News: Analysis & Commentary: DEALS
TWO FOR THE I-WAY
Rupert Murdoch is on a roll. In early May, he announced that his News Corp. had notched up $220 million in pretax profits for the third quarter, a hefty 20% gain. On May 4, the Federal Communications Commission O.K.'d Australia-based News Corp.'s ownership of Fox Broadcasting Co. The next day, he hopped on a plane to Los Angeles, where he shook hands with MCI Communications Corp. Chairman Bert C. Roberts Jr. to cement a deal that stunned the communications world: a 50-50 joint venture designed to put the companies on the leading edge of the multimedia revolution.
As part of the deal, announced mn May 10, MCI agreed to invest up to $2 billion for a 13% stake in News Corp. The deal has significance well beyond the money involved, though: The venture aims to meld MCI's high-tech distribution network and sophisticated billing systems with News Corp.'s vast supply of movies, TV shows, and newsgathering capability. Neither company will discuss specific plans, but both acknowledge their intent to distribute information, education, entertainment programming, and new pay services around the globe. Says Murdoch: "Both companies understand how the market is changing."
FEARFUL SYNERGY. Talks between Murdoch and Roberts began last fall. Over the course of several informal meetings at industry gatherings, the two executives saw that their companies had complementary skills and cultures. For MCI, the combination builds on its efforts to diversify away from the commodity long-distance industry and into content-oriented businesses with high profit margins. Last year, it began selling its own software program and new services for the Internet. And in March, the company announced a venture with the Public Broadcasting Service to develop and distribute electronic information.
The tie with Murdoch has the potential to take MCI much further along the I-Way than any of those deals. Potential rivals recognize that. "MCI doesn't bother me," says Tele-Communications Inc. Chairman John C. Malone. "But Murdoch scares me to death." And British Telecom PLC, MCI's largest shareholder, is thrilled. "The opportunities are limitless," gushes spokesman Ted Graham. With profits up, the FCC imbroglio over, and a big multimedia deal in hand, Rupert Murdoch couldn't agree more.By Mark Lewyn in Washington, with Ron Grover in Dallas and Paula Dwyer in London