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The power and vulnerability of Rupert Murdoch

byColin Morrison
1 July 2011
8 minute read

This has been a big, bumpy month for the Rupert Murdoch-controlled News Corporation, marked by:

  • UK Government approval to acquire the 61% of pay tv operator BskyB he does not already own
  • Sale of the once mighty (but now loss-making) My Space social network site for $35m just six years after it was bought for $580m
  • Another former News of the World employee arrested in the still-growing phone hacking scandal
This chronicle of intercontinental agony and ecstasy is symbolic of the hyperactive media empire created since the 22-year-old Aussie inherited a single, struggling newspaper, the Adelaide Advertiser, from his Scottish-born father in 1953. Within 20 years, Oxford-educated Murdoch had built Australia’s largest newspaper group and had already acquired the News of the World (from the clutches of Robert Maxwell) and The Sun as the foundation of his British powerhouse. He became the first “multi-media” entrepreneur, building an empire spanning newspapers, books, film, TV and online across the globe. For all the diversification, though, it is good old-fashioned newspapers that have consistently given him:
  • Cashflow. For most of the last 25 years, Murdoch’s newspapers in the UK, US and Australia have contributed some 50% of group profits. Even today, the film/TV-dominated group derives 20% of its revenues from newspapers.
  • Promotion for his pioneering pay TV especially in the UK where BskyB has become a $12bn business
  • Political influence to facilitate his expansion across sectors and countries, and to lobby against ‘unfair’ competition eg the BBC
Almost everyone has a view on Rupert Murdoch, with adverse epithets ranging from ruthless, predatory, bullying, monopolistic through to the kind of more serious allegations that are being bandied about in the floors below him. Most of the positives attach to his pioneering Sky, Fox and Star networks; and the negatives come from Page 3, “Gotcha!” newspapers, political pandering – and News of the World phone-hacked scoops.
In a business context, the 80-year-old, three-times-married Rupert Murdoch’s persona can best be described in just five phrases:

1. Media visionary

The scale of Murdoch’s vision in creating a newspaper empire on three continents, before becoming a world leader in film, books,and TV is breathtaking. His development of pay TV, especially with BskyB in the UK (where he used Premier League football as a springboard for subscriptions), his resurrection of Twentieth Century Fox, his creation of Fox TV (spurred by American football rights) in the US, and his roll-out of Star TV right across Asia, represent huge, strategic successes against the odds. This is a man who has been able consistently to grasp the big picture while, at the same time, keeping close to the detail.
More to the point, he has consistently succeeded when the pundits predicted failure, notably with Sky, Fox and Star. Murdoch himself once described his company as “the first vertically integrated entertainment and communications company of truly global reach”. The truth is even more simple and impressive: Rupert Murdoch created the first truly global media company. Even now, when News Corp is one of three media monoliths alongside Disney and Time Warner, arguably Murdoch’s company is the genuinely international all-media operator. But, then, it is led by the hard-driving adventurous, restless Australian who has thrived on pushing the boundaries – and pushing people out of the way.

2. Fearless risk-taker and gambler

Murdoch’s maternal grandfather was an inveterate gambler and this might have contributed something to News Corp’s white knuckle ride. It has frequently taken life-threatening risks. Murdoch’s acquisition of the then loss-making Times Newspapers in the UK (a risk in itself) was followed by the ultimate 1980s risk in building a union-busting, cost-slashing newtech printing plant in London’s docklands. In the US, his $3bn acquisition of the legendary TV Guide (later sold, humiliatingly, for a fraction of what Murdoch paid for it) and the launch of his then unlicensed Sky TV in the UK almost broke the whole business. The launch of Fox TV and the roll-out of Star TV across Asia represented similarly huge risks but were being taken then by a corporation (and an individual) with the strength, confidence and track record of (mostly) winning the big bets. Winning big with James Cameron’s over-costed movie “Titanic” was a watery picnic by comparison.

There is a pattern. Murdoch’s decision so transparently to over-pay for TV Guide was based on his urgent conviction of its vital role in the planned buildup of the Fox TV network in the US, and his desperation to pre-empt an auction. (However, he misjudged the pacy decline of the hard copy TV listings market in an era of multiplying channels and electronic programme guides) . The Sky-BSB merger in 1990 had Murdoch on song, playing poker with Granada and Reed International: the sleepy UK blue-chips were desperate to stop their own losses but blissfully unaware that News Corp was itself teetering on the brink of bankruptcy. The lift-off of the merged Murdoch-led BskyB even came courtesy of Granada/ Reed’s own cash, without which Murdoch would have folded first. It was flawless poker but a “game” which Murdoch said had aged him 20 years. But that was 20 years ago. Arguably, paying $5bn for the Wall Street Journal in 2007 (25 years after failing to acquire the Financial Times) is another of those corporate risks. However, unlike TV Guide and Sky, nothing Murdoch invests in today (not even My Space) risks the survival of the $32bn-revenue News Corp.

One thing that characterises Murdoch from other corporate gamblers is his self-awareness, almost humility (well,sometimes anyway).  Once his mistake with TV Guide was clear (and even before he decided to write it off) Murdoch was quoted as saying “perhaps I was a bad buyer, too keen”. That is the stuff, of course, of someone who learns from his mistakes and is not too proud to admit them. That is, you suspect, why Murdoch has never tried to suppress any of the unflattering and sometimes quite damaging biographies about him, when (in the UK, in particular) he certainly has had those legal opportunities.

3. Relentless ‘driver’

For almost 60 years, Murdoch been a man on a mission, so determined to create the Fox TV network that he became an American citizen. Nothing stops him and nothing gets in his way. For the last 35 years, he has criss-crossed the world ( often on scheduled airlines, paying up for the privacy of an adjacent empty seat ) and writing voluminous inflight notes on yellow legal pads. Once landed, Murdoch calls up executives for information whenever he wants it, no matter what time zone. His trusted lieutenants have long been used to keeping bedside note pads and crib sheets to help them cope with a boss who operates entirely according to his own body clock and not theirs. In recent years, Murdoch has been travelling less but the pattern of night time calls remains a feature of his workaholic management style. When Murdoch is sitting at his desk or by his pool or watching television, and wonders about the sales of last Thursday’s issue of The Sun or The Australian or New York Post, he picks up the phone, any time of day or night for instant service. The hassle, the sound and the fury have driven many executives mad – and out of News Corp (including son Lachlan). But, for many another long-standing lieutenant (and there are quite a few of them at the top of News Corp, including son James), Murdoch has been a generous, forgiving and loyal patron on an exciting journey. That’s the deal.

4. Political manipulator

Arguably the most distinctive (and, to some, sinister) trademark of Murdoch’s operations has been the way he uses his newspapers for political influence and business advantage. It began with the very first issue in 1964 of his new national newspaper The Australian with an editorial campaign on behalf of political ally John McEwen, leader of the right-wing Country Party, then in coalition. To emphasise Murdoch’s willingness to switch political horses for business advantage rather than ideology, this was followed by support for the Labour Party under Gough Whitlam. Nowhere have Murdoch’s teasing political affiliations been more public than in the UK where his newspapers have successively swung support between Margaret Thatcher, Tony Blair and David Cameron; and where The Sun , for one, loudly trumpets its ability to “win” elections.

The rewards for this political flip-flopping may, perhaps, be seen in the decision by Mrs Thatcher to wave through the Sky merger with BSB even though Murdoch already controlled four national newspapers and had a ‘share of voice’ that would have been constrained but for a loophole because the competition laws of the time had pre-dated any notion of broadcasting from outside the UK (ie by satellite). Forward to June 2011 and the decision to allow News Corp to acquire full ownership of BskyB has been approved after reviews not of the concentration of media ownership but solely with reference to “preserving” the independence of Sky News.

Many observers (led by Murdoch’s nemesis The Guardian) had expected the UK ministerial review at least to involve the News of the World phone hacking scandal and to consider whether it compromised News Corp’s suitability to manage such a large proportion of the nation’s media. But no. Some politicians conducting the Parliamentary hearings into the scandal dramatically claimed they were apprehensive about questioning News Corp bosses too stridently for fear that they would be investigated by the company’s newspapers. However, the widening phone hacking scandal (still predominantly involving only the News of the World) does make this a potential smoking gun for Murdoch and many of his key people, including his son James. This is one story that may already have moved beyond Rupert Murdoch’s control and the influence of his political supporters.

5.Perpetual competitor

For all the hostility of journalists and others, Rupert Murdoch has stayed close to his own journalistic instincts. His sense of getting the stories that others had or hadn’t got, has never left him. And, for all the fact that his company is hugely dominant in many sectors, he stays alert to competitive risk and to the achievements of competitors, none more so (still) than in newspapers. He loves newspapers – and not just those he owns. (And all three of his wives have been journalists).

Murdoch is a driven man but one who is strikingly less confident about his own commercial powers than are his competitors. His competitive paranoia – and often open respect for rivals – feeds an impatience and moodiness when his executives make mistakes or miss opportunities. Murdoch is motivated by the moving target of success; and one of his lifelong business strengths has been his lack of personal vanity. He cares little about what other people (even investors) say about him and his business decisions. He is not looking in the mirror. There’s always something to do, some risk to be faced – or a scrap to take on. You’re never too big to lose. Echoing a familiar theme of his father’s, James Murdoch recently asserted that News Corp was by no means a dominant media player when rated against companies like Apple, Microsoft et al in a modern view of the worldwide industry. More than most, Rupert Murdoch understands the shortening life cycle of media and communications businesses, and the need to respond quickly to the changing environment. Nobody ever said he was complacent.

Dark clouds

It is too early to write any kind of obituary for Rupert Murdoch but News Corp’s stuttering online performance (underscored by the My Space fiasco) are naturally being linked with the 80-year-old’s personal limitations on digital media he does not understand. His continued affection for newspapers may today be starting to look more like a weakness than the corporate strength it has demonstrably been for half a century. The BskyB acquisition is now expected to happen, albeit with fund managers pushing for a price that may be a mighty $3-4bn more than Murdoch expected to pay when he set out on the politician campaign to win UK Government support for the bid.

It is a deal now that almost “must” happen. And  for the man with a celebrated history of paying high for strategic deals (and, mostly, also over-delivering hugely) is there really a price that will be unacceptable?  But times are changing for Rupert Murdoch, as investors ponder the company’s longterm term future after him. It would be cruelly ironic if  News Corp’s acquisition of that most successful of Murdoch-led enterprises – the world’s best pay TV network – proved to be something other than a triumph of a last big deal for the media visionary. Paying too much for BskyB may just be as dangerous to Murdoch’s control of News Corp as the launch of Sky was to its survival 20 years ago.

Author
Colin Morrison