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Murdoch Eyes DirecTV Swap to Gain Control of News Corp.

By Keith Regan
Sep 15, 2006 11:59 AM PT

Likely seeing better opportunities to leverage the News Corp. brand across multiple channels, Rupert Murdoch is reportedly in talks with partner Liberty Media on a deal that would give him full control of News Corp.

Murdoch Eyes DirecTV Swap to Gain Control of News Corp.

Murdoch and Liberty have traded proposals to have Liberty exchange its stake in News Corp. for a controlling share in satellite TV provider DirecTV.

Liberty Media owns an 18 percent stake in News Corp., while Murdoch's company owns 38.5 percent of DirecTV. The Liberty stake in News Corp. is valued at around US$11 billion.

Control Freak

The Wall Street Journal was the first to report the talks, and a direct swap is reportedly one of several possible outcomes on the table, all aimed at bringing more of the media giant News Corp. under Murdoch's direct control.

While a cash buyout may have been offered to Liberty founder John Malone, Liberty likely would favor a deal that would avoid a heavy tax burden. Exchanging assets would do just that.

Liberty may also have been offered ownership of some of Murdoch's local TV outlets as part of a larger buyout deal.

Murdoch likely wants freedom to pursue his own vision of how News Corp. should evolve in an increasingly multi-channel media world. Murdoch has already made his share of splashy Internet-based plays, most notably by buying MySpace.com.

Unable to Control Competition

Such a swap may also indicate that Murdoch has soured some on the prospects for satellite TV. News Corp. entered that market three years ago with its DirecTV buy, but has not significantly gained market share of the overall TV delivery market, and now faces the prospect of even more robust competition, with telephone companies poised to enter the TV delivery arena in many parts of the country.

In fact, telecoms and cable companies are far better positioned in the industry because of their ability to offer bundles of services that include Internet access, telephone service and TV packages, something satellite providers have struggled to match.

Liberty's Malone amassed his stake in News Corp. over time and has enough of an ownership interest to be a consideration for Murdoch as he takes new initiatives to shareholder meetings, analysts say.

In fact, News Corp. shareholders endorsed a so-called poison pill provision at Murdoch's suggestion some two years ago, amid fears that Liberty was poised to increase its ownership in the company further. That provision is up for a vote at next month's annual shareholder meeting, and speculation is rampant that Murdoch wants a deal in place before that vote in order to avoid controversy.

Media Control

Under Murdoch, News Corp. has grown to become the third-largest media company in the world. It has also become a major presence online, spending some $1 billion in 2005 alone on Web properties, with MySpace the clear crown jewel of the interactive business today.

Liberty likewise has become a savvy multi-channel media player, splitting off its Liberty Interactive unit in May. That division includes the QVC shopping channel and a group of Internet-based retail sites.

DirecTV has about 15.5 million customers and nearly tripled its profits in its second quarter. Subscriber growth has slowed recently, however. The asset swap would likely mark an end to Murdoch's ambitious plan to turn DirecTV into a provider of high-speed, wireless Internet access. Murdoch said in January he was prepared to invest $1 billion in such a scheme.

The decision may also mean News Corp. will embrace its role as a content provider, eschewing a major stake in the delivery channel itself. Such a move would enable it to focus more sharply on finding ways to make its entertainment programming, news and other content work across multiple channels.

Murdoch may already recognize the opportunities that exist online, said Forrester Research analyst Charlene Li.

"The growth in online advertising and the potential for reaching targeted audiences with specific messages is a strong draw to media companies," Li said. Murdoch's long-range plan for his content empire most likely has additional elements that have yet to be disclosed, she added, and having full control of News Corp. would provide plenty of flexibility in the future.


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