Media empire is rising into orbit

Murdoch's takeover of satellite TV leader has his rivals stirring

December 28, 2003|By LOS ANGELES TIMES

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 first pay-TV service in the United Kingdom, eventually turning it into a roaring success.

Then, as media barons in the United States shied 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 who is a 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 percent of American households, into a medium as common as cable, which is in 70 percent of homes.

Earlier this month, federal regulators approved News Corp.'s $6.6 billion takeover of satellite television leader DirecTV from General Motors Corp., though 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 DirecTV in his arsenal, Murdoch becomes the first media titan with satellite, cable and broadcast assets in the United States. 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 Baltimore-based 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 United States, 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 leading U.S. 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 pre-emptive strike, EchoStar in August began giving away digital video recorders, which enable 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. officials have predicted that DirecTV will 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 the United Kingdom, 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, Murdock 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.

In the United Kingdom, 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.

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