Twilight of the moguls

The News Corp phone hacking scandal, Silvio Berlusconi’s troubles and the death of Leo Kirch signal the end of an era in media, writes Kate Bulkley.

They  have had a good run and made tons of money, changed the course of broadcasting history and crushed competitors with their power and vision. But 2011 sees the end of an era because a trio of media moguls no longer confidently bestride their companies. Rupert Murdoch, 80, has been humbled by the UK phone hacking scandal. Seventy-four year-old Silvio Berlusconi’s grip on political power is slipping and with it his grip on Italian media may be loosened. And Leo Kirch, who pioneered pay TV in Germany and was at one time a thorn in Murdoch’s side, has died aged 84.

For Murdoch, the power shift has been incredibly swift and embarrassingly public.  The phone hacking scandal and the closure of the News Of The World newspaper in the UK could have been seen as a print-only problem  if it had not involved police corruption, the families of murder victims and even the British prime minister David Cameron.
Such is the extent of the problem that not only have there been 10 resignations at the company including former News International CEO Rebekah Brooks and one of Murdoch’s longest-serving executives, former Dow Jones CEO Les Hinton, but Murdoch’s attempt to take 100% control of BSkyB has been abandoned and News Corp might even be forced to give up the 39% of the lucrative TV company that it already owns. There are growing questions over whether Rupert’s son James Murdoch will be able to continue as chairman of BSkyB.

Murdoch Sr’s performance in front of the British parliamentary select committee was spotty.  He looked his age and underlined his lack of a grip over his US$42 billion (€29 billion) media group with admissions of his lack of knowledge of events and even key people at the company he controls. Murdoch blamed others who “betrayed the company” and “let me down.” The elder Murdoch defended his son and was emphatic about staying on as the head of the company: “I am the best person to clean this up.”

Although News Corp shares rose 5.5% to US$15.79 on Tuesday July 19 – the day of the select committee hearings – News Corp stock has long traded on a “Murdoch discount” because of Rupert’s tendency to pay over the odds for assets, like Shine, his daughter Elisabeth’s TV production company, acquired for US$415 million, a 10 times multiple of its 2010 EBITDA. Between July 4 – the day the Guardian broke the story that murdered teenage Milly Dowler had her phone hacked by The News of the World – and July 20, News Corp lost almost US$6 billion in value.

Some shareholders think Murdoch should now step aside in favour of News Corp chief operating officer and deputy chairman Chase Carey, the former CEO of DirecTV. Murdoch would like his successor to be James, but questions about the veracity of his testimony to the select committee could make that difficult, at the moment at least. James, who has run both Star TV in Asia and BSkyB in the UK and became chairman of the latter in 2007, is a TV guy not a newspaper guy. If Murdoch’s UK press businesses get sold off, then James would have a company more in line with his (and his sister’s) TV skills. On an operating income basis, newspaper publishing comes in both cable programming and filmed entertainment on News Corp’s books.

This is why owning BSkyB is so important to News Corp: it is a cash-generating cow. As the scandal grew, Murdoch pulled the offer off the table entirely. But like Arnie in the Terminator films, I believe – given the chance – that he will be back.

There are hurdles, for sure, including Ofcom’s “fit and proper” persons test and passing muster with the Competition Commission.

At the moment the biggest problem is the hacking scandal. Since Murdoch pulled the deal to buy 100% of Sky, the latter’s shares have recovered from an 18% fall between the outbreak of the scandal up to the News Corp approach being dropped. Sky has little debt so a share buyback could be on the cards, which also would support the share price. But given the heat from the hacking scandal, a share buyback that would benefit Sky’s 39% owner News Corp is unlikely in the short term.

BSkyB’s growth prospects are good, although a bit less robust than before it hit the 10 million subscribers mark last November, according to UBS. The bank estimates that over the next three years Sky’s average revenue per customer (ARPU) will grow at 3.9%, compared with 7% in the last five years.

Rupert Murdoch has always been the most formidable of media giants but he is 80 and the corporate governance issues that have arisen from the hacking scandal have shown him not in the best light.

he pressure is already on James as chairman of BSkyB. What News Corp does not want is to lose is access to Sky’s tasty cash flow. But the Murdochs may have to re-think how and when they can hold onto that, much less own the entire cake.

Kate Bulkley is a broadcaster and writer specialising in media and telecommunications. [email protected].