View from City Road: Murdoch's sky is far from clear

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The Independent Online
It would be rash to assume Rupert Murdoch gazes out on a cloudless sky. While his gamble to boost BSkyB revenues by making most of the channels subscription- only appears to be paying off, the same cannot be said of his equally audacious bet on winning a newspaper price war.

BSkyB's strengthening cash flow should help to sustain News International's price cut strategy longer than would otherwise have been the case, but the real test has yet to come.

Buying circulation is only economic if advertisers can be convinced that the additional readership generated is worth paying for - or if the opposition can be driven out of business. Advertising revenues at the Times and the Sun are modestly higher, by around 5- 10 per cent, but that probably reflects a general improvement in the economic climate.

Only if the Times and the Sun can hold their higher circulations once their cover prices rise again - and if new readers are from the right target market - will advertisers be prepared to shell out.

As for driving the opposition out of business to secure a more permanent increase in readership; the Sun's strategy has had only the most limited success. Mr Murdoch must have been disappointed not to queer the Mirror's partial float last September, and still more so to find that its circulation seems to be weathering the storm.

The Times has probably been a more rewarding gamble: it has proportionately put on more circulation and has undoubtedly sucked some readers from the Express, though the latter is hardly in peril. In fact, the main impact of the price cuts has probably been to enlarge the market.