Murdochs aim was to construct an entertainment-information conglomerate on top of his existing newspaper properties. When Warner (or Warner Communications, as the parent company was called then) spurned his 1984 offer, he promptly went on to purchase 20th Century Fox as his bedrock and from that base built an international company that includes a American broadcast network, 28 terrestrial US television stations, several satellite broadcasting entities, a profusion of cable television channels, an immensely profitable news network, and more.
Thirty years later, the 83-year-old Murdoch is throwing $80 billion at TimeWarner, which recently shed its print properties, for a new reason. Having exceeded his infotainment empire goals, Murdoch still needs to expand his business to compete with other jumbo-sized media conglomerates, such as the number one revenue-generating conglomerate, Comcast which owns NBC and Universal, and has a bid pending regulatory approval for Time Warner (no relation anymore) Cable and number two conglomerate Disney, which owns a line-up of properties similar to that of Murdoch. If Murdochs number four conglomerate, 21st Century Fox, succeeded in swallowing number three, TimeWarner, it would become the new number two.
Getting bigger for bignesss sake makes sense for a sumo wrestler. But does that apply to a media conglomerate
Although Foxs proposed purchase of TimeWarner sounds like a film-studio deal, the film units are secondary at both companies, with cable networks producing the greatest revenues at both and Disney and Viacom as well. The screen at home eclipsed the screen at the multiplex long ago, and is still growing, which is a main reason Murdoch covets TimeWarners cable channels (HBO, TBS, TNT) which out-earn those of the other media conglomerates.
A woman walks past the Time Warner Center near Columbus Circle in Manhattan, New YorkBy combining his cable networks (Fox News, et al) with TimeWarners, Murdoch will gain the bulk he needs for future negotiations with Comcast. Comcast currently dominates deliberations about which channels get piped to American home screens and how much theyre paid. Murdochs proposed deal could give him the sort of leverage Disney has with Comcast, thanks to its control of ESPN.
Theres a panic element to the Murdoch offer, too. At the age of 83, how many more deals can he possibly consummate Of course, thats what they all said when Murdoch was 73, and had not yet bought the Wall Street Journal for $5 billion. But 83 is not the new 73, as the actuarial life tables will tell you. The ambition of the deal reminds me of the last great wave of newspaper consolidation in the 1990s, when the illusion of permanent monopoly-level profits drove prices up. The New York Times bought the Boston Globe and its properties for $1.1 billion and the McClatchy Company chain purchased the Minneapolis Star Tribune for $1.2 billion. Both deals were heralded by all observers as shrewd, brilliant business moves. But by 2013, the Globe was marked down and sold for $70 million. Just this summer, the Star Tribune went for a crummy $100 million.
The value of the Globe, the Star Tribune, and every other American paper of note suffered because the moat that once insulated them from advertising competition was breached by the low-cost Web. Buyers found better, cheaper ways to publicise and sell their goods and services, deserted dailies, and continue to do so.
Similar moats protect the cable companies, such as Comcast, Time Warner Cable, Cox, Charter, and AT&T. The nastiest moat is regulatory, with few jurisdictions making it easy for cable newcomers to string line and sign up customers, although Google has made progress on that front recently, as has Verizons FIOS. This regulatory protection has given the cable companies a near stranglehold over distribution. As previously mentioned, the cable companies determine which channels gain carriage on their systems, and dictate economic terms to the existing channels, especially the smaller ones.
Murdoch once attempted to break the stranglehold with his investment in satellite broadcaster DirecTV, which was to beam his channels (and those of other programmers) directly into the cable operators markets.