Business Week: July 12, 1999
Media: The Internet
Rupert Does the Cyberhustle
Belatedly, Murdoch's News Corp. is tackling the Web
Rupert Murdoch's News Corp. sells $12 billion a year worth of content to all
corners of the globe, and Murdoch's place among history's top media magnates
is secure. But when it comes to the Net, News Corp. has been seen as a
laggard. While Web sites by such traditional media rivals as Time Warner,
Walt Disney, and NBC routinely rank among the 10 most visited, according to
Media Metrix, the most popular News Corp. information site ranked a withering
No. 71 in May.
Murdoch admits he has missed some Internet bonanzas--such as his decision
a few years ago against taking a stake in America Online Inc. ''Bill Gates
assured me [AOL] would be done by Christmas,'' recalls Murdoch. ''He told me:
'They don't have a business plan.'''
But Murdoch won't concede he has missed his chance on the Web--any more
than he accepted there was no room for a fourth U.S. TV network when he
launched the Fox Network. He is ramping up a Web strategy aimed at extending
into cyberspace an empire that also embraces the 20th Century Fox film
studio, satellite broadcasters in Asian countries and Britain, newspapers in
Australia and Britain, the New York Post, a handful of cable channels, and
book publisher HarperCollins.
News Corp. seems to have awakened to the Web's possibilities--especially
in the far-flung countries where the Internet is less developed but where
Murdoch's tentacles extend. In Australia, it's launching career and auction
sites; in Britain, it's rolling out a free Internet service provider, called
CurrantBun, linked to its racy Sun tabloid.
Murdoch is also branching out into new Net territory, forging a
partnership with the star of Web investing, Softbank Corp.'s Masayoshi Son.
Meanwhile, as Disney and NBC pursue a new strategy of using traditional media
muscle to drive Web-users to their Go.com and Snap.com portals, Murdoch is
betting on his half-interest in TV Guide Inc. He thinks interactive guides
for cable TV could prove to be the ideal portal for TV and, eventually, the
Web. ''We clearly are laying the groundwork for a much bolder approach to the
Internet,'' he says.
''WAKE-UP.'' What's behind the push? Murdoch's son and News Corp. Executive
Vice-President Lachlan Murdoch says AOL was only one instance: Last year the
company passed on a couple of Web businesses whose stocks subsequently
zoomed. Says Lachlan: ''There were a couple of wake-up calls there.''
To try not to miss any more windfalls, News Corp. in April committed as
much as $300 million to create a new venture-capital company, called
e-partners, that will invest in Web businesses unrelated to its core media
operations. A step in that direction was the planned July 1 announcement by
e-partners that News Corp. and Softbank are forming e-ventures, a $50 million
partnership to launch versions of U.S. Web businesses in Australia, Britain,
India, and New Zealand. E-ventures' first deal is to launch eLoan, the
biggest online mortgage broker in the U.S., into those markets.
News Corp. will provide its local presence and marketing savvy, while
Softbank--with big stakes in Yahoo! Inc. and E-Trade, among others--seems to
know a good Web investment when it sees one. ''What it does is marry the
leading Internet investor with a new entrepreneurial group within a big media
company,'' says e-partners CEO Mark Booth, the former head of Murdoch's BSkyB
satellite service. ''We can deal at a speed and scale that we think is very
unique.'' Keen on financial services, e-partners has also taken a minority
stake in W.R. Hambrecht & Co., the Silicon Valley investment bank
specializing in taking companies public on the Web via auction.
Although skeptical of Web stock valuations even at current levels, Rupert
Murdoch is keen to make acquisitions--if, as he predicts, there is a ''major
correction'' in Web stocks. ''There may be a lot of little companies that
have really good ideas that are now selling for a couple of billion dollars
that would then be selling for $500 million,'' he says. ''That would be of
interest to us.''
CHELSEA CHIC. And if the notion holds true that the Internet is to be ruled
by twentysomethings, Murdoch has that angle well covered in the family. While
Lachlan, 27, has been pegged as the one most likely to succeed his
68-year-old father, the company's online strategy is overseen by the youngest
of Murdoch's four children, James, 26. He operates News America Digital
Publishing from offices in New York's hip Chelsea district--brimming with Fox
online programmers and producers and located at a safe remove from News
Corp.'s midtown office tower. In the past year, James has overseen a string
of Web-related moves, including small stakes in business site TheStreet.com,
online service juno.com, pharmacy site PlanetRx.com, and, most recently,
community site sixdegrees.com. Typical of how media companies are trying to
integrate Web businesses with so-called ''old'' media, TheStreet.com will be
featured on a Fox News Channel TV show. And the stake in PlanetRx ties into
Fox's plans to launch a Web site linked closely to its new Health Network
cable channel.
While he's constantly studying new deals and revamping Fox's existing
sites, James's 200-strong group is also developing interactive TV services
and broadband versions of the Fox news and sports sites for high-speed access
services, such as At Home Corp. and Road Runner. With only 30% of Americans
on the Web so far and with most of them using dial-up services for Internet
access, such services won't be put to the test anytime soon.
But James believes that once broadband access becomes widespread in 5 to
10 years, content providers will win the day, thanks to their familiar
brands, sports rights, and program libraries. And both father and son are of
the mind that digital television--which will allow content to be ordered up
on demand and played with--could prove a more viable business than the Web
itself. ''We're not freaking out about today,'' says James. ''We're trying to
build long-term earnings stories out of these businesses.''
In News America's office, for instance, is a demo version of an enhanced
broadcast for one of the many sports rights News Corp. owns--a Major League
Baseball game. Using a special remote control and a variation of a set-top
digital box being introduced later this year to BSkyB subscribers, fans can
choose from a number of camera angles from which to watch, check statistics,
or split the screen to watch a replay. ''We talk a lot about interactive TV
because we think this is where all this stuff leads,'' says James.
EUPHORIA. It is also where News Corp. has performed a feat of Web alchemy.
Last year it merged what seemed a declining asset--TV Guide magazine--with a
unit of John C. Malone's Liberty Media Corp. that includes a maker of
onscreen guides. Partly on the strength of an exclusive deal with new cable
heavy at&t Corp., TV Guide Inc. has since caught fire with investors excited
about the prospect of a screen that pops up every time the TV--or whatever it
evolves into--is turned on. Through the guide, viewers could be able to
perform Web-like tasks such as sending E-mail and ordering pizzas. Since the
merger was announced a year ago, News Corp.'s 49% stake in TV Guide has
increased in value by $1.3 billion.
These days, of course, such gains from Web euphoria can seem routine. Even
with News Corp.'s stepped-up plans, the likes of Disney, Time Warner, and NBC
remain more active and more advanced. Thomas Rogers, president of NBC Cable,
says there are ''a lot of questions'' about whether consumers will rely on
the TV Guide screen to navigate the digital world, or just click through it
to another portal such as Yahoo! or NBC's Snap. And while Rogers agrees that
it is too early in the media Web wars to declare winners and losers, he
believes companies like his that have already established a beachhead have
the edge. ''Other companies have done more than us, but I don't know that
they have a lot to show for it,'' says Rupert Murdoch.
The endgame, says Larry Haverty of State Street Research in Boston, is for
all the media giants to try to grab a piece of the lucrative subscription,
advertising, and E-commerce model that so far only AOL has perfected. ''If
you look at AOL as a big cable network, they've got a big market
capitalization and these people want to encroach on it.''
But better than most, Murdoch knows what Web mistakes feel like. Aside
from missed investment opportunities, his failed mid-'90s attempt to build
Delphi Internet Services into a major online service remains a blemish. ''We
made a lot of mistakes there,'' he admits. Clearly, he is determined not to
repeat them. In fact, the just-remarried mogul was planning to cut into his
honeymoon to fly to London to attend the announcement of the Softbank
partnership. In old or new media, Murdoch plays to win.
By Richard Siklos in New York, with Stanley Reed and Heidi Dawley in London
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