Rupert Murdoch, News Corp.

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Twenty years after Rupert Murdoch upended the status quo in television with the launch of Fox Broadcasting Co., Murdoch and News Corp. are in the vanguard of another media revolution with its recently acquired Internet assets including MySpace.com. The News Corp. chairman and CEO recently spoke with The Hollywood Reporter contributing editor Diane Mermigas about his company's interactive expansion and what it augurs for traditional media giants.

The Hollywood Reporter: What has surprised you the most about the MySpace experience?
Rupert Murdoch: The speed at which it has grown. It has had no marketing. Not a penny has been spent marketing it before or after the purchase, and it just grows faster and faster every week. Now we're taking it out to other countries.

THR: Does MySpace offer a template that can be adopted to upgrade all of your core businesses?
Murdoch: MySpace demonstrated what we felt but now really drives it into us that the world has really changed -- that the average person who is computer proficient is self-empowered in their lives in a way they never have before.

THR: How comfortable are you with all that phenomenon that comes with it, from peer-to-peer sharing to user-generated content? Media companies until very recently were used to dictating popular culture.
Murdoch: I'm quite comfortable with it. The important thing is that you have to realize it. You have to accommodate and change. We are like other media companies in that we are still reaching for ways to do it. We wouldn't claim to have all the answers today. The Internet is about giving lots of people lots of choices. Everything we've ever done is about giving people choices.

THR: Do you think that will be a challenge given what you have been up against before?
Murdoch: Probably not. It will be a little bit different in each country. The English-speaking world will be easy. We will have to think about going with a slightly different model or architecture in Japan or Germany or some other countries. It will be driven by exactly the same principles. Young people are the same everywhere. They are curious. They want to take control of things. They want to live in their own world.

THR: Are you surprised that this may be the most effective promotional and marketing platform you have ever had?
Murdoch: No, but it certainly is a very powerful one. It played a large role in the successful opening of ("X-Men: The Last Stand"). On the other hand, we can't underestimate what "American Idol" did for it, too.

THR: Where do you envision taking MySpace in the U.S. over the next year?
Murdoch: We would have to keep making it a better experience, whether it was instant messaging or voice or what. We're looking at all the alternatives to make it stickier. There are crazy proponents who contend that it is just a young person's craze and it will all go away. We're having to see that it doesn't. We have to find ways, without destroying its character, of getting more advertising revenue.

THR: Do you foresee building a community around MySpace the way Apple's Steve Jobs has done with the iPod?
Murdoch: Oh, absolutely. There will be a big community around MySpace but also subcommunities within it.

THR: Could MySpace or whatever you build around it or all of Fox Interactive Media become a cornerstone of your portfolio rather than just the line for "other" on your ledger?
Murdoch: It will be more than just the "other" line. A key cornerstone? It's too early to say that.

THR: You have said you will likely realize $350 million of revenue from interactive new media in the calendar year. Can see you tripling that before the end of the decade?
Murdoch: Well, for that we need to take into account search revenues, but certainly there will be those kinds of revenues, one way or another. It might be everything from downloading television series and selling minor items in mini payments. There will certainly be more advertising -- more transactional advertising.

THR: Are you concerned that MySpace might become a political issue in the election year because politicians are looking for things to comment on, as they are watching where you throw your support?
Murdoch: I am not throwing my political weight around. I am remaining what I always was. There are concerns not on the political level. Our people have become very good at explaining it and many things about the Internet to politicians. And when a phenomenon like MySpace emerges, it naturally tends to attract more attention.

THR: What parameters will you set for partnerships with other firms, particularly in the search area?
Murdoch: Well, we don't know yet. But if we were to have a search partner, I think we'd look for someone who gives what AOL gets with Google. They can do a lot of the search and sell a lot of the advertising and get a commission of 10% or 15% of the advertising they sell. We're not at that stage of decision-making yet.

THR: Google also made a $1 billion investment in AOL. Are you looking for an equity investment as well?
THR: No. They have the chance after two years to put it back to Time Warner at the sale price, so that's hardly a risk.

THR: Is there something that you have discovered in owning MySpace that you can apply to your more traditional core media businesses?
Murdoch: Broadcasters will be more successful if they commit more to local, (and if) they do a lot more news, and they do it a lot better. We've been at that for more than a year now at our own stations, and we're getting some movement in the ratings. The future of local stations is very good provided they remain true to their roots, be very local, have their own local Web sites and do all that properly. And if they are aligned to a leading television network, they are going to be in good shape.

THR: How do broadcasters become interactive and establish a two-way loop with the consumer that is critical for interactive broadcasting and fees? Is the answer for Fox working with major cable operators or with DirecTV so that when you have a wireless broadband connection in place you can make your stations more interactive to engage in addressable advertising and all the rest?
Murdoch: Well, once you can hook into a proper broadband service, that's pretty easy. And that's what we're spending a huge amount of time and effort on with DirecTV because we clearly have to have some answer to the cable monopoly.

THR: But you actually have been having discussions with DirecTV about this, correct?
Murdoch: Yes, and we can pull something off. And there is no reason why that shouldn't link in with everything. I would expect to have wireless broadband advanced in at least two or three cities before the end of this year, and then it might take two or three years to build it out across the entire country.

THR: And that could be done through DirecTV and then play back through the entire company?
Murdoch: I would hope so.

THR: When do you link together these very different satellite operations for the global loop we always expected of you?
Murdoch: We've got to find where they gave common interests because we do have for historical reasons, not of our choosing, a lot of outside shareholders in (British Sky Broadcasting) and same with Direct. Whereas (with) Star TV and Sky Italia, we're at 100%. Star satellite has a lot of partners in India that is coming in about a month.

THR: How important is that when you can finally make that global satellite loop?
Murdoch: There should be great advantages that have to do with the ability to buy programs and your ability to develop programs and buying hardware. ... We're at a point where DirecTV and Sky Britain and Sky Italia are working together more and more on technical and management issues and sharing techniques and how to cut down churn more than programming. ... We're thinking all the time about broadband. Broadband is going to be ubiquitous to the world, and all of our products, to some extent, are about global -- with pay-per-view, IPTV or even newspapers. I'm not saying it's going to wipe out our newspapers. But already there are growing audiences of people. We can argue that many more people read our newspapers today than they did three or four years ago. Some are reading them online.

THR: So that may save the newspaper industry, so to speak?
Murdoch: Well, it will take time to change the economics. Classified advertising in newspapers is under violent attack. In other things, not so much so.

THR: Can you already see where you are making more money more quickly than you had expected from some of these new areas to help offset what you might be losing in other areas?
Murdoch: Yes. Well, I wouldn't want to quantify it. But we're certainly very concentrated on that.

THR: So you're not concerned so much about the shifting balance of businesses?
Murdoch: Yeah, we're going to ride it and be with it and plan to be on the leading edge of it.

THR: Most analysts say they expect you to use half of the cash you have available for stock buybacks, like the one you recently extended, and acquisitions. If you had your druthers, what would you like to or need to acquire to complete the picture? You just indicated you don't have to acquire wireless broadband; you can accomplish what you need through partnership.
Murdoch: Yes, but you have to contribute your part of the partnership. We're talking about a lot of money there. Otherwise, we'll continue to be opportunistic as before. Great opportunities occur around the world; we'll act on them.

THR: You don't see yourself making a major acquisition anytime soon?
Murdoch: No.

THR: Would you extend your controlling ownership stake in DirecTV?
Murdoch: No. We have what we need.

THR: In the area of gaming, you have IGN selling downloads of games, you're making a movie from Microsoft's Xbox "Halo" game, and you have DirecTV with the video game championships next year. So you have little pieces of the game industry. What is your overarching strategy?
Murdoch: We keep looking at the games industry. We know it's a very big factor in life, but we believe that the available games companies to buy in to are grossly overpriced. We are trying to find another way into it, but we haven't yet. But I think IGN is certainly a beginning.

THR: But you are not talking to any potential games partners, such as Sony or Microsoft?
Murdoch: No, no.

THR: What about Liberty Media's John Malone? How soon do you buy him out and make that one less concern for yourself and for investors?
Murdoch: We have always have been prepared for this, but it's a matter of finding a way which we can do so legally and which will be without tax consequences for him.

THR: Would it involve an asset trade?
Murdoch: No, I wouldn't want to comment on that.

THR: This is a remarkable time. You have called this the golden age of media. What will it eventually mean to the industries you are in and to your company?
Murdoch: There are new capital advantages to get things done. You go to these conventions and see all the new technologies being rolled out. But they are all meaningless unless they have content. There is going to be more and more demand for content, and there will be more ways for us to develop more content. And we've got to use these platforms to monetize all of our existing content.

THR: Do you think your new fiscal-year budget calls for ways of doing this you haven't tried before?
Murdoch: Yes. We will be doing more with mobile telephones -- everything from short episodes of television shows to news flashes to ringtones -- and we will sell them to all the telephone companies that will take them on a shared-revenue basis. But we will be doing the creativity ourselves.
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