Murdoch blocked: Severe setback for media empire

RUPERT MURDOCH'S global ambitions received a rude shock yesterday when the Government stopped him getting his own way in Britain for the first time since 1969.

The rejection of his bid for Manchester United is the latest in a series of setbacks for the Australian-American's media empire. As well as blowing a hole in his strategy to dominate the future of British football, it might severely damage his present monopoly of British pay-TV.

At a time when he is investing heavily in launching a digital television service, he finds his British football monopoly threatened and his chances of building his business in Europe undermined. It is the biggest reversal for the billionaire's company since he was almost bankrupted by debts in the early Nineties.

One reason for buying Manchester United was as a hedge against losing the exclusive television rights to the Premier League. The threat to the contract comes from the Restrictive Practices Court, which is currently hearing a case brought by the Office of Fair Trading against the Premier League.

The OFT contends that the league acts as a cartel when it sells exclusive television rights for all the top English clubs.

The court's decision will be known in the summer and if it tears up BSkyB's deal with the Premier League, there will be a free-for-all as teams sell rights to their games to individual broadcasters, undermining his Sky Sports channels.

The setback comes after a series of rebuffs for Mr Murdoch in his attempt to break into the lucrative continental market for pay-TV. Proposals to merge BSkyB with Canal Plus of France were recently rejected out of hand. Pierre Lescure, head of Canal Plus, was quoted as saying that there was a time when he was a little afraid of Mr Murdoch. "We are no longer afraid. We are at least his equal now." Attempts to break into the Italian and German pay-TV markets have been similarly rebuffed.

Seasoned City observers said last night the unequivocal nature of the Monopolies and Mergers Commission's findings against BSkyB, as well as its exceptionally hostile tone, were virtually unprecedented. Extreme scepticism is expressed throughout the report, and on a number of occasions the MMC states that it doesn't believe or trust Sky's undertakings or statements.

One investment banker said: "The regulators have come down on him like a ton of bricks. This doesn't bode well for his ambitions, either in Britain or beyond. The MMC seems to be saying he is a monopolist who must be curbed."

Even if the Restrictive Practices Court allows the Premiership to continue selling television rights on the existing basis, BSkyB's contract with the League ends in 2001.

After 2001 big revenues from pay-per-view football may tempt some clubs to set up their own television channels to screen games and cut out broadcasters such as BSkyB. Mr Murdoch needed Manchester United to secure the biggest draw in the pay-per-view market. The other threatening scenario after 2001 would be if the Premier League itself set up a television channel to sell games to cable, satellite and digital broadcasters.

The decision will also have an impact on Mr Murdoch's plans outside the UK. Ownership of Manchester United would have given him a say in the shape of any future European super league - and in who wins its television rights.

This is the first regulatory reverse for Mr Murdoch in the UK since he tried to become chief executive of London Weekend Television in the late Sixties, and it may have an impact on his close links with Tony Blair.

Many Labour MPs opposed the deal and feared the Government would try to find a way to wave it through.

The special Blair-Murdoch relationship was sealed on the first night of the 1997 general election campaign, when Stuart Higgins, editor of The Sun at the time, telephoned the Prime Minister's press secretary to tell him the Murdoch-owned paper was to declare its support for Mr Blair on the next day's front page.

The contrast with the previous election could not have been greater. On polling day in 1992, The Sun's front page, showing Neil Kinnock's head superimposed on a lightbulb, said: "If Kinnock wins today, will the last person to leave Britain please turn out the lights."

Mr Blair adopted a very different strategy with Mr Murdoch from his predecessors, epitomised when he flew to Hayman Island off Australia to address Mr Murdoch's editors and executives at his News Corp's annual brain-storming session.

What, if anything, did Mr Murdoch get in return for supporting Mr Blair? Perhaps the two things that mattered most to him. First, Labour dropped its previous plans for a tougher regime on cross-media ownership, which would have forced him to sell some of his newspapers to keep BSkyB.

Second, the Blair government rejected demands in Parliament to stop "predatory pricing" by newspapers, a tactic pioneered by The Times, owned by Mr Murdoch's News International. However, there is growing concern within News Corp that this concession may now be in jeopardy. John Bridgeman, director- general of fair trading, is due to decide shortly whether to refer the matter to the Competition Commission.

Mr Blair has also helped Labour's old adversary by watering down trade union recognition rights, after fierce lobbying by News International, and by supporting Mr Murdoch's hopes to expand into Italian television during a phone call with Romano Prodi, who was Italian prime minister at the time.

Although Mr Murdoch will not be happy about the Government's decision to block BSkyB's bid for Manchester United, some aides do not believe he will regard it as a "make or break" issue. Others take a different view. One said: "Blair will be punished for this."

Ministers, naturally, hope otherwise. "We don't think he will go to the stake over this," a government source said last night.

There is little enthusiasm in Mr Murdoch's group for William Hague, despite the Tory leader's opposition to the single currency. Mr Murdoch, who likes backing winners, may calculate that it is in his best business interests to stick with Mr Blair.