News Corp hits the panic button in Eastern Europe

Michael Hedges July 21, 2008

Established media companies venture into developing regions, looking for quick a turn-around or a good trading card. When turn-arounds take too long or cost too much it’s time to trade. With few traders in sight there’s always the panic button.

Last Wednesday (July 16) TV Puls, News Corps minority owned but controlled television outlet in Poland, abruptly cancelled news programs with immediate effect. About two hundred staff were sent home, a bit more than half the channels’ roster. The company statement was blunt; the news programs weren’t working and cost too much. “Just business,” said TV Puls General Manager and minority shareholder Dariusz Dabski.

The “Pulse Report” had aired on TV Puls since November 2007, launched with great flurry, and coincided with News Corp increasing its stakeholding to 35% from 25%. The majority stakeholder is the Order of Franciscans. News Corp took on a greater operational role, development seeming to be the game plan. In January Poland’s media regulator KRRiT granted TV Puls greater coverage. 

A week before the plug was pulled on the “Pulse Report” TV Puls reiterated its intention to go forward with two HD TV channels, one being a business news channel. But days after the happy announcement came the June Nielsen numbers; bad, very bad. 

A broader story started circulating within hours that News Corp had hired investment bank Lehman Brothers to evaluate the company’s holdings in Serbia (Fox Televizija), Bulgaria (bTV) and Latvia (LTN and TV5 Riga) for a possible sale because of “buyer inquiries.” More or less confirmed by the Bulgarian channel bTV’s General Manager was the penultimate detail. A price of $500 million had been set for bTV, later inflated to $800 million. The list of channels on Lehman Brothers list was embellished by Friday to include Fox Turkey and TV Puls in Poland.

By Monday (July 21) local sources had every Bulgarian television channel up for sale.

News Corp holds 100% of bTV in Bulgaria and Latvian channels LTN and TV5 Riga. Others in the Eastern European package have local shareholders, News Corp holding 35% of TV Puls, 49% of Fox Televizija (Serbia) and 56.5% of Fox Turkey. Those respective stakeholdings are capped by foreign ownership laws.

Watching News Corporation for trends is fun but futile. Decisions of late seem based more on immediate need than long-term strategy, mostly about getting the best out of what they’ve got and what they know. This is logical in the (post) modern media world as long term thinking more often tends to be wrong.  News Corp decisions, save the Dow Jones/Wall Street Journal deal, are always “just business.”  But that doesn’t simply mean the cash. The Murdoch’s are masters at relationship investment.

What seemed to be a strategy for Central and Eastern Europe before James Murdoch took over running that side of the world has changed. The regions’ economic growth has been fueled by huge pent up consumer demand, bought on credit and large amount of inflation. But as recently as two years ago, when most of News Corps’ Eastern European TV deals were consummated, economists saw a leveling out of all that growth, perhaps by 2012 and certainly by 2015. Even earlier this year some believed the countries of Eastern Europe would escape the downturn frightening Americans and threatening Western Europe. Inflation is rampant in News Corps Eastern European markets; 18% in Latvia, 15% in Bulgaria, 14.9% in Serbia, 10% in Turkey and 4.6% in Poland. The European average is 4%.

But, at the time, News Corp could buy into Eastern Europe at economically sensible prices. Media people in Eastern Europe always welcome investment by Western media companies, and not only for the money. News Corp and others bring unrivaled skills to markets hungry for expertise. NewsCorp’s bTV in Bulgaria is top rated. TV Puls can’t buy itself out of the bottom. Tom Mockridge was brought in from Sky Italia as chief executive for European television at News Corporation in mid May completing the necessary new management structure.   

It bears considering, too, that Eastern Europe generally – EU Member or not – has yet to make that mighty leap toward political rationality, particularly with regard to media. Politicians, their parties and cronies continue to resist Western ways, at least the textbook version. Also last week one of Poland’s political parties announced that it wouldn’t send its spokespeople or candidates to another channel, TVN, because journalists just keep asking uncomfortable questions. In announcing the cancellation of its news programs, TV Puls said it would be sticking with entertainment and ‘family’ programs. Bulgaria just had its EU funding cut because corruption hasn’t been controlled.

News Corp got a bit of Eastern Europe reality check last winter when its television station in Georgia became a political flash point. News Corp may or may not have owned all or part of Imedi TV but it had some role in the management. And it certainly raised the question of why a big publicly traded media organization would mess with, shall we say, a challenging market with little possible financial upside.  But Imedi’s owner (or part owner) was, until his untimely death, well connected.

Big media companies get bigger not by slaving away as developers. It’s much smarter to wait patiently and let smaller, hungrier entrepreneurs take the first punches then pay a premium. News Corp is showing that it is not an early stage developer. James Murdoch seems much more interested in developed markets – Germany, Spain, the UK - where growth rates may be lower but there’s no need to hit the panic button…or wear it.