Can Ted And Rupert Kiss And Make Up?

Why the squabbling moguls may do a satellite-TV deal

For years now, Ted Turner has delighted in taking shots at News Corp. Chairman Rupert Murdoch. He has called the Australian-born mogul a "slimy character" and "a dangerous person" in court depositions--and worse in off-the-cuff remarks. So how is it that Turner is helping to rescue Murdoch's collapsing plans for entering the U.S. satellite-TV business?

Credit the moguls' self-interest and John C. Malone for getting Turner to agree to have Murdoch become a partner in Prime-Star Partners, the cable industry's satellite-TV consortium. Since February, the chairman of Tele-Communications Inc. has quietly been steering Turner and Murdoch to combine Murdoch's ASkyB satellite venture with PrimeStar, backed by TCI, Time Warner Inc., and three other cable companies. The combination, which is expected to be announced by May 30, would put PrimeStar on a better footing against Hughes Communications Inc.'s DirecTV, the satellite leader.

WIDE REACH. Under the deal, which was ironed out over Memorial Day weekend in the Colorado offices of TCI Satellite Entertainment Inc., Murdoch would cede control of his key asset--a satellite slot capable of reaching every home in the U.S. In return, he'd take a 30% stake in a reformulated PrimeStar. But his shares would be nonvoting, and Murdoch caved on his request that the partners agree in writing to carry News Corp. programming. "Why should we sign anything?" says one party to the deal. "He needed us more than we needed him."

That's exactly how Malone sold the deal to Time Warner. For months, Time Warner Chairman Gerald M. Levin, siding with Turner, had refused to consider any agreement with Murdoch. But when News Corp.'s deal with EchoStar Communications Corp. fell apart on May 9, Murdoch seemed like less of a threat. Meanwhile, the cable operators behind PrimeStar grew covetous of Murdoch's satellite slot.

HARD SELL. Malone, who has longstanding ties to Turner and Murdoch, had first tried to structure a Murdoch-PrimeStar deal in March, 1996. Time Warner executives, rankled over Murdoch's plan to launch a rival to Turner's CNN, wouldn't agree. Starting this April, says a source at Time Warner, Malone pressed the case harder. And with TCI holding a 9% stake in Time Warner, Turner backed down.

Murdoch's satellite could give PrimeStar a badly needed boost. In the first quarter, subscriptions rose 70%, to 1.8 million, but PrimeStar lost $6.5 million on sales of $139 million. That compares with $1.6 million in losses on revenue of $91.2 million a year earlier. Moreover, about a third of Prime-Star's subscribers terminated the service last year, according to TCI Satellite.

Can Murdoch and Turner learn to live with one another--if the deal passes regulatory hurdles? For Murdoch, PrimeStar provides opportunities for more deals with cable operators to carry his programming. And Turner? As a PrimeStar owner and longtime ally of Malone, he's helped by the Murdoch deal. But, says an executive who attended a meeting between Turner and Murdoch in May, it's clear that there's still friction. "He hasn't forgiven Rupert for that Jane thing," says a Time Warner executive, referring to unflattering articles on Turner's wife, Jane Fonda, that ran in Murdoch's New York Post. Now, it looks as if Murdoch will have to make nice.

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