Murdoch plugs gap in cable strategy

Between The Lines

By Rod Oram


Rupert Murdoch's latest US cable television deal is as clever as you would expect from him, and reassuring to investors. By taking control of the Fox/Liberty Networks sports venture, he has reinforced his US cable television strategy.

He has also strengthened ties with John Malone and AT&T, two powerful allies in the converging telecommunications and television industries.

The logic did wonders for the shares of Mr Murdoch's News Corp, which have had a
roller-coaster nine months. From a high last July, they fell 45 per cent, under-performing US entertainment stocks by 50 per cent. Much of the negativity was due to the perception that News Corp was being out-manoeuvred in the US cable market.

The near-full recovery in price started last December and gathered speed earlier this year after Mr Malone, one of the most successful of US cable television pioneers, sold his company, Tele-Communications, to AT&T.

Putting together the second largest US cable company and the biggest US telephone company was a ground-breaking deal full of potential for new entertainment and telecom services. Some of the investor excitement spilled over to News Corp because Messers Murdoch and Malone were already linked through their sports programme venture.

Sport is the key, Mr Murdoch believes, to building large audiences in a fast fragmenting television market. For example, he owns the LA Dodgers and has a broadcast deal with the US National Football League.

In the latest deal, Mr Murdoch has bought out the other half of his key sports venture from Liberty Media, the AT&T-owned programme company run by Mr Malone and reaching 62 million US homes.

Liberty becomes News Corp's second largest shareholder after the Murdoch family and News Corp rids itself of an unhappy shareholder - MCI, the US telephone company with which it tried to establish a strategic link.

But two words of caution about the deal. First, the Murdoch family's stake in News Corp's equity is diluted from 23.6 per cent to 22.8 per cent. Given that it has fallen from 45 per cent in the past decade, the family is approaching the point where it is vulnerable to a hostile takeover bid. Holding 29.9 per cent of the voting stock is minor comfort.

Second, the deal seems unduly complicated, raising once again the issue of News Corp's immaculate tax planning. The fact it made UK pre-tax profits of œ1.39 billion ($4.2 billion) in the last 11 years without paying a penny of UK tax is attracting growing criticism and scrutiny.

Globally, its tax rate over the past four years was 6 per cent, when Walt Disney, to name one competitor, paid 31 per cent. One day, envy, with a word in the right ears, might prove a match for cleverness.