Now, something is happening in the business zeitgeist that must have surprised even him. Instead of Murdoch and News Corp. representing all that has gone wrong with media concentration in the 1980s—just do a deal, any deal—it turns out to represent what’s inevitable. Time, Inc., has followed News Corp. into conglomeration in 1989 by merging with Warner Communications. In 1993, Sumner Redstone at Viacom, aping Murdoch, buys Paramount. In 1995, Disney joins in by buying ABC. The Murdoch hypothesis, or the Murdoch opportunism, or the Murdoch way, has been accepted. News Corp., which in the harsh year of 1990 seemed to be nothing more than a collection of deals that would have to be unwound and undone, is suddenly emerging as a state-of-the-art media play.
Still, he has no money. At least, not enough for the geopolitical business moves he wants—needs—to be making.
He is, all of a sudden, oddly, thinking about technology. Or not so much thinking about technology as thinking big. In this instance, the entertainment and information marketplace is going to be transformed by unprecedented shifts in distribution control thanks to technology.
Perhaps right here it is most necessary to address the central question of his intelligence, of its nature, and of its depth. Does he understand? What does he understand? How does he put two and two together? How has he figured this out? What has he figured out? What are his analytic abilities? His perceptual apparatus?
He ain’t conventionally smart. His war against intellectuals is, in part, to level the playing field, because he lacks their advantage (so he demonizes them, belittles them). He doesn’t have the kind of mental patience to work through the analysis. His is a short attention span. Also, he doesn’t much like information, or, at least, to qualify information. Or if he does, he sees it as binary: Is it useful, is it not? All information is gossip: Does it appear, if only in the moment, to be true or believable? He doesn’t believe in, or see the point of, objective standards or values. He eschews the long term. It’s a minute-by-minute mind. Animalistic. Eat what you kill.
He has enormous respect for the transformative powers of technology without knowing, in the slightest, a thing about it. He’s surprisingly open to technological solutions while being, at the same time, altogether incurious about them.
To the degree that new technology could merely replace an existing function, he gets it—or at least gets the big picture. Satellites. Mmmm. Satellites, like cable, could put stuff on your television in your house. If Murdoch could control the satellite, he could control what’s on your television. He gets that. And satellites complement his global reputation.
Suspicious of cable because of its massive capital costs, he’d started making small, frankly ill-advised satellite investments in the early eighties. In hindsight, this will come to seem like prescience on a grand scale. Truthfully, it was just cheapness. And competitiveness—his doing something that he thought others might do (and trying to do it cheaper). Also, in the pell-mell 1980s, it was easier for him to make an investment than it was to actually pay attention to something—or he needed to invest in order to focus (however superficially).
If you invest, things get rolling. Which might be, all in all, the explanation for how he got into the middle of Sky Television, which almost brought him to bankruptcy. That is, he invested, as cheaply as possible, and then there was a competitor—a rich, powerful consortium of his enemies, Richard Branson, Pearson, and Granada among them, who had started British Satellite Broadcasting—and he got competitive. A race began: Who could launch first? The establishment (the adversary is, with Murdoch, always the establishment) or Murdoch?
It’s all Keystone Kops–ish, this technology race, and it comes to depend, for Murdoch, on an Israeli company, run by one Michael Clinger. Charged in 1987 for fraud and insider trading in the United States, he’s fled to Israel, where’s he’s taken over a company called NDS, which makes the chip that Murdoch needs to encrypt the pay movies he wants to sell. In a pretty typical example of News Corp.’s ad hoc, haphazard methods and relative openness to wild-side types—“There were crooks, there were all sorts of things,” Murdoch will note with nonchalance in one of our interviews—News is in partnership with Clinger and NDS long before it knows he’s on the lam. Indeed, Clinger commences a methodical campaign of robbing News Corp. blind. Even when they get rid of him in 1992, they still find him three years later operating NDS through a set of shell companies he controls. Oh, and NDS, it turns out, is allegedly hacking into other companies’ encryption systems. All this will result, for News Corp., in twenty years of litigation. (NDS is exonerated of hacking.)
No matter. Murdoch wins by being first to launch his British satellite, with his screwball and seriously problematic encryption, which, because nobody has the damn dishes yet, means horrific cash outflows, which help to precipitate his huge cash crisis, which is bad for him, but worse for the other guy, his weak-willed establishment competitors. The upshot is a merger of the two systems, which he comes to control and which, by the early 1990s, is very clearly a huge success for him. (Were it not for his debt crisis, if he could just have eked out a few more months, the other guys would have collapsed, leaving him with 100 percent of what is now a $14 billion business, instead of 39 percent.)
That’s technology—it helps to unsettle things, and then, if you’re a tenacious son-of-a-bitch, you can maybe grab an advantage.
In his continuing effort to escape his boring life in Hollywood, and to control the distribution heavens, he makes his investment in Star, a satellite network in China, in 1993.
In the annals of business flops, his foray into China, whose government blocks almost every Murdoch initiative, will be a humdinger. (Shortly after he makes his Star TV investment, he gives a speech implying his satellites will bring down the Chinese regime—which, even though he then madly tries to curry favor with the Chinese political establishment, is pretty much the kiss of death to his Chinese ambitions). There’s a moment, in his yearning to get out of Hollywood and for zeitgeist transformation, where he actually considers moving to China. He and Anna even buy and decorate a house on one of the highest peaks of Hong Kong—only to discover that it’s shrouded in fog for half of the year.
His global satellite vision would, of course, be so much more, well, global if it could involve the United States.
Except he can’t afford to be in the satellite business in the United States, so once again, enter Michael Milken. The match Milken makes is with Bert Roberts at MCI, the fastest-growing long-distance telecommunications company. It’s a felicitous match in that both men and both companies are trying to be something they are not. The fashion of the moment is that telecommunications companies ought to be media companies. Likewise, Murdoch wants to be a distribution company. Or, at least, both companies want it to look like they’re becoming this other sort of company.
The introduction to Roberts is also a way to poke at John Malone—Murdoch is still looking for his soft spot, still thinking he ought to be able to find the point of leverage that will get Malone to give him an advantage, even, perhaps, to give him CNN.
Malone, at this time, believes he’s locked up a deal that will give him access to choice satellite spectrum. Confident, he’s already gone out and bought $100 million worth of satellites. But, in Washington, there are other powers—including Murdoch’s partner-in-waiting, MCI—urging the Clinton administration to look askance at the deal. The FCC in fact rules that the license for this cable spectrum can’t simply be transferred but must be auctioned—an auction that, when it is held in 1996, is won by MCI.
MCI thereupon enters into a $2 billion joint venture with News Corp. MCI will become the biggest News shareholder, and together the two companies will build an American satellite network, ASkyB.
Understand: Having no cash himself, Murdoch nevertheless makes a deal that appears to give him the wherewithal to dominate the heavens, and which, too, appears to have put $2 billion onto his balance sheet. He’s gotten a major cash transfusion along with the transformational
potential of a massive new media distribution system—or, at least, the illusion of same.
“MCI Communications Corporation and the News Corporation Limited, two companies that have radically changed the telecommunications and media industries, today joined forces to create and distribute electronic information, education and entertainment services to businesses and consumers worldwide,” begins the press release announcing the venture.
“The companies said they will create a worldwide joint venture that they will own equally, leveraging the best broadcast, satellite, programming and publishing resources of News Corp.; and the marketing prowess, customer base and intelligent networks of MCI and its global partner BT [British Telecom].”
Murdoch himself adds: “Until today, no one has put together the right building blocks—programming, network intelligence, distribution, and merchandising—to offer new media services on a global scale.”
In other words, reading the MCI and Murdoch statements more clearly, nobody here has the faintest idea of what, practically speaking, they are going to do.
Now, this is bad, and it will end unhappily. Indeed, the only real material development of this partnership is something called iGuide, which opens fabulous offices on West 17th Street in Manhattan, instantly becomes the leading technology company in New York, meant to compete with AOL and Prodigy (its true competitor will be the barely imagined Yahoo!—that is, News Corp. is inventing the search engine, though it has no idea this is what it is doing), and closes within a month.
This much-vaunted MCI–News Corp. joint venture never actually comes into existence; the people who are involved with it all work for one or the other of the companies; no new company takes charge. What MCI suspects is that Murdoch is continuing to search for a better way to build his satellite empire. Hence, MCI pulls out of the deal.
Murdoch, stuck with all this serious and costly satellite spectrum, and dubious financial wherewithal to use it, now turns to EchoStar, the U.S. satellite company, started by former CPA and card counter (before he’s banned from Vegas) Charlie Ergen ten years before. The reasonable supposition is that Murdoch really doesn’t want to be in business with Ergen, and even that he’s gotten cold feet about the satellite business in the United States. He’s getting lots of conflicting information at this point, not least of all from his son, James, an implacable advocate of whatever he’s advocating—it’s the Internet.
Also, Murdoch has the serious China bug—forget the U.S. market, he’s seen China. Murdoch lets the new proposed joint venture with Ergen—also heralded by major and dramatic press drum-rolls—stumble on whose encryption technology to use: EchoStar’s or the technology Murdoch’s gotten from the bunch of crooks and hackers he’s funded in Israel. On that point the prospective joint venture with Ergen collapses. Ergen sues for $5 billion—prompting a settlement in which Ergen gets the satellite spectrum and Murdoch gets some 8 percent of EchoStar.
Meanwhile, having failed to persuade John Malone to help him make a run at CNN and having watched CNN get bought by Time Warner, he’s got a bug up his ass. He gets that cable news is remaking the news business and is unhappy about not being in it—and understands that it’s his own fault for doubting cable. And he gets that you can’t be a major media player if you don’t have major cable assets. That having major cable assets is the only way to bully your way into the evolving media business. Indeed, at this juncture—where the obsession is on how to get carriage (i.e., distribution) on monopoly-controlled cable systems—it’s all about bullying tactics, which he is good at.
And then, the birth of Fox News. As with so many News Corp. projects, nothing is initially intuitive about the Fox News success. He tries to hire Roger Ailes, the former political operative, who helped start NBC’s cable stations. Ailes won’t run Fox News unless Murdoch can provide carriage (Murdoch at this point is desperate to get Ailes, so Ailes has unusual leverage). The only way to get carriage is to buy it—which has never been done before. But Murdoch does it and, in so doing, runs up against Time Warner and the enmity of CNN’s Ted Turner, who tries to keep Fox off the air, which creates the kind of us/them ruckus that makes Murdoch Murdoch, and launches Fox News with more attention and identity than it deserves.
Indeed, like so many Murdoch products, it is launched on the cheap (except for the investment in buying distribution), and looks it. This is an economic necessity, but Ailes, an old-time broadcasting pro, understands a television virtue: Cheese sells. It’s as much the trashiness—the exaggeration, the vaudevillian nature, the broad joke—as the politics that works here. And beyond the politics and the tabloid appeal, it is also the distribution—they muscle in.
Murdoch gets the premise: Success in television, cable or network, is not about the programs, it’s about the homes. If you are in the homes, something will work. If you’re not in the homes, nothing will work.
The guys at the networks have forgotten this lesson and come to believe it’s about programming, even about quality, or some such nonsense—more Hollywood baloney—rather than about monopoly. They’re the modern marketers, trying to convince and seduce, while Murdoch is the old-fashioned street vendor trying to control the neighborhood.
Just as Murdoch, in his efforts to escape a stultifying Hollywood, is rushing into the slipstream of technological grandiosity, and distribution paradigm shifts, and charlatans of all varieties, Dow Jones too is entertaining possibilities of a change in its nature.
It does this, however, in a wary, stern, skeptical, altogether conservative frame of mind—all values central to its identity. It does not, as Murdoch is doing willy-nilly, speculate. In the mid-eighties, it passes on an offer to acquire 25 percent of Apple. When index options come into vogue—you can buy securities pegged to where the S&P 500 will be at some future date—Dow Jones, after considered thought, decides that it will not create a similar product referring to the Dow Jones Industrial Average. The conclusion is: That’s gambling, and we don’t want to be involved in gambling.
Nor does it want to deviate from, or be loosey-goosey about, its central purpose. Matt Winkler, a rising star at the Journal, tells Norm Pearlstine in 1989 that he is quitting the Journal “because there’s this guy Mike Bloomberg down at Solomon Brothers who has decided to start this new trading service and on his terminals he wants to have news and I’m going to be his editor.” And if the loss of Winkler is a sign, to be compounded again and again in the coming years, that Bloomberg is a vast new business in Dow Jones’ traditional space, the feeling remains that what the Journal does is news and what Bloomberg does is, somehow, mere statistics and quotes—not of our class.
Along with other media companies late to the game, Dow Jones, during the late eighties, begins tentatively to invest in cable systems. In an uncharacteristic moment of ambition, it gets into a negotiation about buying Comcast, already a significant cable provider (it will become the largest in the United States), but still a much smaller company than Dow Jones. And while it gets cold feet about the acquisition, it ends up with 25 percent of Comcast—which, however, it stays nervous about and sells within a few years.
And there is CNBC. Pearlstine proposes a deal that would have Dow Jones supplying eighteen hours a week of programming with an option to buy, at start-up cost, 49 percent of the news business channel—which is worth now more than $5 billion. But senior management turns this down, and Dow Jones ends up supplying content on a fee basis and without an equity stake.
Dow Jones, through the late eighties—when CEO Warren Phillips is posing for his annual report photograph in front of a typewriter—and through the nineties, is seeing as many opportunities for technological transformation as Murdoch. It responds in the best business-like fashion—with seriousness and restraint. The truth is, it doesn’t want to be transformed. Or it is so respectful of the power of transformation that it proceeds with the kind of caution that precludes transformation. In the end, it is so temperamentally unsuited and resistant to the ad hoc, impromptu, make-it-up-as-you-go-alo
ng, adventurous, crafty, and flimflam aspects of transformation that when it decides, ever so tortuously, to take the plunge, it screws itself in its bet on Telerate.
TWELVE Rupert in Love
JUNE 22, 2007
Not a bad indicator of which way the deal will go is that John Lippman writes his last piece for the Wall Street Journal on June 22 and will shortly head for the Los Angeles Times. The point here is that if Murdoch is going to clinch the deal, Lippman can’t very well hope to continue writing for the WSJ. While News Corp. has its share of greater and lesser enemies upon whom it would, given the opportunity, take its revenge, a special place on that list is reserved for John Lippman.
The Man Who Owns the News: Inside the Secret World of Rupert Murdoch Page 33
