directors, in a statement, said the offer “undervalued significantly” the company. James Murdoch has kept arms-length from the negotiations, which according to Murdoch watchers is, at this point, only about price. The companies have agreed to make no hostile acts and move on getting regulatory approval in advance of a final deal. 

Many Murdoch watchers, including the Financial Times (June 15), see Mr. Murdoch - The Elder - as again defying conventional wisdom by dipping into cash reserves when News Corporation “should now be returning some to shareholders or spending it in one of the sector’s growth markets.”

Like all major corporations, News Corporation has dipped into and then out of “growth markets” seeking either strategic or financial advantage. The company announced (June 14) the acquisition of software distribution platform Skiff, further positioning it in the digital publishing world. News Corporation completed disposal of Eastern European free-to-air television companies earlier this year. The Dow Jones – Wall Street Journal acquisition pales in comparison to the BSkyB deal.

There are all kinds of reasons to take BSkyB private. The biggest, of course, is being free of pesky shareholders demanding dividends and other rewards. The BSkyB brand is stronger than ever. With 10 million subscribers the UK pay-TV broadcaster spins money like no other.

When BSkyB bought Virgin Media’s three pay-TV channels the immediate conclusion was the beginning of a long expected surge in media consolidation.  At the same time, RTL Group made clear its intention of withdrawing from the UK TV market - somehow, sometime selling Five. Consolidation fans have predicted ITV as the logical buyer for Five. But with UK media regulator OFCOM under pressure to liberalize ownership rules, other possibilities arise.

ITV, now under new management and showing better revenues this year, still looks less like a buyer and more like a seller. News Corporation’s bid for complete control of BSkyB effectively raises any price getting the attention of ITV’s board. News Corporation still owns a minority stake in ITV, reduced under anti-trust rules, first acquired to prevent Virgin Media from becoming a major free-to-air broadcaster.  

More practically, it’s likely Mr. Murdoch is circling the wagons, concentrating on BSkyB’s considerable asset value. The largely sports fan subscriber base could be saturated and BSkyB has been ordered to offer reduced wholesale rates for content to competitors. More channels would logically be the answer, hence the acquisition of the Virgin Media channels.

There is, certainly, the appearance of Mr. Murdoch cashing in on the Conservative Party’s hold on the UK government’s agenda after giving editorial support in recent parliamentary elections. Some Murdoch watchers note how quickly he waved the IOU. Political observers give the current Conservative-Liberal Democrat coalition government less than 18 months before crashing under the weight of “austerity.” It’s a window of opportunity Mr. Murdoch sees clearly.

Would BSkyB offer a free-to-air channel? Impossible: regulators would never approve and, anyway, it would go against the Murdochian pay-only principle. Shareholders and stock traders would punish. But anything is possible when risk is in your blood and shareholders calls are diverted to a pay-phone on Mars.

Oft forgotten is, astoundingly, News Corporation as a major television and film producer. The output of 20th Century Fox studios is prolific and international sales is a major profit center. The major television and film production houses – which include Disney, RTL’s Fremantle and Mediaset’s Endemol – have all explored closer relationships with television broadcasters.

The UK media market continues to be one of the world’s most dynamic. It’s newspapers and television, local whinging notwithstanding, are remarkable and competitive. That won’t change; another reason Mr. Murdoch would want a bigger part of it.

See also in ftm Knowledge

Rupert Murdoch and News Corporation

News Corporation is a highly competitive media giant a global, multi-media footprint. From paywalls and pay-TV to tabloid troubles and new ventures the media industry watches Rupert Murdoch. Update includes family ties, succession plans and other News Of The World. 172 pages PDF (April 2011)

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