The Man Who Owns the News (44 page)

He’s survived the debt crisis, reclaimed the
Post
—the thing that makes Hollywood bearable is that he’s still on the phone with his newsrooms—but he’s stalled out. He’s a man heading for retirement age, with a deeply indebted hodgepodge of media companies. Worse, he’s in a business he doesn’t get. The business of being cool, which he is not.

So: How do you change the story—move it from coolness, which he doesn’t do, to expansion, conquest, dominance, which he does do? And how do you do this without any money?

He is—and this is a fundamental entrepreneurial talent—a master illusionist. It’s the essential entrepreneurial skill, to convince people you are what you have yet to become.

If the pop-culture thing eludes him, he’s nevertheless on the business zeitgeist. He has a keen, even preternatural sense of how the conventional wisdom among the toughest business guys is going to shape up.

Here’s what Murdoch gets—the concept that is just coming into vogue in the media business: Either you have to be big enough to control distribution, or you have to be big enough to be able to negotiate with those who do control distribution—or, ideally, both. That’s about to become the 1990s holy grail.

He goes off in 1994 to see John Malone, the most powerful man in cable television and, arguably, the media business—the man who has jump-started the new era of distribution power by promising five hundred television channels (TCI, his technologically kludgy and underresourced system, has, however, been unable to deliver on that promise). Malone, to Murdoch, is the real media business—distribution, leverage, monopoly, and a vast new system undermining the old networks—whereas Hollywood is a thumb-sucking and pantywaist business.

Malone, as powerful as he is, is in a bind. His deal to sell TCI—servicing one in four cable households—to Bell Atlantic has just fallen through. With new federal regulations hitting cable earnings, Bell Atlantic tries to reduce the purchase price, and Malone walks. His stock price is in a swoon. Murdoch takes this moment of weakness to suggest that Malone should help him launch a cable sports channel and, also, a news channel—on the cheap (although Murdoch has not yet articulated his version of a conservative news channel, Malone happens to be one of the few people in the media business to share Murdoch’s unreconstructed views). Or the proposal to start a news channel is a feint, and what he really wants Malone to do is support Murdoch in his bid to buy CNN—in which Malone already holds a key minority stake.

But Malone is too smart or Murdoch too poor—it’s hard to control distribution without cash on your books—or they’re just too suspicious of each other. Malone is not going to be Murdoch’s advantage or savior.

Enter (or, actually, reenter) the Houdini of business machinations: Michael Milken, the junk bond promoter.

Years earlier, Milken set up the one-two punch that got Murdoch the Fox studio and then the television stations that would form the Fox network. Not long afterward, he was convicted of various far-reaching fraudulent practices, sent to jail, and banned from the securities industry for life. This did not, however, lessen his acumen or even his reputation. He was, upon his release, just two years into a ten-year sentence, back to advising Murdoch.

In 1994, he gets Murdoch together with the financier Ronald Perelman. Perelman, like Murdoch, is an alumnus of the exclusive club of entrepreneurs lucky enough to have been financed by Milken and to not have been indicted or gone broke. Perelman, a publicity hound and would-be media entrepreneur himself (although he will make most of his reputation from the Revlon Company, which he took over in 1985), controls a company called New World Communications, which produces television shows (notably,
The Wonder Years
) and owns fifteen television stations in good markets (among them Atlanta, Austin, Cleveland, Dallas, Detroit, Milwaukee, Phoenix, and Tampa)—all affiliated with networks other than Fox. Milken’s idea is a nifty one: Murdoch will invest $500 million in New World and Perelman will forsake his existing relationships and switch his stations’ affiliations to Fox—the “greatest realignment of affiliations in the sixty-year history of American broadcasting,” according to
Time
. This deal essentially makes Fox and profoundly diminishes CBS, which the lion’s share of the New World affiliates carried and which has just lost the NFL rights to Fox. Murdoch isn’t doing an acquisition, so he stays out of trouble with the banks; he’s not buying more stations, so he stays out of trouble with the FCC; and, at the same time, he turns Fox into a bona fide fourth network. (In 1997, he’ll buy all the New World stations outright. Four years after that, having worked the regulatory obstacles, he’ll add ten stations by acquiring the Chris-Craft group of stations, which seventeen years before had helped thwart his takeover of Warner Communications, giving News Corp. the largest stable of O&Os, owned-and-operated stations, in the nation, and making it, effectively, the most profitable television network.)

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.