Darth Vader and the Sun King

John Malone has joined forces with News Corp in the battle to rule TV. Is he now poised to succeed Rupert Murdoch?

Until now, you could have fitted the candidates for Rupert Murdoch's succession around the dinner table of his Sydney flat. The desire of the billionaire media mogul to continue a dynasty established by his father suggested that the 69-year-old's seat would be assumed by one of his twenty-something sons, James and Lachlan. An outside bet was Wendy Deng, his equally youthful second wife. But into the mix has been thrown a Denver-based former academic with an aversion to flying and a profile as intentionally low as the Dirty Digger's is high.

Until now, you could have fitted the candidates for Rupert Murdoch's succession around the dinner table of his Sydney flat. The desire of the billionaire media mogul to continue a dynasty established by his father suggested that the 69-year-old's seat would be assumed by one of his twenty-something sons, James and Lachlan. An outside bet was Wendy Deng, his equally youthful second wife. But into the mix has been thrown a Denver-based former academic with an aversion to flying and a profile as intentionally low as the Dirty Digger's is high.

Under a deal announced last week, John Malone, chairman of Liberty Media, will become the second-biggest shareholder in News Corporation with a 20 per cent stake - only 2 per cent shy of the Murdoch family holding. Never before has an outsider been granted so privileged a position in the court of the Sun King. And, at 61, Dr Malone may be around even after News Corp's monarch has passed on. A good job then, perhaps, that Mr Murdoch appears to be back in good health after his recent prostate cancer scare.

It is not that Dr Malone has assumed his prominent position in News Corp over Mr Murdoch's dead body. After all, Dr Malone was one of the main investors who rode to the rescue of Mr Murdoch in the early 1990s when News Corp was on its knees. On Wednesday, when the extent of Dr Malone's future influence was revealed, the Dirty Digger was charm personified.

"Dr John Malone has been a trusted friend and adviser to News Corp for many years and we appreciate his investment," said Mr Murdoch, a man whose previous verdicts on rivals like Ted Turner are not fit for repetition in a family newspaper.

He was announcing a deal that would see Dr Malone sell his 20 per cent stake in Gemstar, a much sought-after electronic television guide, to News Corp. In return, Dr Malone's Liberty Media stronghold would receive shares in News Corp. Gemstar is considered a vital weapon in the battle for viewing preferences in the US, and it is in the Australian-born entrepreneur's adopted nation that arguably he is at his weakest. Although he is synonymous in the UK with BSkyB, Mr Murdoch's failure to conquer the American pay-TV market has been dismal.

"He has previously failed in the US with ASkyB and PrimeStar," says one analyst. "Now he wants to get back in."

With Gemstar in his armoury, Mr Murdoch should finally secure his target of DirecTV, the satellite broadcaster currently owned by - of all companies - General Motors.

So Dr Malone, who has made his headquarters in Denver, Colorado the hub of a global business, has become the key to the realisation of Mr Murdoch's dreams. Originally his name and fortune were made in cables, a business bought for $32bn (£22bn) last year by American giant AT&T. But this was no sell-out, Dr Malone having realised that the future lay in content. Liberty Media, his new vehicle, is akin to a gigantic investment trust with stakes in a glut of media ventures around the globe, including Telewest, the British cable TV group, Time Warner and Motorola.

It is not just Dr Malone's low public profile that singles him out from headline-seekers such as Mr Murdoch and Mr Turner. His political views are equally strong - like Mr Murdoch, he is a Republican - but he chooses not to proselytise. He avoids the punishing schedules on which his peers thrive and is said to work less than six hours a day. The son of a Connecticut engineer, he shuns the cook and chauffeur without whom most billionaires could not live. He and his wife have an aversion to flying, so the jet-setting that is a feature of the average media mogul's lifestyle is out. Indeed, the family holiday is invariably spent cruising across America, albeit in a luxury camper van the size of a bus.

Dr Malone's greatest asset is his brain, according to Adam Singer, chief executive of one of Liberty's major investments, Telewest.

"His is a phenomenal intellect," he says. "He could have been a Nobel economist."

Mr Singer describes in awe Dr Malone's ability to devour reams of statistics in a matter of seconds. It is an ability that was spotted by Bob Magness, the boss of cable company TCI, who took on the graduate of Yale and Johns Hopkins universities. He soon demonstrated another streak: ruthlessness. Finding that local officials were opposed to a plan to increase subscription rates, he cut off the connection and published the names of those local dignitaries deemed responsible. They backed down. By the 1980s, TCI was a world leader and Dr Malone was a media player, the man to whom even Ted Turner turned when his broadcasting empire was threatened.

Although even his rivals often had reason to thank him, Dr Malone remained a thorn in the side of politicians. Al Gore, the US vice president, dubbed him Darth Vader in tribute to his supposedly malevolent influence. The year was 1992, and TCI had just whipped up a storm by hiking its subscription rates. The upshot was America's Cable Act, handicapping the ability of cable companies to raise prices and scuppering Dr Malone's hopes of merging TCI with Bell Atlantic.

Since that reversal, Dr Malone has been applying his formidable intellect to the question of the future and who will control it.

"He has incredible patience," says Mr Singer. "In terms of position building, he sees things a long, long way off."

The sale of TCI to AT&T facilitated the creation of Liberty Media, a lean organisation of just 70 staff which has its fingers in an assortment of pies. Some of Dr Malone's investments are speculative, he admits, but that's the game.

"The risks are huge, and they're in every direction, but that's what we get paid for," says Dr Malone, whose speculation has netted him a personal fortune believed to be in the region of $1bn.

A consummate politician, he has kept his options open with all the candidates who have pretensions to dominance in the multimedia age. Bill Gates is a regular confidant, Ted Turner a fishing partner. Mark Schneider, who runs the Amsterdam-based UPC, is an old friend. Even Dr Malone's frequently cool relations with Viacom's Sumner Redstone are enjoying an Indian summer. But last week's events demonstrated that the Malone camper van is hitched firmly to Rupert Murdoch's wagon.

"This is a great deal for Malone," says one News Corp investor. "He really believes in News Corp."

Dr Malone clearly approves of News Corp's plan to hive off its pay-television assets to create a new quoted company, Sky Global Networks (SGN).

"We think SGN is in a great position to be the global consolidator in satellite platforms," says Dr Malone.

Not only has Liberty Media pledged to pump $500m into SGN when it floats later this year. Dr Malone's commitment to Mr Murdoch's vision may also affect some of his other investments - for instance Telewest, which is at once an associate and competitor of BSkyB in the UK.

However, with Mr Murdoch approaching his 70th birthday, Dr Malone's increasing influence has inevitably raised the question of the Dirty Digger's succession. His desire to keep it in the family is undermined by the youth of the two Murdoch siblings - Lachlan, 29, and James, 27 - most likely to succeed. His daughter Elisabeth, the former BSkyB executive once seen as a likely candidate, appears to have been ruled out indefinitely.

The assumption had been that Peter Chernin, president of News Corp, would play the part of the Protector until one of the younger Murdochs was ready to accede to the throne. The arrival of Dr Malone, a man who is more accustomed to ruling than serving, has forced Murdoch watchers to think again.

"He's probably not the successor," says Ed Hatch, managing director and media analyst at SG Cowen. "In the next 10 years, Rupert Murdoch's sons will grow into the job. But Malone will be an important adviser."

Others are not so convinced that this arrangement will be sustainable.

"Murdoch and Malone will fall out," predicts one analyst. "Murdoch always falls out with people in the end."

If that is the case, the admission of Dr Malone to the Murdoch citadel may prove one of the biggest mistakes since the Trojans opened their doors to a Greek horse.

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