Murdoch still planning his Euro invasion

The Australian tycoon will not let his plans to break into continental Europe be frustrated by his failure to buy Manchester United

Everyone falls out with Rupert Murdoch eventually." That was the tart conclusion of one prominent media analyst following last week's sudden departure of BSkyB's chief executive Mark Booth.

BSkyB adamantly denied a rift. The official explanation was that Booth had been offered a dream opportunity by Microsoft to pursue his interest in the internet with the carrot of a trail-blazing pay package. Murdoch, whose News Corp owns 40 per cent of BSkyB, does not like seeing his top executives defect to the opposition, particularly when the beneficiary of their experience is Bill Gates. So he came up with his own $300m (pounds 180m) fund to invest in the web and Booth accepted the new job, encouraged by the promise of a large stake in the new company.

BSkyB's surprise announcement contained fulsome praise of Booth's performance at BSkyB, particularly of his role in the launch of the company's digital television service, which has attracted 350,000 subscribers in its first four months.

But BSkyB's announcement left many observers suspicious. "I don't know anyone who would turn down a $25m package," says one well-paid City banker in reference to the salary Microsoft was reported to have offered Booth.

"I am a little surprised that Booth would move from the helm of a multi- billion pound company to a fund with just $300m to play with," one analyst wondered. The hunt for another explanation for Booth's move had begun.

The immediate thought was that Booth, a 43-year-old American who joined the Pay-TV group from MTV in 1997, had fallen out with the managing director of Sky Networks - one Elisabeth Murdoch, Rupert's daughter. BSkyB's response was immediate: Booth's successor would come from outside BSkyB, ruling out Elisabeth.

Others wondered whether this was Rupert's revenge for BSkyB's failure at the hands of the Monopolies & Mergers Commission to buy Manchester United, although Murdoch appears to be accepting the setback with unusual equanimity.

Perhaps Booth simply tired of the job. He is known to have been suffering from flu at a time when Sky Digital requires his constant attention. One City analyst comments: "It is an extremely difficult company to run and it takes a lot out of you."

But others focused on the idea that Booth felt that his job was being threatened by a pincer movement between father and daughter.

Booth is thought to have felt sidelined by his boss's eagerness for a tie-up with CanalPlus, the French media group which Murdoch hopes to use as a bridgehead for his assault on the European pay-TV market.

Much to Booth's chagrin, Murdoch appeared willing to give up management control of the merged group. In any event, the French government blanched at any prospect of Murdoch gaining influence there and the deal died.

Jon Watts, of Spectrum Strategy Consultants, says: "The major challenges for Booth have passed. Digital was launched, British Interactive Broadcasting has come through its most difficult phase. The major challenge now is to broaden Sky's appeal from sports and films to a more general entertainment audience and the person positioned to take on that challenge is Elisabeth Murdoch.

"If Rupert Murdoch intends to take the lead in Europe and Elisabeth is running programming, Booth's is not the most challenging post."

What most analysts agree on is that Booth had for some time been on the lookout for another job. For one thing, he did not appear to share his boss's eagerness to attack the Continental pay-TV market which has become the unrequited love of Murdoch's life. That difference probably made their relationship untenable.

Deal after deal has eluded the media tycoon. His initial target was Germany, but attempts to ally himself with the domestic media giants - Bertelsmann, Deutsche Telekom and Kirch - have come to nothing.

Next he turned his attention to Italy. His intent was signalled last November when he hired Letizia Moratti, the former Italian state broadcasting chief, to head up his new venture, NewsCorp Europe.

But a much-vaunted deal with Telecom Italia failed to materialise, leaving TelePlus as the dominant Italian player. Last week, Murdoch finally secured a 35 per cent stake in an Italian digital TV station, Stream, but analysts remain unconvinced of that deal's merits for Murdoch.

Mathew Horsman, media analyst at Investec Henderson Crosthwaite and the author of Sky High: The Inside Story Of BSkyB, remains sanguine about Murdoch's chances of cracking the European nut.

"He has an extraordinary interest in going into Europe, which has been frustrated so far by real or perceived regulatory problems," he says. "But he got into Italy after a struggle. It will take time and lots of money but I believe he will get there."

Others are less convinced, and feel that Murdoch puts them off: "If BSkyB had normal investors, rather than News International, it would be the partner of choice for European media companies," says one City banker.

The theory goes that the viewers of the future will access television via the internet, much as radio listeners are able to tune in. In that event, governments will be powerless to prevent companies like BSkyB broadcasting wherever they want. Murdoch would have whatever access to Continental viewers he wanted and the need for alliances with European media groups would disappear.

"How do you stop Manchester United against Inter Milan, for example, being sent across the internet rather than on TV?" asks the City banker.

"What would be the point of a broadcasting licence then? It would be impossible for governments to interfere. I think this is something which Murdoch is beginning to take on board."

With universal distribution, the key to success would be control of content. Hence Murdoch's desire to buy Manchester United.

That deal foundered. But who's to say the next time Rupert swoops - perhaps on continental European football - he won't succeed?