Murdoch boxed into a corner over stake in Fox
Tuesday 25 April 1995
in New York
For Rupert Murdoch the good news is that he will get to keep his US television network, Fox, which generates about a third of his worldwide broadcasting earnings. Less good is the prospect of radically restructuring his ownership of it at a potential cost of several hundred million dollars.
That is the intent of a recommendation now before the Federal Communications Commission in Washington. The proposal, prepared by the FCC's own mass media division, suggests that Mr Murdoch be obliged to reduce his equity stake in his eight Fox stations from 99 per cent to less than 25 per cent to comply with a 60-year-old foreign ownership law.
If it is approved - the FCC's five commissioners are known to be divided on the proposal - it would not amount to anything terminal for Mr Murdoch and Fox, but it would be highly inconvenient and costly. It would also stir powerful controversy among Republicans in Congress, who are already moving to repeal the regulation.
At issue are the circumstances under which Mr Murdoch acquired his original six Fox stations, with FCC approval, a decade ago. Born in Australia, Mr Murdoch took on US citizenship at the time to satisfy the foreign ownership restriction. Critics argue that he misled the FCC, however, because the bulk of the money for the purchases was put up by News Corporation, his worldwide media empire that is based in Australia.
Specifically, a petition to strip Mr Murdoch of his Fox licences was submitted to the FCC two years ago by the black civil rights organisation, the NAACP, which feels that minority companies are being unfairly squeezed out of the industry. The NAACP was joined by NBC, one of the three established networks. A few months ago, however, NBC withdrew, apparently in return for a birth for its programming on Mr Murdoch's Star TV in Asia.
The FCC proposals fall short of what the NAACP would like. But Mr Murdoch is still spitting fire. On Sunday he lashed out publicly at the FCC chairman, Reed Hundt, a Clinton appointee. Mr Hundt, he said, has "led an attack on our company acting as both prosecutor and judge and using clearly prejudicial procedures".
If the proposal is passed, Mr Murdoch would have several options. First, he could fight it in the courts. In the meantime, he would doubtless try to speed proceedings in Congress for the repeal of the relevant laws.
Things will become difficult for him, however, if he is forced to comply. Media analysts forsee two viable routes. He could simply sell his stakes in the eight stations he now owns. In addition to the eight, there are 158 Fox affiliates around the country that make up the rest of the network. It is the eight, together worth an estimated $2.5bn, that make most of the profits and finance most of the Fox programmes. Losing control over them would not be appealing.
The other avenue involves transferring the stakes in the form of a loan to one of Mr Murdoch's US-based companies. News Corporation itself would forgo the profits, but receive interest payments on the loan. That strategy, however, would open Mr Murdoch to enormous capital gains tax costs, put by some analysts at up to $500m.
Some investors in News Corporation are speaking out in support of Mr Murdoch. Gordon Crawford, who manages money for American investors with 9 per cent of News Corp, said: "To go back and penalise him retroactively seems grossly unfair. He is a US citizen living in Los Angeles."
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