Murdoch's influence in question, BskyB deal in doubt

Just as the purchase of the Sunday tabloid News of the World in 1969 was Rupert Murdoch's first step in transforming himself from a successful Australian newspaper entrepreneur into a global media power, so his farsighted purchase in 1983 of a moribund and loss-making early satellite television station marked the beginning of his shift from being a merely very rich man into a billionaire with media holdings on four continents.

Now NotW's 168-year run in print is over. Mr. Murdoch and his son James closed the paper on July 10 in an attempt to stop a steamrolling scandal over the paper's bribes to policemen and illegal intercepts of cell phone messages in the past decade. But the fallout continues to accumulate, with unprecedented public attacks on the political influence Murdoch has accrued for himself through his newspapers and cozy relationships with senior British politicians. Now, Murdoch's $12 billion effort to take full control of BskyB – the dominant satellite broadcaster he helped to build – looks indefinitely stalled, if not dead in the water.

Murdoch, who remains one of the world's richest men, arrived in the UK this week to take charge of efforts to stem the scandal, which has spread from the handful of former reporters, editors, and executives at NotW to News International, the News Corporation subsidiary for the company's press holdings in the UK. It's hard to see the UK media landscape being quite the same again.

Opposing Murdoch was once so politically dangerous that few British members of parliament dared. Cementing his power was the shock 1992 election victory of the Conservative Party. The UK was mired in recession and most polls had the Labour Party positioned to end 13 years of Tory dominance. But the Murdoch press, led by his daily tabloid The Sun, waged a fierce and often witty campaign against Labour and the party's then-leader Neil Kinnock. On the morning of the election, The Sun's lead headline asked that if Kinnock wins "Will the Last Person to leave Britain Turn Out the Lights?" The Sun's chest beating headline following the Tory victory, "It's The Sun Wot Won it," passed immediately into British press and political lore.

But now siding with Murdoch is looking like political poison to UK politicians, with the public disgusted to have learned that NotW's methods weren't confined to politicians or wealthy celebrities but extended to victims of terrorist attacks and spying on the cell phone messages of the family members of 13-year-old Millie Dowler.

Nick Clegg, deputy prime minister and leader of the junior partner Liberal Democrats in Prime Minister David Cameron's government, told the BBC that Murdoch should "do the decent thing" and drop his bid for BskyB. "Listening to Bob, Sally, and Gemma Dowler, it reminds you that it is innocent families like them who have paid a very heavy price for truly grotesque journalistic practices, which are simply beneath contempt."

Less surprising, perhaps, is the position of Labour leader Ed Miliband. He said he "won't rest" until the deal is stopped. Mr. Miliband has made the issue an overtly political one. Mr. Cameron's communications director was Andy Coulson until January, when he resigned as the scandal began to break. Mr. Coulson was the editor of NotW when some of the alleged abuses took place and was hired even though he had resigned from NotW in 2007, after his royal correspondent and a private investigator were jailed for hacking into the cell phone messages of a member of the royal family. Coulson was arrested last week. Miliband has questioned Cameron's judgement for employing Coulson.

The purchase was sailing through the approvals process just a few weeks ago, with the backing of the government and the Culture Minister Jeremy Hunt. Murdoch had promised to spin off Sky News, the largest privately owned 24-hour news channel in the UK, to a separate company to address monopoly concerns. Today he rescinded that promise, in a move that made it easier for a regulatory challenge to be made. The government referred the proposed purchase to its Competition Commission soon after. It was almost as if Murdoch was running up a white flag. Though the deal could still go through, the regulatory process could well take months with the general public and the rest of the UK press braying for blood.

What is BskyB?

In 1983 Murdoch purchased SATV, a Brittish-owned company that broadcast a few hours of recycled programming a day to Northern Europe. For the rest of the decade it continued to lose money, but Murdoch had the wherewithal to keep it going. It was eventually renamed Sky Television and in the ensuing years Murdoch and his lieutenants began laying the groundwork for what would become the most profitable satellite TV station in Britain. In that period, Britain granted a license to broadcast directly inside the country to another loss-making competitor, British Satellite Broadcasting. The company's management was weak and it hemorrhaged cash.

In 1990 a merger gave Murdoch a controlling stake in the enterprise, but not a majority. The renamed company, British Sky Broadcasting of BskyB, was turned to profit by Murdoch in 1992. Sky News became the UK's first 24 news channel. The company's new profitability was also driven by the money Murdoch pumped into English football (soccer). In 1992, the new "Premier League" for the top tier club teams in England was created, and Sky bid a then astonishing $450 million for broadcast rights on its pay-TV sports channels.

Jason Walsh, who's been covering the NotW story for us recalls in an email to me: "Up until this point no one in Britain had bothered much with subscription TV – in fact, the idea was pretty alien to people. Suddenly if you wanted to watch soccer live, you had to stump-up to get Sky Sports. Then he did the same for cricket, rugby etc etc. It was a major political issue at the time and is also the foundation for BSkyB's eventual profits."

That money machine, along with the Murdoch's purchase of part of Fox in the US in the 1980s, set the stage for his massive global reach and influence. When News Corporation held its Initial Public Offering in 1998, investors valued the company at $14 billion. Today, News Corp's market cap is $40 billion. The only real competitor to BskyB in the UK now is the government-owned BBC.

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