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Sun 13 Nov 2005 04:00 AM

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Murdoch’s troubles pile Sky high

Media mogul Rupert Murdoch is facing mounting pressure on several fronts. Anil Bhoyrul finds out why.

Murdoch’s troubles pile Sky high|~|Murdoch-pic-200.jpg|~|THE TOP SPOT: Speculation over Murdoch’s successor has been rife in financial circles amid news of his media empire entering choppy waters.|~|AS RUPERT MURDOCH MET last Friday with shareholders at the British Sky Broadcasting (BSkyB) Annual General Meeting, the world’s most powerful media mogul is likely to have felt more than a little uncomfortable. That morning’s newspapers — many of them owned by him — contained the latest offerings in a saga of incidents that have seen his authority questioned, judgement quizzed and ultimately, his empire showing the first signs of unravelling.His internet spending spree, close to US$1 billion since July, has been described by advertising guru Martin Sorrell as “panic buying”. His attempt to buy back more shares in BSkyB — nearly 40% of which he owns — sparked a shareholder revolt, and BSkyB’s share price is now at its lowest in nearly two years. The editor of the Murdoch-owned Sun newspaper in Britain, Rebekah Wade, added to his woes after being arrested on suspicion of assault following a party in London, while the question of succession just won’t go away.Last weekend, Murdoch’s News Corporation saw its stake in BSkyB rise from 37% to 39%, with BSkyB shareholders narrowly voting in favour of waiving so called “creeping controls” — stock market rules which would otherwise have forced Murdoch to declare his intentions, and specifically whether or not he intended a full takeover of the company. The move has left a bitter taste in the mouth of many shareholders at the satellite giant, concerned that the company founded by Murdoch is, for the first time in several years, facing choppy waters. Murdoch has been openly challenged by the likes of Daniel Summerfield, a spokesman for a group of investors including the Universities Superannuation Scheme, which owns between 1% and 2% of BSkyB. They claim that the company is suffering because of a lack of trust in News Corporation, and the fact Murdoch decided to “renege” on a promise not to raise his stake. Other heavyweight shareholders including ABI and the National Association of Pension Funds also opposed the move. In response to such criticism, Murdoch has been equally forthright, telling shareholders last week: “When I started this business, people like you in the City [of London], their reaction was to short my shares. We have been abused and opposed by everybody: the BBC and the papers. They are still all against us, but we are winning and building one of the great companies of Britain.”There is little doubt that BSkyB has grown into one of the best media companies in the world: Its current market value is a shade off US$18 billion. But that is less than half the value of five years ago. Last week, BSkyB announced it had added only 57,000 customers in the three months between July and September. The City had been forecasting and expecting figures nearer 68,000. The figure is also down on the 62,000 achieved in the same quarter last year, and represented the lowest quarterly net addition of customers since Sky switched off its analogue service in 2001 and went digital.More worrying, especially for Murdoch’s son, James, who runs BSkyB, the churn rate — the number of customers leaving BSkyB — has risen to 11%. The figures suggest that while customers may been keen to sign up, they are even keener to leave, tempted by cheaper deals from cable television rivals. The rise of Freeview in the UK — a free-to-air digital service — may have also dented BSkyB’s grip on the market. The churn rate, according to James Murdoch, is a worry. He admitted after the latest set of results: “It’s obviously a concern when one customer decides to cancel a subscription, let alone a whole 9% or 10% of our customer base. Anything above that level is something we try to work against.”Paul Richards, a media analyst at Numis Securities, told the Guardian newspaper: “The numbers were very good. However, there are some concerns over a consumer slowdown ... and the market is in a pretty disbelieving state of mind.”What is proving a harder battle for Murdoch senior is convincing shareholders that his son, James, is the right man for the job. There has been regularly sniping in financial circles that, but for the family connection, the younger Murdoch — who is seen by many as being groomed to take over the whole Murdoch empire — would not be in the BSkyB hot seat.In last week’s Wall Street Journal, Murdoch senior hit back at his critics, particularly the claims that James Murdoch is set to take over News Corporation after his own retirement. Describing the suggestion as “********”, Murdoch told the paper: My family’s never taken anything out of this company. Until [the] last two years I’ve taken a very low salary myself.” As for his son James getting the top job as BSkyB, he explained: “They [Sky’s directors] interviewed them all, gave them psychometric tests, everything, and young James just blew them all away. He’s a bright kid. The ironic thing is that people who screamed the loudest two years ago are the ones now saying his father mustn’t take him away to New York.” He added: “I’ve had an opportunity to have a useful life in media, and I would like my kids to have that opportunity. [But] the next head of this company will be chosen by the independent directors, I guarantee you.” Whoever is the next head of the company will face some challenging times ahead. Since July, Murdoch has quite literally been on an internet shopping spree. News Corporation bought US internet firm Intermix. In August, Fox Media Interactive — a subsidiary of News Corporation, bought the US online and magazine sports publisher Scout Media. Two months ago, it took over online video gaming company IGN Entertainment, and only this month BSkyB paid over US$400 million for broadband company Easynet.Why the sudden interest? According to Sir Martin Sorrell, the head of WPP — one of the world’s biggest advertising groups — the reason is panic. Speaking at an advertising conference two weeks ago, he said that Murdoch was buying internet companies “willy nilly”. He added: “In the last two or three months he has decided to spend or try to spend, I think it is about US$5 billion on internet properties of various sorts. This was the second attempt by Murdoch and News Corp to penetrate this [market]. He must have been panicking because he even said he might hire [management consultants] McKinsey to help him out with his strategy.”Sorrell continued: “Why is it that he is so preoccupied with this and [is] willing, it appears, to make investments almost willy-nilly? I think I can use the word panic — that is probably overdoing it, but maybe I am not.”So is Murdoch now in a state of panic? Some analysts suggest that the digital revolution may have come at a faster pace then even he expected. Others claim he simply wants to have a bigger foothold in the market. Either way, the size of his investments suggest he is serious about becoming an internet player.The real question is whether he will remain a major television and newspaper man as well. Or more to the point, whether his son James will. Time will tell.


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