When asked what we thought about the news that News Corp, or rather Rupert Murdoch, was buying BSkyB, we did a double take. Of course he already controls it, but we sometimes forget he holds less than 40% of the stock, the rest held publicly through the UK stock market. It’s a hangover from the early days of satellite broadcasting in the UK, when he merged his operation Sky with British Satellite Broadcasting back in 1990 when neither were making money. The dilution of his holding has long been an irritant, and he would have paid more in cash and held better control, had his empire not been stretched elsewhere, for instance establishing the Fox Network in the US.
Given that Rupert Murdoch generally gets his way, the market is expecting him to raise the price until the shareholders cave in, but initially the independent board (once led by Murdoch’s son James Murdoch, who moved to chairman in 2007) has rejected the price.
In such a tightly run group, the board really has a responsibility to do this, to avoid accusations of nepotism and Murdoch will have anticipated the rejection, but that doesn’t mean that the offered price of 700 pence a share in cash, will automatically rise to the requested 800 pence. That would make Murdoch’s payout to more like £8.9 billion ($13 billion), rather than the current bid of £7.8 billion ($11.5 billion).
Murdoch will play it tough. After all, much of this money is his money. If he issued it as a dividend, some 30% of it would go to him or family members. What is more worrying is that Murdoch can find nothing better to do with his money than to consolidate his interests. No more MySpace’s or Dow Jones to buy, no more runs at getting back ownership of DirecTV or any other US pay TV operator. The cash sitting in the News Corp coffers will have to be topped up with some debt, and although that would likely get paid down in a few quarters, that still leaves Murdoch with no plans more grand than tidying up.
But that doesn’t mean that Murdoch is going soft, and he will be sure to remind the UK public investors that he will pull out of a deal if the asking price is too high. Expect a long tussle, with no prisoners taken, and potentially for this deal to fall through.
Immediately shares in BSkyB jumped on the UK stock market above the asking price of 700 pence. It went as high as 732 pence, but has now fallen back to a smidgin over 700.
The reason we think that Murdoch can get around to this kind of corporate tidying up operation is because his next challenge is not to buy more properties. That largely has not worked or at least will no longer work.
His pay TV operations are threatened by internet delivered video content. His newspaper operations are threatened by the feeling that all content should be free, which has pervaded the internet for the past two decades. And his studio and free to air broadcasting interests are threatened as advertising continually shifts towards the internet. Even his internet activities in MySpace and IGN have suffered from corporate ownership and too rapid a shift from popular web location to cash cows.
What Murdoch has to do is make a stand on paid content and for that perhaps he doesn’t need $billions. This week he bought a small US company called Skiff, from Hearst Corporation, which began life as its e-reader platform. It uses cellular services to deliver premium journalism to tablets, smartphones, e- readers and netbooks. For premium, read ‘paid.’
Murdoch’s News Corp also announced an investment in Journalism Online, a venture dedicated to enabling newspapers, magazines and online-only publishers to collect revenue from their online readers. While the amount paid in these deals has not been given out, it will have been a drop in the ocean compared to what Murdoch is bidding for sky. What he has acquired does not include a device ‘ the Skiff eReader device has been left with Hearst, and my even be dead. Instead Murdoch sees the future of content in the diagram below ‘ simple enough, he will own the technology which enables his own, and other newspapers, to re-emerge on the internet and on portable devices ‘ or at least that’s what he is shooting for. Quite wisely he is NOT doing a Kindle and what he is offering should work with every device out there and he’s not offering one of his own.
This diagram (see PDF vderison) could easily sum up everything that Murdoch has lived for. He once said that his aim is to get ALL the costs of a publishing business paid for by subscriptions and then get ALL of the costs paid for again by advertising. And this model sums that approach up. So expect Skiff to emerge as an underlying piece of software on the Apple iPad format, but also on other devices.
The Skiff platform aims to deliver visually complex layouts for newspaper and magazine content but also has the ability to offer dynamic updates throughout the day. Adverts can be delivered, and changed, in the same way.
Buying into Journalism Online offers the Press+ (PressPlus) e-commerce platform which allows publishers to continually adjust multiple options for paid access, with each publisher selecting its own business model, offerings, and pricing. This includes a ‘metered model’ under which many readers will continue to access sites for free, while the most engaged readers will pay for full access. Press+ sets up one account and a single password for multiple publisher properties.
The News Corp interests in these two entities will be run by Jon Housman, who is now President of Digital Journalism initiatives and will report to Jon Miller, Chief Digital Officer for News Corp. Houseman, among other things, has run the division formed by Dow Jones to build and grow the company’s global online and classifieds business. Thought to be a considerable success.
So in a nutshell, what else is Murdoch going to do with his money? On the one hand he is fighting a holy war against free content, and on the other, BSkyB is one of the most cash rich businesses associated with News Corp, so buying it will improve its overall profitability, while the Holy Grail of paid content will come from his existing properties, and if successful help turn many of them around.