Murdoch foxes TV rivals: Big Three US networks were caught off guard by the tycoon's pounds 330m coup
Sunday 29 May 1994
The Big Three networks in the United States - CBS, ABC and NBC - are smarting after being caught off-guard by this week's announcement that Mr Murdoch has engineered a deal in which a clutch of television stations will defect to his Fox Broadcasting Company.
In the shifting sands of commercial broadcasting, this may seem relatively trivial - but it is not. For Mr Murdoch, the move is a significant victory in his battle to turn Fox into a fully fledged fourth US television network, capable of wielding considerable influence. He is another step nearer to an all- encompassing media empire.
Under US broadcasting laws, companies can only own outright a maximum of 12 stations (or fewer, if their stations reach more than 25 per cent of the national audience). So the networks own a handful of their own stations, and pump out their wares through affiliated local companies, scattered across the market place. Wooing strong affiliates into the fold can produce big returns in advertising and valuable ratings.
Mr Murdoch has struck a deal with New World Communications, a media group run by his friend, Ronald Perelman, the billionaire owner of Revlon cosmetics and Hollywood powerbroker. News Corp will invest dollars 500m (pounds 330m) in New World, and receive a 20 per stake of non-voting shares in the company.
In return, a dozen stations controlled by New World will switch from other networks to Fox over the next 18 months. Mr Murdoch's aides were trumpeting the pact as 'the biggest affiliate acquisition in television history'.
Some of these stations are coveted outlets, commanding large audiences in big city markets - including Atlanta, Dallas, Detroit, Phoenix and Austin. Together they cover more than 8 per cent of the country, a sizeable chunk. Furthermore, they all broadcast on VHF, as opposed to the weaker UHF bands on which many Fox affiliates operate.
Eight of the stations are affiliates of CBS, the top-rated network that for so long seemed invincible. Only two weeks earlier, Laurence Tisch, its chairman, was gleefully informing the annual shareholders' meeting that the network was number one in all three of the key segments - prime time, daytime and night viewing.
It is an understatement to say that the news that it has lost out to a raid by the upstart Fox is a shock. CBS found out just after 9am on Monday when Tony Malara, the president of affiliate relations, picked up the telephone. It was William Bevins, New World's chief executive. 'I've got an announcement,' Mr Bevins said. 'We're switching to Fox.' 'In which market?' asked a startled Mr Malara. 'All of them,' came the reply. Within hours, a CBS corporate damage control operation was in full swing. Although it had lost coverage in more than 8 per cent of the US, CBS insisted that the impact on ratings would be small. But investors took fright. CBS stock fell dollars 15.5 to dollars 288 on the day of the announcement.
Later Howard Stringer, president of CBS Broadcast Group, threatened retaliation: 'The war is started, and any complacency will have to be banished from CBS. Every time I dial M for Murdoch I lose a finger, but I haven't lost a hand, and I can still punch.'
This was not the network's first bruising encounter with Fox. In December, Mr Murdoch outbid it by more than dollars 400m for the rights to National Football League games - one of the two most popular television sports in the US, which CBS has transmitted for nearly 40 years. (The ratings this brought with it was one reason why affiliates have readily switched to Fox.) Executives from the other networks also did their best to put on a brave face. The saga was considered to be of such significance by the New York Times that it led Tuesday's front page.
The US television industry is now bracing itself for a poaching war. CBS will have to find replacements in the markets it has lost. 'Fox has indeed turned the industry upside down with the deal,' said Variety, the entertainment industry trade paper. It had created a 'sense of anarchy' and set the stage 'for a battle for stations that could result in a shuffling of alliances unlike any seen before in television'.
But Mr Murdoch still has some way to go before he can claim full network status. Fox still lacks some of the trappings of the big time. It broadcasts fewer hours of prime-time televisions than the others. It does not have a national news programme, although it is working on it. (Could this be one reason for the move to New York by Andrew Neil, editor of the Sunday Times, to head a current affairs programme?) It has no day-time soap opera and no late night television show. 'We are getting closer to parity,' Mr Murdoch said this week, 'We are about three-quarters of the way there.' He has estimated that the new affiliates, plus several more similar acquisitions that are still in the pipeline, could increase Fox's cash flow by up to dollars 100m.
There may yet be hitches. The New World deal has stirred up claims that Fox is exploiting loopholes in the federal broadcasting laws. By acquiring only non-voting shares in New World, Mr Murdoch has avoided running foul of the limits on station ownership. A non-voting stake is not counted when the federal authorities tot up a company's station holdings. But there have been rumblings of discontent from critics who say that Fox in reality has de facto control of an excessive number of stations and is manipulating the rules outrageously - whatever the cleverly contrived paperwork says.
These are not the first complaints. The National Association for the Advancement of Coloured People has filed a petition with the Federal Communications Commission (FCC), the US broadcasting regulatory body, alleging that Mr Murdoch is violating a federal law barring foreigners from owning more than a 25 per cent stake in US broadcast properties.
The organisation believes that Fox's expansion does nothing to increase diversity in broadcasting. If the petition is upheld by the FCC, Mr Murdoch could theoretically be stripped of his licences, although this is seen as highly unlikely by industry observers. News Corp lawyers this week responded to the petition by conceding that 99 per cent of the money that finances Fox television stations comes from News Corp and Twentieth Holding Corp (THC), both based in Australia. But they said that foreign ownership is arguable because Mr Murdoch, who owns 76 per cent of THC, is now a naturalised US citizen.
The chances are that none of this will matter. The FCC has a reputation for siding with broadcasters, especially powerful ones. This weekend, as he contemplates his new trophies Mr Murdoch must feel like bursting into a few triumphant verses of the Star-Spangled Banner.
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