Murdoch’s Empire Is in Orbit

For two decades, Rupert Murdoch has been building up his empire by tearing down the status quo.

When many in Britain thought it foolhardy to challenge the state-owned BBC, Murdoch ignored them and launched the nation’s first pay-TV service, eventually turning it into a roaring success. Then, as media barons in the U.S. shied away from trying to undo the 30-year stranglehold of the three broadcast networks -- ABC, NBC and CBS -- Murdoch’s News Corp. established Fox as a viable alternative.

“The company works best -- and has revolutionized industries -- by challenging conventional thinking,” said Mary Ann Halford, a media consultant and former News Corp. executive.

Now, the 72-year-old Murdoch is at it again, betting that he can pull off a feat nobody else has managed: to turn satellite television, which currently is watched by just 20% of American households, into a medium as common as cable, which is in 70% of homes.

On Friday, federal regulators approved News Corp.’s $6.6-billion takeover of satellite television leader DirecTV from General Motors Corp., although they imposed conditions that aim to limit Murdoch’s ability to gain an unfair advantage over competitors.

Critics of the deal say those conditions don’t go far enough, and some point to Murdoch’s reputation for doing more than just breaking with convention; the Australian-born entrepreneur also has a history of breaking the backs of his rivals.

News Corp. officials declined to comment.

With El Segundo-based DirecTV in his arsenal, Murdoch would become the only media titan with satellite, cable and broadcast assets in the U.S. Besides the Fox television network, News Corp. owns 20 regional sports channels, 35 TV stations, the Fox News cable channel, the New York Post and the 20th Century Fox movie studio.

“He’ll have an army, an air force and a navy when everyone else has at best one or two of those things,” said Blair Levin, an analyst at Legg Mason. “He could drive a bunch of consolidation in the industry.”

Already, Murdoch’s rivals are stirring. Industry watchers expect EchoStar Communications Corp., DirecTV’s sole satellite TV rival in the U.S., to become a takeover target as competitors strive to keep News Corp.’s power in check.

Investors have been speculating all year that Comcast Corp., the nation’s leading cable TV provider, might buy a Hollywood studio to gain the programming needed to go toe-to-toe with Murdoch’s holdings. At the same time, Time Warner Inc. is looking to beef up its cable systems, eager to match the strength of Comcast and News Corp. in distribution and prevent them from dictating terms for carrying its programming.

Meanwhile, some cable operators have accelerated their launch of local phone service, seeing that as an advantage over Murdoch’s offerings; satellite technology can’t deliver this level of two-way communications.

In another preemptive strike, EchoStar in August began giving away digital video recorders, which allow consumers to record shows without the use of tapes. Many industry insiders have predicted that News Corp. would likewise give away these TiVo-style devices as a way to pry customers from EchoStar and the cable companies.

Murdoch has had his share of failures, including a telecommunications venture in Australia that collapsed and a less-than-stellar tenure as owner of the Los Angeles Dodgers. News Corp. itself almost went under more than a decade ago because of the debt Murdoch had piled up. Some Wall Street investors still worry that Murdoch is willing to expand the empire at the expense of profitability.

News Corp. executives have predicted that DirecTV would have 20 million customers by 2010, up from 12 million today. That number is ambitious, especially given that the growth of satellite TV has slowed recently.

But few doubt that if anybody can get there, Murdoch can.

He already controls dominant satellite TV services in Britain, Italy, Asia and Latin America. Now, with DirecTV, he will fulfill his dream of reaching every corner of the globe from the sky.

“He wants to be the entertainment gatekeeper for the world,” said Greg Nathanson, a retired television executive who formerly ran News Corp.’s U.S. TV stations group.

For instance, Murdoch could bid for the worldwide rights to National Football League games or professional soccer matches in Europe -- and then popularize those sports in new territories.

He also could tie together his news operations worldwide, further challenging the likes of Time Warner’s CNN. Since its launch in 1996, Murdoch’s Fox News channel has overtaken the long-standing cable news leader in the ratings, pushing personalities with an attitude and a conservative political bent, such as Bill O’Reilly.

In Britain, where News Corp. controls satellite TV provider British Sky Broadcasting, Murdoch’s Sky channels are ubiquitous. In the same way, he will push the Fox brand name on DirecTV, competitors predict.

Murdoch also is expected to import certain technology to DirecTV from BSkyB, whose subscribers can watch a sports play from different camera angles and do their banking or order a pizza using their remote controls.

“BSkyB,” media consultant Halford said, “is the most advanced TV platform in the world.”

Murdoch made sure his subscribers would use these interactive features by giving away advanced digital set-top boxes at great expense.

“He wrote enormous checks to make Sky dominate,” said Jamie Kellner, another former News Corp. executive, who went on to found the WB network. “With DirecTV, he’ll be very aggressive in marketing. He’ll use all the tools he’s used around the world to get a larger market share here.”

Throughout his career, Murdoch has displayed a penchant for two things: innovation and ruthlessness.

After becoming the biggest newspaper publisher in England -- with five dailies in his portfolio -- Murdoch in the mid-1980s broke the union’s 200-year stranglehold over what had become a bloated and inefficient industry.

Equipped with computer technology that was modernizing publishing in the U.S., Murdoch moved his operations a mile from Fleet Street, London’s publishing hub, and cut 6,000 jobs to gain cost advantages over his competitors. Of course, he provoked a bitter strike in the process.

Murdoch, however, never has shied away from a good fight.

Eager to challenge the BBC, Murdoch launched Britain’s first pay-TV service in 1989. A well- financed upstart competitor and consumers’ resistance to having to pay for TV almost sank Murdoch. But he brokered a merger and then came up with his masterstroke: He bought the exclusive rights to the extraordinarily popular British soccer circuit, the Premier League.

Although many citizens resented having to pay to view soccer games they previously watched free, 1 million new subscribers signed up for the BSkyB service within three months. Control of such key programming also helped Murdoch drive out emerging cable competitors.

“One thing turned BSkyB around: the exclusive rights to soccer,” Nathanson said. “The power of sports and what happened at BSkyB is tied to everything Murdoch has done” since then.

In the U.S., Murdoch started the Fox broadcast network in 1986, navigating around at least two legal barriers. The first was a law restricting the control of U.S. media assets by foreigners. Murdoch’s solution: He became an American citizen.

Then there were federal regulations that at the time prevented the major networks from owning the programs they put on their airwaves. Murdoch, who planned to use his Hollywood studio to produce TV shows for Fox, could have been in a jam.

But he found a way to skirt those rules too. He kept Fox’s prime-time schedule relatively short so that it occupied less than the 22 hours a week that would define Fox as a bona fide network.

At first, Fox TV was a laughingstock. Many figured it was destined to go down with countless other failed attempts to challenge the Big Three networks.

Yet by 1990, “The Simpsons” and “Married With Children” -- irreverent programs that tested network television’s boundaries of taste -- had put Fox on the map with young viewers.

And by 1994, mainstream America was paying attention because Fox had snared the broadcast rights to NFL football from CBS, which had aired the games for 40 years.

Although the NFL contract has in and of itself been a big money loser for Fox, it enabled Murdoch to lure affiliate stations away from CBS and NBC -- and to weaken his rivals in the process.

Along the way, Murdoch achieved something truly grand: By launching a broadcast network and pairing it with a movie studio, he had fashioned the first modern-day media conglomerate. It was nearly a decade before deregulation allowed rivals such as Walt Disney Co. and Viacom Inc. to imitate Murdoch’s formula.

Over the last 10 years, Murdoch has spent a considerable sum trying to break into the satellite TV business in the U.S. In the early 1990s, his financial troubles forced him to pull out of a joint venture with GM, which went on to find other partners to launch DirecTV.

Later in the 1990s, Murdoch aborted a plan to merge his U.S. satellite assets with EchoStar and then was forced to sell those properties to his jilted partner to settle a $5-billion breach-of-contract lawsuit.

Now that Murdoch is about to get his prize, competitors again find themselves glued to their sets, trying to figure out what the addition of DirecTV to the News Corp. empire really would mean.

If nothing else, this much is clear: “Murdoch,” Kellner said, “is willing to take risks that others wouldn’t.”