Outlook: Murdoch again

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COMMENTING on the business affairs of Rupert Murdoch has become a bit like the old science of Kremlinology. An almost comparable industry has built up around him in the media and since little in his world is ever fully explained, it becomes wide open to guess work, conspiracy theory and inventive interpretation. So what to make of the confirmation at tea- time yesterday that the billionaire media mogul has stepped into the chairman's shoes at BSkyB?

Already a great deal has been written about this and boy are there some splendid theories about why it's happening. Actually, the real reason is probably the most innocent. His company controls 40 per cent of the stock, there is a vacancy, BSkyB is invariably described as Mr Murdoch's company, he will undoubtedly make a good chairman, so why not?

Even so, there does seem to be a certain symbolic significance in Mr Murdoch formally taking the reigns of power, as opposed to pulling them from behind the scenes as he has in the past. There is nothing wrong with BSkyB operationally, although the digital launch is proving tougher and more costly than anticipated, but strategically the company is all at sea, and Mr Murdoch knows it.

BSkyB's share price has mysteriously moved ahead of late, even though market share is dwindling and profits are being bled to grow its start- up digital business. Yet, what should be alarming for shareholders and here we must include Mr Murdoch who holds a 40 per cent stake, is the weakness of the satellite broadcaster's long-term strategic positioning.

This is a function of three factors. The first two are straightforward: BSkyB has failed to secure a meaningful European expansion and it is unable to pursue significant vertical integration since the DTI blocked the takeover of Manchester United. The third weakness is BSkyB's dependence on satellite distribution in an age when broadband cable offers greater interactivity and more diverse revenue streams.

Already the three UK cable companies - despite woeful service and product launch delays - collectively carry a market valuation almost double that of BSkyB. That translates into financial muscle that could be used to act as a powerful counter to Mr Murdoch in securing future content.

It would be silly ever to write BSkyB off. The company's monopoly of pay TV is still largely intact and it is a long way from being out of the race. But it has less room for error than at any time in the recent past. From an also ran only a few years back, Canal+ has become the dominant force in pay TV on the Continent. Operationally, it is now a more substantial player in Europe than Sky, despite its less glamourous stock market rating. Its biggest shareholder, Vivendi, is also the second biggest shareholder in Sky after News Corp. If Mr Murdoch doesn't watch it, he's going to get outmanoeuvred. This, perhaps, is why Mr Murdoch has decided to play a larger role in the crucial years ahead.