How Rupert Keeps Doing These Deals

It always has seemed easy to dismiss Rupert Murdoch. Despite a globe-girdling array of venerable media properties--The Times of London, Twentieth Century Fox, TV Guide--the brash Australian mogul has been hard to take seriously. Perhaps it was his early years as a muck-raking publisher or, later, his assortment of unabashedly sleazy tabloids that put people off. Perhaps the world has never come to terms with Bart Simpson, animated bad boy of Murdoch's Fox television network.

As much as anything, though, Murdoch set himself apart by the way he paid for it all. This was empire-building on the edge, financial loosey-goosey in the wild and largely uncharted world of Austral-

ian accounting standards. Through the 1980s, he took on billions in debt, liberated by Australian rules that allowed him to overstate the value of his varied assets. And in 1990, it all nearly came crashing down, forcing an international consortium of lenders to restructure a kingdom on the brink of bankruptcy.

MERELY THE BEST. Now, relaxing in his sun-drenched office on a Fox studio lot that's in the middle of a $20 million renovation, Murdoch is the very picture of financial security. Signs for his new FX cable station, launched June 1, litter the lot. And his conversation is sprinkled with discussions of new satellite ventures in Europe, Latin America, and Asia. "We intend to build the best media company in the world," he says.

Idle braggadocio? Consider that since July, Murdoch's News Corp. has announced a staggering $3 billion worth of deals. The biggest: last December's preemptive $1.6 billion bid to bag television rights to National Football League games. The latest: his industry-jarring, $500 million strike to steal away 12 broadcast station affiliates, eight of them from network front-runner CBS Inc.

Together, those transactions have re-established Murdoch as the media industry's preeminent swashbuckler. This was the man who bought also-ran independent television stations in the mid-'80s and acquired a broken-down movie studio just as home video and cable began thirsting for old movies and TV shows. "He's a throwback to the risk-takers of old," says former NBC Inc. Chairman Grant Tinker. "He understands that you have to spend money to make money, especially in the entertainment media."

Spending money has never been Murdoch's problem. But until recently, paying the bills was. In October, 1990, after missing a $500 million payment on his $7.6 billion in bank debt, Murdoch told News Corp.'s 146 lenders that his company would be unable to pay another $2 billion coming due in the next quarter. "We were doing so much," he says now, "and the banks were just throwing money at us." Only a series of late-night meetings, part of a rescue effort code-named Dolphin, saved the company. Murdoch agreed to sell off assets and slash debt by $2 billion.

Now, after years of lurching from one cash crisis to another, News Corp., 32.6%-owned by Murdoch and his family, is flush. Cash flow from the company's $8 billion in operating revenues more than doubled last year, to $864 million. News will comfortably produce more than $1 billion in cash this year and next, predicts Oppenheimer & Co. analyst Jessica Reif. Through two refinancings in the past 18 months, it has shaken off most of the covenants that restricted it from raising new debt. The crisis that nearly brought Murdoch down three years ago is well past.

It shows. Even as he bathed in the glow of his most recent coup, it was clear to all that Murdoch, 62, aims at ambitions grander than simply beating the Big Three TV networks in ratings wars. He talks of creating a global village of electronic properties that will beam their signal into every nook of the planet. Hence, the $525 million paid last year for a 64% stake in Star Television Network, a money-losing Asian satellite network, and the $2 billion or more he spent to launch Britain's BSkyB Television. In the U.S., Murdoch is building a system that promises to bring games, education, and communications to computer users. He's contemplating an all-news network and maybe a few more cable channels.

Then, there's Fox network. The onetime ragtag affiliation of poor, independent television stations remains the cornerstone of Murdoch's U.S. ambitions. His May 23 deal to bring on the 12 stations owned by New World Communications Group Inc. is only the first such move, says Murdoch. Within a few months he expects to add at least one, and perhaps as many as four, other CBS affiliates to the fold. He also intends to bid on other major sporting events, possibly major league baseball.

How does Murdoch intend to pay for such aggressive growth? His deals in the past year provide clues: He has used thriving projects to fund startups, taken on joint-venture partners, and offered equity in addition to or in lieu of cash. Chastened by his restructuring debacle, Murdoch is less likely these days to take on debt--and his filings these days adhere to U.S. accounting rules. "I've learned a lesson," he says. "Now, we're going to do things more conservatively." Even so, News filed a shelf registration in the U.S. late last year for $1 billion in senior subordinated debt securities. When you're Rupert Murdoch, debt is never very far away.

To win Hong Kong-based Star, Murdoch agreed to pay the family of billionaire Li Ka-shing, which owned Star, cash and stock. Still barred by covenants from taking on more debt, he unloaded his 35% interest in the South China Morning Post for $349 million to raise the cash portion of the deal. He issued 50 million new shares in News to the Li family for the remainder, giving them a 2.7% stake that they since have sold.

GAMESMANSHIP. The enormous NFL package won't be so complex: Murdoch will fund the contract out of operations. The price will be steep, though. On top of the $1.6 billion Fox must pay over the contract's four-year life, it will spend at least $20 million annually to produce its telecasts--including a breathtaking $8 million alone to on-air analyst and former football coach John Madden. Murdoch admits Fox stands to lose upwards of $100 million a year on the broadcasts; rival network executives put the figure at closer to $200 million.

Outrageous? Try thinking of the deal, as Murdoch does, as an enormous marketing strategy to boost his still-growing network. Football, he and industry analysts believe, will lift prime-time ratings at the eight Fox affiliates he owns--including some in such football hotbeds as Washington and New York. Higher ad sales from those stations could boost cash flow by some $40 million.

Then there's the still uncertain cachet that Fox will get from its association with America's most-watched televised sport. Analysts figure Fox, which collected $550 million last year in up-front ad sales, could add an additional $50 million or more in the upcoming ad sales season. "If it works the way it looks like it will work, no one is going to be unhappy at all," says KMSB General Manager Ken Middleton, in Phoenix. "Look at the visibility NFL football's already given me."

Such contentment has its price: Fox's 182 affiliates will be helping to foot the bill. Affiliates say Fox no longer intends to pay them fees to compensate for a loss of viewers to the new FX channel. In addition, Fox intends to take back at least three of the 90 half-minute prime-time advertising slots it gives its affiliates throughout the week. Taken together, the moves could add $20 million a year to Murdoch's bottom line.

Does that pricey football contract sound better now? Murdoch clearly hopes it will work the same magic that soccer worked for BSkyB Television, of which News Corp. owns 50%. News lost a staggering $1.2 billion on the operation in 1989--precipitating the big restructuring. Then came its $456 million deal to telecast Premier League soccer games starting in 1992. The Brits, ever-hot for soccer and emerging from a long recession, signed on in droves. Today, BSkyB boasts 3.2 million subscribers for its six channels.

More important, the one-time weak venture has turned cash cow, funding new ideas as Murdoch begins to expand his empire once more. BSkyB's revenues are expected to grow by 57%, to $742 million this year, predicts Barclays de Zoete Wedd Inc. analyst Vignesh Padiachy. By 1998, revenues will grow to $1.8 billion, he says. Last December, the satellite service issued $150 million in dividends. And this spring, it used its robust balance sheet to raise $750 million in bank loans, which will pour some $315 million into News Corp.'s war chest.

TINSELTOWN SUCCESS. Some of that may help finance Fox's $500 million investment in New World--though most of the funds will come from operating cash and from selling existing Fox stations in Atlanta and Dallas. Murdoch is constantly testing the financial waters: Last year he sought permission in Australia to issue nonvoting common stock, to be used to enter joint ventures with technology companies. That didn't fly. Even so, he is increasingly turning to joint ventures, such as his alliance with Aussie Kerry Packer's Nine Network Australia Ltd. to bid for a satellite pay-TV license in that country.

Murdoch's eye for expansion can seem unsettling, coming so soon after some lean years. But reports from around the News empire indicate that most of the old troubles have been smoothed out. The Fox film studio, which suffered through two years of lackluster films before last year's megahit Mrs. Doubtfire, seems poised for a strong summer with the action films Speed and True Lies. And after cutting the cover price of his London papers to boost circulation, his newspaper division has again become a prodigious moneymaker.

Star Television is still losing money and faces the threat of competition on several fronts, including planned new services from Ted Turner and Viacom Inc.'s MTV. Several governments, notably China's, still place restrictions on consumers' ownership of satellite dishes. Still, Murdoch is investing heavily in the network and has increased program offerings in separate deals with Indian and Chinese outfits.

The one real fly in Murdoch's ointment, in fact, is the Fox network. Despite the raid on CBS and the big football contract, the eight-year-old network still is struggling with its prime-time lineup. Except for such hot shows as The Simpsons and Melrose Place, ratings were down this year, even among its hard-core audience of young, urban viewers. Ratings did perk up during the May sweeps, but that hasn't stopped critics from sniping. "We're now in a cycle of `look how bold Murdoch is,"' says Howard Stringer, president of CBS Broadcast Group.

Well, yes, Murdoch is bold. He knows how to spend money. He appears to have learned how to contain his passion for debt. His thirst for the deal knows no bounds. If they did not before, critics surely understand now: You dismiss Rupert Murdoch at your own peril.

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