Sept. 12 (Bloomberg) -- Billionaire Kerry Stokes's Seven Network Ltd. today begins suing Rupert Murdoch's News Corp. and Kerry Packer's Publishing & Broadcasting Ltd., embroiling Australia's media moguls in a A$1.1 billion ($840 million) battle.

Stokes, 64, alleges News, Publishing & Broadcasting, Telstra Corp. and 19 others colluded to win Australian football rights for Foxtel Management Pty, Australia's biggest pay-TV network, forcing the closure of Seven's C7 sports channel in 2002.

Stokes is seeking as much as A$1.1 billion in damages as well as demanding the football broadcasting rights and a reshaping of Australia's pay-TV industry that includes Murdoch and Packer's exit from Foxtel. If he loses, Seven may have to cover its opponents' legal costs, which analysts estimate as high as A$150 million, more than double Seven's profit last year.

``The potential valuation swings for Seven from the outcome of this case are huge,'' said Bret Hucker, an analyst at Merrill Lynch & Co. He has advised clients to sell Seven's stock.

``While the downside appears lower, we would attach a higher probability to this outcome given the legal resources at the disposal of the defendants,'' he said.

Seven had held the rights to broadcast the Australian Football League for more than 40 years. The AFL's Grand Final is as important in Australia as the Super Bowl in the U.S., being the most-watched sports event with 2.8 million viewers last year, or more than one in every ten Australians. Losing the rights started a three-year slide in ratings for Seven in 2001, and forced it to close C7 the following year, Seven says.

`Weakened' Position

C7, founded in 1999, had provided sports channels to Singapore Telecommunications Ltd.'s Optus network and Austar United Communications Network Ltd., a pay-television network that broadcasts in Australia's rural areas. Seven said Foxtel's owners blocked it from airing C7 on their network, which weakened its position when it bid for the football rights.

Foxtel is owned by News, Publishing & Broadcasting and Telstra. News Corp., the media company run by Rupert Murdoch, a U.S. citizen since 1985, owns 25 percent of the pay TV network. Publishing & Broadcasting, which is controlled by Packer, Australia's richest man, owns another quarter, with phone company Telstra holding the rest.

Seven has hired law firm Freehills to represent its claim that Foxtel's owners colluded to outbid Seven for the AFL rights and also the rights to broadcast some National Rugby League matches in 2000, aiming to make it harder for C7 to compete with Foxtel or Fox Sports and ``effectively killing off'' the channel, according to Seven's statement of claim.

Court Exploration

``Seven's put together a reasonable case,'' said Angus Gluskie, who manages the equivalent of $422 million at White Funds Management in Sydney. ``They've definitely got an issue that they need to explore through the courts.''

News Corp.'s Australian unit, News Ltd., bought the free-to- air and pay television rights from the AFL in December 2000, selling the free-to-air rights on to Publishing & Broadcasting Ltd.'s Nine Network and Ten Network Holdings Ltd. and the pay TV rights to Foxtel. At about the same time, News and Publishing & Broadcasting also won the bid for the National Rugby League rights for their Fox Sports venture.

``Once Foxtel and Fox Sports had secured both the AFL and NRL subscription television rights, C7's future as a competitor was doomed,'' Seven said in its Nov. 2002 statement of claim. ``The supply contracts with both Optus and Austar were contingent on the AFL rights being available, and consequently, C7 closed in May 2002,'' it said.

Vigorous Defense

Greg Baxter, a spokesman for News, denied there was a conspiracy to outmaneuver Seven, saying that ``the company's position is that the claims are without substance and will obviously be very vigorously defended.''

Prue Christie, a spokeswoman for Telstra, said ``we don't believe that the claims have any basis and we will defend them.'' A spokesman for Publishing & Broadcasting declined to comment on the case.

Kerry Stokes, who owns 43 percent of Seven, is Australia's eighth-richest person with an estimated fortune of A$1.42 billion, according to BRW magazine's annual Rich List.

Seven first lodged its claims in November 2002. The case has been going through preliminary hearings since then and was postponed from a February starting date as both sides were waiting for expert opinions. Seven engaged the advice of Nobel Prize winner Daniel McFadden, a professor of economics at the University of California in Berkeley, for its case.

Legal Costs

Seven spokesman Simon Francis didn't disclose the total amount the company has spent on the case so far, saying it booked A$51 million in costs over the past two financial years and expects about A$27 million in costs this year.

The Federal Court of Australia in Sydney had to reconfigure court room 21A, its biggest, to make room for the legal teams of all parties involved, with media being accommodated in an adjourning room. The proceedings are expected to last about six months, Seven said.

``The range of outcomes for Seven is enormous,'' said Nola Hodgson, a media analyst at UBS, in a note to clients this week. Whatever Justice Ron Sackville's verdict will be after months of hearings, ``we expect that the losing party or parties will appeal.''

The lawsuit is Seven Network Ltd. & Anor v. News Ltd. & Ors., File number NSD 1223/2002, Federal Court of Australia.

To contact the reporter on this story: Miriam Steffens in Sydney at msteffens1@bloomberg.net

Last Updated: September 11, 2005 10:01 EDT