This is a summary of the final four chapters in Virtual Murdoch which is retailing for $49.95 but can be picked up for $40 if you also take out a Crikey subscription.
At the start of 1997, Michael Eisner was in a bit of a slump. Wherever he looked – in movies, television production, animation and news, Murdoch seemed to have grabbed the ground Eisner was heading for. What really hurt was sports. Eisner had planned to launch a series of new ESPN channels to treble ESPN’s value, but Murdoch’s Fox Sports was already doing this – and it was using Disney’s own teams to promote it.
A legal fight in California became a race to win Charles Dolan’s SportsChannel (SportsChannel) and Madison Square Garden networks based in New York, owned by Cablevision. Murdoch and Malone had been trying to court Dolan for years to use his local sports networks to double the reach of Fox Sports. Eisner wanted SportsChannel as a base to expand ESPN into local sports coverage, and to fend off the Murdoch threat in sport.
Meanwhile Murdoch bought the Dodgers, and Eisner went on the offensive just as Murdoch was in the most delicate stage of a satellite deal with the cable operators at Primestar. His wedding anniversary had been a disaster, he had to take time out for the Humanitarian of the Year night; in between, he managed to do the Primestar deal, snatch Pat Robertson from Eisner’s clutches, succeed in getting his programs carried on cable networks, and beat Eisner again, this time in an $US850 million deal with Charles Dolan. Eisner had offered $US100 million more than Murdoch, but Malone had done a side deal with Dolan that made Malone a major shareholder in Cablevision.
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Murdoch had been completely defeated by the cable operators in his grand plans for an American satellite operation. They had forced him not only to give up his merger with Charlie Ergen at Echostar, but also to give the cable operators his satellite license and satellites in return for non-voting shares in their satellite venture, Primestar, and to promise that he would not compete against them. But the conditions he had demanded in return for making peace had remade his empire, as the cable operators agreed to carry his programming. In addition, Murdoch’s defeat focused Wall Street’s attention on the cable companies, with the realisation that Murdoch’s satellites were no longer a threat. In fact Bill Gates had begun investing in cable companies, which showed where the future lay. Cable stocks soared. Later AT&T realised what cable offered, and spent $US106 billion buying up cable companies. Everyone ended up hundreds of millions of dollars richer – even Murdoch. With the cable networks (on which the future of the Internet depended) now assured, in October 1998 Internet stocks took off, and the whole world changed.
The only loser was Michael Eisner, who after a year of losing to Murdoch, retained NFL broadcast rights for ABC and ESPN in January 1998 only after agreeing to double the price they had been paying. Until then, the combined cost of NFL cable rights and ABC’s Monday Night Football had come to $US492 million a season. Eisner agreed to pay $US1.15 billion a season for the next eight years. He was paying an extra $US658 million a season just to hold on to what he already had. It crippled Disney’s cash flow, and helped trigger a long descent in its stock price. Winning against Murdoch could be even more painful than losing.
Chapter Fifteen: The Trouble with Tony
In March 1998, a year to the day after Murdoch had switched horses to back Tony Blair’s Labour Party in Britain, Murdoch called in a favour. He asked Blair to talk to the Italian Prime Minister, Romano Prodi, about a deal he was involved in. Blair had been adopted by Murdoch’s American advisor Irwin Stelzer, who described Blair as one of Thatcher’s children. Murdoch’s antics with Tony Blair and Newt Gingrich, while entertaining in themselves, are part of a wider battle of ideas about how to understand – and how to regulate – the information revolution.
Press reports that Blair had been lobbying Prodi on Murdoch’s behalf caused a sensation in Britain, where Blair was already under fire over his relationship with Murdoch. For nearly two decades the Labour Party had demonised Murdoch, not done his dealmaking for him. The Prodi affair came just after the House of Lords had passed an amendment to outlaw predatory pricing, a move aimed at Murdoch’s British newspapers, and after the furore over the decision by Harper Collins to dump the autobiography of Chris Patten, the last Governor of Hong Kong. Murdoch, who was involved in sensitive business negotiations with the Chinese government, had ordered Harper Collins executives to drop the book by Patten, which was scathing in its portrayal of the Chinese takeover of Hong Kong. Harper Collins executives told Patten’s editor, Stuart Profitt, that the book was to be dropped on the grounds that it was too boring. When Profitt asked for written reasons for the decisions he was suspended. The affair erupted in a spectacular flurry of lawsuits in February 1998, and Murdoch and Harper Collins was forced to make a grovelling apology to Patten.
While in the US, Murdoch was merely one of the larger players, what emerged from this period was how much power he had everywhere else in the world. Outside America, it was arguable that News Corp operated as an entity largely beyond the power of any one particular country to regulate.
As a financial entity, News Corp existed in several parallel realities. Under the Australian accounting which News Corp used to report its profits each year, in the six years to June 1997, News earned $US5.8 billion, most of it from the US, Britain and a little from Australia. But US accounting rules painted a different sort of reality. They said News Corp earned only $US3 billion. Was this the ‘real’ profit? You could ask the tax authorities the same question. Based on what News Corp paid in tax during those years, its taxable income during those years came to only $US1 billion – and its biggest earnings were made in tax havens. Which reality gave the truest picture of what News Corp was doing? The financial heart of Murdoch’s empire was somewhere offshore in the tax archipelagoes, as an international tax task force set up to inquire into News Corp’s cash-flows found.
Chapter Sixteen: Rupert’s Rocket
Just as the Blair Affair was dying down, the Murdochs’ marriage collapsed. Inevitably this focused attention on what this meant for the heirs, comparing the mixed results recorded by Elisabeth, Lachlan and James, and Prudence McLeod, Murdoch’s daughter from his first marriage. Their battle to survive an over-achieving father had taken the form of quiet acts of independence. They did what they knew their father would dislike. The advent of wife-to-be No 3, Wendi Deng, turned the divorce process ugly. The key point in the divorce negotiations turned on ensuring the children’s succession.
The worsening divorce fight coincided with Murdoch’s bid to win England’s Manchester United, the world’s most storied, famous and wealthy soccer team. Blair finally realised that the political fallout from the takeover of the team would be too great to let the takeover proceed. The Trade Minister, Peter Mandelson, had to break the news to Murdoch just as controversy had broken out over a series of “outing” claims about allegedly gay politicians, which included references to Mandelson by the Murdoch’s British tabloid flagship, The Sun.
Meanwhile in the US, the Justice Department had moved to block Murdoch’s satellite deal with the cable operators at Primestar. Murdoch was forced to do an abject deal to sell his satellite interests to Charlie Ergen, which in the end cost Murdoch and MCI more than $US5 billion.
Chapter Seventeen: The Manhattan Window
Murdoch had finally made it back to New York with Wendi Deng, but he was forced to watch while the Internet stock boom made a lot of other people rich. In late 1999 he was becalmed, going nowhere. Then in January 2000 the AOL-Time Warner deal came along and again changed the way the world looked at media stocks. Murdoch picked the new wave of investment capital and rode it far and fast to set up a new worldwide satellite giant called Sky Global.
When the tech market imploded in April 2000, Murdoch knew he had one tiny window of opportunity to get the deal done. He threw caution to the wind. His family was fraying – he would accept that. He had prostate cancer – and the treatment had to be put on hold. To make Sky Global work he had to get past two men in his way – Bill Gates, who was trying to derail BSkyB in Britain, and Jean-Marie Messier at France’s Vivendi, who was about to buy Seagrams and become a major American media presence.
The key to Murdoch’s grand plans for Sky Global becomes winning the television rights to British football’s Premier League. Murdoch outsmarts his rivals . . . again . . . but it looks like he has run out of time. The cancer treatments have delayed him just enough to miss the window of opportunity.
But Murdoch never throws in the towel. He just keeps beavering away with his friend John Malone to find another way to set up Sky Global and to buy DirecTV. In July 2001 Murdoch is so close to it. Will he finally get there? And the answer is . . .