The End of an Empire?

Rupert Murdoch sees the internet as the chance to supply global audiences with as much entertainment, news and sport as they can absorb. The marketing and promotion opportunities for News Corp are huge, and so we ask whether clicks and hits can help a weary News Corp outsmart the recession

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Rupert Murdoch

Like many other global businesses, Rupert Murdoch’s News Corp is taking a hard look at its business model. It needs to. Profits crashed 42 percent in the last quarter, and despite record profits for the Fox News Channel, News Corp’s film and entertainment business saw operating income skid to $112m, down 72 percent.

Murdoch’s also got major command and control worries. His deputy at News Corp, Peter Chernin – widely considered a hugely talented media executive – is quitting. The now empty deputy role is a thankless gig given the obvious succession issues – a career cul-de-sac. Huge doubt now looms over just which family member will succeed Murdoch, now 77. Murdoch family frictions are sharp: his youngest son, James is the only child with an active day-to-day role inside News Corp, yet he remains too inexperienced to fill Father’s shoes. His eldest son, Lachlan has largely turned his back on his Father’s business after a series of humiliations and his daughter Elisabeth is thought to be deeply unhappy with the idea of giving up her own power base – she manages UK production company Shine – ­and brought back into the family fold. They’ve all got Daddy issues. And shareholders in News Corp have all got investment issues. “It puts the succession back on centre stage,” says Andrew Neil, recently interviewed in the Guardian and a former Murdoch lieutenant at the Sunday Times and Sky. “Which is not good for an already battered share price, re-energises interest in Rupert’s dynastic ambitions and means he now has to find a temporary, caretaker successor who knows he/she will never get the top job because they haven’t got the right genes, no matter how good they are.”

Murdoch, 77, who grabbed control of the Wall Street Journal 18 months’ ago – one of the crown jewels of News Corp’s empire and an acquisition the media veteran long coveted – is determined to come out of the current downturn fighting. “This is the worst global economic crisis since News Corp was created,” he said recently, “and has been deeper than anyone predicted. We’ve reduced headcount and cut other costs. Even in flush times, this was never a company that tolerated fat. So we’re well positioned to handle this crisis right now. This why the WSJ [Wall Street Journal] is the only newspaper growing or that social networking is becoming mainstream. We never feared change and risk. We’re putting all our business through rigorous strategic reviews.”

Hard questions are being asked about Murdoch’s business empire, which spans book publisher HarperCollins, Fox News, MySpace, the New York Post and, of course, the British Sun and News of the World, not to mention The Wall Street Journal. More than 100 newspapers in all. Some of his business empire, especially its core assets, have been hard hit by the recession. The newspaper industry, of which Murdoch is neck-deep in, has its own inherent problems, and they are deep ones: advertising is massively down and advertising revenues, as digital channels multiply and broadband coverage expands, are themselves in freefall. Young readership is also falling thanks to the rapidly expanding channels of online news sources. MySpace, Murdoch’s social network platform, struggles against Facebook. And a plunging pound and the recent resurgent strength of the dollar has also helped trim profits. Despite the vast size of his empire, it’s not well diversified.

Such economic woes are keeping the restless septuagenarian on his toes: the ageing Aussie now has to finesse a strategy that not only weathers the economic slump, but also finds the investment to invest deeply in the digital technology of the future. In other words, he needs to find a space between content and distribution. The Australian media tycoon is confident new digital services in the future will provide new ways of making money. Such marketing opportunities are key for News Corp – witness the hopes for turning MySpace into an advertising vehicle that would also give the business a solid grip on popular culture. But because the technology is constantly evolving and accelerating, it’s tough to get a grasp on just how far and fast Murdoch can move. Is Murdoch, despite the man being in his late seventies, still nimble enough? The evidence – his track record – suggests he is. “Remember the shopping channel QVC?” says Ian Angell at the London School of Economics, Professor of Information Systems. “Everybody was very snide about it at first but Murdoch was absolutely spot on. It was a beautiful example of how to integrate technology – websites, TV, postal service – and make it work. Even now QVC has a loyal set of fans, great presenters.

The problem with computer technology such as the internet,” Angell goes on, “is that it’s a ‘pull’ technology, you can’t push products onto people, people have to manually ‘pull’ them, which is one of the reasons why there’s so much junk mail about”.

Meanwhile, proliferating broadband and the ubiquitous use of laptops and cell phones means integrating technology into Murdoch’s tangled, sprawling digital infrastructure will be tough, tough work. There is simply a super-abundance of channel choices. You do not want to back the wrong one. Then there is the question of just how it is used, broadcasting information as effectively and widely as possible while packaging it in a way that will suck in maximum revenue. In other words, much of Murdoch’s challenge is not just about mastering news or marketing. It’s about mastering geeky, complex technology.

Critics divided
Roll back, for a minute, almost seventy years. Its little surprise Rupert Murdoch made the media and newspapers his life. The owner of the Wall Street Journal was weaned on the industry from an early age. He was also quick to show his business savvy, turning around his father’s loss-making Adelaide News in his early twenties.

Murdoch critics – and there are legions of them – continue to criticise him on a range of fronts. His recent takeover of the Wall Street Journal means, not for the first time, that his commercial and ideological instincts commingle freely. He controls newspapers, film studios, TV stations, publishing companies. He can broadcast to much of the Third World with little real competition. Yet his critics remain divided. British writer and media commentator Roy Greenslade has said in the past that Murdoch, despite his strong populist streak, does not interfere overtly with the more serious nameplates such as the UK’s Sunday Times and the Wall Street Journal. Others cite a tendency to install editors that, oddly, seem to often replicate his own worldview. Murdoch, many critics say, promotes his financial and business interests at the expense of genuine news gathering and objectivity.

Murdoch inevitably downplays the idea that the Murdoch press is omnipresent and all-powerful. “You know, we’re said to have a lot of newspapers,” he said in a BusinessWeek interview. “The truth of the matter is we don’t. A vast number of those papers are small and medium-size suburban weeklies in Australia. We have the major circulation paper, at least, in every state capitol, about five pages in Australia, and we have the Post here, and we have the Times and the Sun in London, which are very major papers and major businesses.” He also distances himself from the grab-it-all mogul that his detractors portray him as. And he knows the current financial crisis is going to have repercussions on his own operations. “I passionately believe,” he told Esquire Magazine recently, “in free markets and less government, but not to the point of being a libertarian. After this financial crisis, there are going to be some restrictions. I’m frightened they’ll go too far, but certainly there should be something.”

Bets that pay off – so far
Yet it is as a businessman and risk-taker that Murdoch has probably had the most impact. Some risks failed, but many, far more importantly, succeeded. One of his biggest risks was the launch of his Sky channel back in 1989 in Britain to a tiny minority of homes connected to a cable TV network, broadcasting a range of films, news and family entertainment. Murdoch had bet a lot on his Sky investment, more than was commercially sensible. At the time of launch, Sky was estimated to be losing around £2m a week. Murdoch was also in close competition with British Satellite Broadcasting (BSB), an operation that had millions of shareholder cash backing it. But Sky, despite less financial muscle behind it, established a foothold earlier than BSB, despite BSB having more sophisticated kit (BSB launched its two Marco Polo satellites at more than £500m each from Cape Kennedy and its picture transmission was higher quality). But crucially, BSB launched too late. By early November 1990, BSB had collapsed. Murdoch promptly merged the two companies together – though technically at the time this was in breach of BSB’s contract – and BSkyB, as it became, found itself in the fortunate position of having little non-terrestrial competition, promptly launching a spate of film and sports channels. BSkyB was boosted by BSkyB’s existing advertising contracts, helping it ramp up subscribers. By the early nineties BSkyB had stopped losing money and was starting to look profitable. Now it is Britain’s biggest pay TV provider with more than 10 million subscribers as well as being a major FTSE-100 player. It’s been a huge gamble – and a huge success.

Murdoch is certainly proud of some of the enemies he has made. He collected many more during the infamous move to Wapping in East London in the late 1980s, quitting Fleet Street for good. More than 5,000 jobs were lost in the move and unions lost all recognition. A bitter battle. Although Australian by birth he has been happy to dilute his Australian background by moving to New York and, in turn, becoming an American citizen. Pragmatism has always ruled, which later enabled him to comply with US laws on foreign ownership of TV stations. “I’ve been around for 50 years. When you’re a catalyst for change,” he told TIME magazine in 2007, “you make enemies – and I’m proud of the ones I’ve got.”

But he’s a man now fighting a media war on a range of fronts. Before European CEO went to press, News International was poised to make a rash of editorial job cuts across its stable of tabloid and heavyweight titles. Murdoch himself warned of possible job cuts in November when News Corporation reported a 30 percent fall in profits for the previous three months. Yes, things aren’t looking great – but Murdoch has pulled the company back from the brink before.

Harnessing economies of scale
Amid the deepening economic gloom, Murdoch is well aware recessions are cyclical. He also knows there is little point in the long term banking on profits from places like Western Europe where market growth is mature and regulation is tight. India and China, in contrast, are key markets. Probably India, in some ways, could be an even bigger prize for him than China: it’s a working democracy with a strong rule of law. Compared with China it is more open and more accountable place to do business.

Despite the entrenched pessimism in the newspaper industry, Murdoch would still be keen to buy the New York Times, controlled by the Ochs-Sulzberger family though even he thinks it would be bad for his image. “I’ve got no desire to be an even bigger public enemy,” he said recently when questioned about a deal.

Perhaps not, but he still has plenty more chances to irritate and undermine the competition: his grip on the global publishing industry provides him with enormous economies of scale, not just with products, but also with getting his ideas and worldview across. Increased globalisation means, ironically, less competition in many industries, as Professor Ian Angell from the London School of Economics explains. “It’s not like a decade or two ago when you might have 10 or 12 large companies whether in pharmaceuticals or car manufacturing. That’s why you could say a large chain like Tesco was so successful at internet shopping. They had a big shop front. People knew they were a huge chain and people consequently trusted in its electronics and security. But if you abuse that trust, well, just look at what has happened in the City. If people feel manipulated, they will go elsewhere.”

However, Murdoch’s iron grip on such a huge range of media means any alienation is likely to be slow. His populist touch means his brands inspire huge loyalty. Even if he’s not going to be around for ever, News Corp will carry on, provided his children – see Clan Murdoch – can agree what form it will take and crucially, who will direct it.


Why Murdoch is thinking ‘social’ and ditching infrastructure
Nearly all sectors of the global publishing industry are moving to online distribution and charging models, but their different market requirements translate to varying degrees of success. “Newspapers face declining audiences,” says Mike McGuire from IT consultants Gartner, “for the physical version of their product, yet their output – their content – still serve as the kernels for a large number of the blog posts and online-only news portals… The online advertising revenue available,” he goes on, “is not yet coming close to covering the costs of delivering physical and virtual versions of the product.”

McGuire says newspapers and magazines for decades enjoyed success because there businesses were built around a value chain path that went from content creation to distribution. “For magazines, design and layout were crucial elements of a title’s intellectual property (IP), while newspapers created much of their own content, handled printing and delivery of the end product.” But now technology has flattened this chain in some parts says McGuire while expanding opportunities in other areas. This means the general themes in publishing today are about owning as little infrastructure as possible while creating more targeted and social marketing opportunities.

What about other rivals that could crowd Murdoch’s space? It’s likely the world’s most powerful search engine and the United States’ number one online retailer could have a lot to say about the future of digital publishing. The looming presence of Google and Amazon as potential allies – or competitors – and how they fit with Murdoch’s interests are likely to create interesting and new market disruptions.

Meanwhile Murdoch, you suspect, is only just beginning to learn and wonder what the new digital opportunities will actually mean for News Corp. The old world certainties of command-and-control publishing are dying. Can he turn an almost infinite number of distribution channels into profits? You really wouldn’t want to bet against it.

A true newspaperman
To get a sense of how Murchoch operates, you have to realise the man is a populist belt-and-braces journalist – he’s in the business of gossip, rumour and news. A proper hack. Michael Wolff recently completed a biography of the media mogul. In it Wolff wrote insightfully of Murdoch’s lack of respect for rules and convention. One of the pre-conditions of Murdoch buying the Wall Street Journal was that the August paper, owned by the Bancroft family for more than 100 years, which had consistently rebutted buyers during that time – insisted it should hang onto its editorial independence. But Wolff said Murdoch paid little attention to such niceties. “…I watched how blithely he paid no attention to it. It barely figured into his plans or consciousness. Except that he seemed briefly tickled to have figured out that if he merely called his chosen editor, Robert Thomson, the publisher, then he’d have his choice. He was only slightly confounded (and a bit bemused) that it took Journal editor Marcus Brauchli four months to get the message that he was out. Still, up close, such lack of restraint doesn’t necessarily seem so threatening. It seems, in fact… fun. There’s no artifice. There’s no bureaucracy. There’s no pretence. There’s no corporate this and that – Murdoch’s truly the anti-corporate man. It’s all determination and enthusiasm. It’s all about his passions and the effect he can have.”

Murdoch’s populist DNA however conceals his Oxford University education. Although he has made huge amounts of money from his media empire, he inherited his first newspaper from his father. He did not work his way up as a tea boy. He has been helped by privilege, as have his children.

Clan Murdoch – a modern, complex family
Rupert Murdoch’s several marriages producing offspring means there’s plenty of Murdoch blood sloshing around. Murdoch’s first marriage to air hostess Patricia Booker in 1957 produced Prudence Murdoch. Murdoch then married an Estonian journalist called Anna Torv, which sired Elisabeth (born 1968), Lachlan (1971) and James (1972).

Elisabeth’s brothers are a key part of the succession plan.

However, Elisabeth has in her own right over the years established herself as a formidable media player as chairman and CEO of independent TV production company Shine Limited. Both she and Lachlan – once regarded as News Corp torch carriers – have had famous fallings-out with Father. Lachlan exited from News Corp in 2005 from various executive roles, moving back to Australia and setting himself up in Sydney alongside partner Jamie Packer, son of Kerry Packer (and an old rival of Rupert’s). Lachlan attempted to start his own media business through his own investment company Illyria. However, it is unlikely that a strong commercial relationship with Dad – for both Elisabeth and Lachlan – is likely anytime soon.

There is always a tension between shareholder interests and ambitions for the business owner’s children; Murdoch has acknowledged that if his children cannot carry the business forward – assuming they share his vision – then they need to find something else to do with their lives. It seems as if his youngest, James, will come closest to doing just that. A dropout of Harvard University, he backed a hip-hop record label, invested in financial website TheStreet and is now a non-exec chairman of BSkyB (formerly its CEO).

He’s technically highly literate and understands how Internet technology works, particularly how it integrates with other media platforms. Crucially, he’s now piloting News Corporation’s newspaper and digital business that stretches from Europe to the Far East. He also recently joined GlaxoSmithKline as a non-exec director.

Out of the three, then, it is James who now probably comes closest to being Heir Apparent. He is increasingly noted for his audacious, aggressive style in cutting deals (like father, like son). Murdoch senior remains married to Wendy Deng, around 40 years younger than he is. Murdoch’s personal life is, mainly, private – and he likes to keep it that way. He and his wife live in a $44m penthouse on New York’s Fifth Avenue, a penthouse Murdoch recently bought after long coveting it. Murdoch’s Mother is still alive; he recently attended her 100th birthday in Australia.