Private Investor: A Sky-high salary, but can Murdoch's son deliver profits?
Saturday 15 May 2004
It's difficult to know where to start with James Murdoch's pay packet, so let's get the whole jealousy thing out of the way first.
It's difficult to know where to start with James Murdoch's pay packet, so let's get the whole jealousy thing out of the way first. I have never, do not and will never believe that any human being is worth paying £10m a year, even one who is in charge of a quite big but not that big company such as BSkyB, as the 32-year-old Mr Murdoch is. I still feel that his appointment was unsatisfactory for the all the usual nepotistic reasons that have been well rehearsed over the past few months. It was, to my eyes, hardly a model of good corporate practice.
However, as I pointed out at the time, we small shareholders knew that BSkyB was a Murdoch family circus when we bought the shares and ought not be shocked when it acts like one. He's obviously not worth £10m a year, as I say, because no one is, but the question is whether or not he can deliver anything for the rest of us who find ourselves as passengers in the same venture as the glittering Murdoch clan. On that the evidence is quite mixed.
Certainly the City didn't take too well to BSkyB's results, so I find that the shares are languishing around the 620p mark, down from about 700p a month ago. Or, as far as I'm concerned, just about holding their own at the average price I paid for them since I started buying a couple of years ago. Not a disaster, then, but not quite as rewarding as I'd hoped. I note that, according to the papers, an outfit called Investec Securities had strong buy advice ahead of Wednesday's third-quarter results. They said that the shares have been the second-worst performer in the sector over the past three months (no news to me), and that they expected Wednesday's numbers to trigger a re-rating. Nearly right, boys; you just got the direction wrong.
So for me BSkyB is still a hold, but no more. The subscriber numbers aren't growing as fast as they might, and there is the possibility that the firm will be adversely affected by the growth of Freeview, in which BSkyB is a partner with the BBC. BSkyB aims to extract £400 on average from each of its subscribers and, while I am always amazed at how much so many people will spend on the gogglebox, I would have thought that, in the short run at least, that figure represents an ambitious target.
BSkyB is also, to my mind, far too dependent on Premiership football for its revenue stream, with one or two famous shows, transmitted almost ad infinitum. Football, as we see from the activities of various Russians and Thais, is a funny old game and relying on it quite as much as BSkyB does may be a long-term weakness. One day, surely, that deal will go wrong. Perhaps James Murdoch would do well to consider a little bit more variety in the BSkyB broadcast proposition, particularly if they want to attract those elusive ABs, the wealthiest customers but also the very social group that regards the telly with the most snobbish disdain.
Such concerns pale into insignificance when one considers the choppier waters the world economy seems to be entering now, though. The whole portfolio has been knocked back by the slew of depressing news from Iraq (for whichever side you're on, that is), the (partly related) increase in the oil price and of course the general trend towards higher interest rates. Last week I mentioned that I shuddered to imagine what a return to the sort of interest rates we saw even in the mid-1990s would do to a nation as indebted as the British.
History never repeats itself exactly, but I do remember all too well the misery of negative equity and repossessions that we endured during the last big upswing in rates 15 years ago. The real problem, however, is not so much the rise in rates but when that feeds through to unemployment. That is when people start to worry about their own futures, confidence starts to crumble and the housing market collapses as rapidly as it boomed.
As I say, there is every sign that such a cataclysm will be averted, such is the strength of the growth rate and still-modest retail price inflation. But there is still a chance of something quite nasty happening round the corner, and it is strange indeed to find oneself hoping that the Chinese economy will carry the rest of the world.
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