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Murdoch-Diller Showdown Threatens to Make Fox Cable-Only

April 09, 2013

Murdoch-Diller Showdown Threatens to Make Fox Cable-Only

News Corp. said yesterday it may end Fox’s 26- year run as a free broadcast channel if U.S. courts continue to allow the Diller-backed Internet startup Aereo Inc. to retransmit broadcast programming. Photographer: The Washington Post/Getty Images

Billionaires Rupert Murdoch and Barry Diller are squaring off in what’s fast becoming a struggle for the future of television.

Murdoch’s News Corp. (NWSA) said yesterday it may end Fox’s 26-year run as a free broadcast channel if U.S. courts continue to allow the Diller-backed Internet startup Aereo Inc. to retransmit broadcast programming. The move would mean Aereo could no longer use its technology to obtain and resell Fox’s signal for free from broadcast antennas.

The showdown pits Murdoch, 82, against his former ally Diller, 71, who helped start the Fox network in the 1980s before building his own media empire. And if CBS, NBC and ABC follow Fox in curtailing their free broadcast fare, it would hasten the end of the broadcast TV system as it has existed since “The Honeymooners,” the Mouseketeers and Edward R. Murrow ruled the airwaves in the 1950s.

“We need to be able to be fairly compensated for our content,” News Corp. (NWSA:US) Chief Operating Officer Chase Carey told TV executives yesterday at a conference in Las Vegas. “We can’t sit idly by and let an entity steal our signal. We will move to a subscription model if that’s our only recourse.”

News Corp. and Diller’s Aereo represent opposite extremes of today’s evolving television world. News Corp. pays billions for some of the best content on TV, from National Football League games to “The Simpsons” and “New Girl.” Aereo pays nothing for its broadcast content, then offers it cheaply to users.

Court Challenge

Diller is shaking up the market by offering popular networks online and letting users store shows for later viewing, part of a trend toward severing ties with traditional pay-TV services. Aereo captures over-the-air broadcast TV signals with tiny antennas and delivers them to subscribers on computers and smartphones.

News Corp., meanwhile, wants to protect the fees that it charges cable and satellite companies for its signal -- even if it means losing broadcast viewers. If Aereo is allowed to continue, Fox and its affiliate stations could stop broadcasting and serve only pay-TV customers, Carey said. Only cable or satellite TV subscribers can access the encrypted signals, which are decoded with a box in each home.

A U.S. appeals court last week rejected broadcasters’ pleas to shut down Aereo.

Shares of News Corp., where Murdoch serves as chairman and chief executive officer, fell 0.8 percent to $31.17 at the close in New York. The shares have climbed 22 percent this year.

The broadcast networks sued Aereo in March 2012, claiming it infringed copyrights with its service.

Serious Threat

With the appeals court ruling, Aereo can go ahead with a planned national expansion of its service from its base in New York, Diller said in an e-mail last week. Bloomberg LP, which owns Bloomberg News, is an Aereo partner and offers its cable channel on the service. Bloomberg competes with News Corp. units in providing financial news and information.

“It’s a shot across the bow to the courts, and maybe to Congress, that broadcasters take this Aereo threat very seriously,” Paul Gallant, Washington-based managing director at Guggenheim Securities, said in an interview. “Eighty-five to 90 percent of homes are pay-TV homes, so the threat is more credible now than it was 10 years ago.”

For the past several years, broadcasters like CBS Corp. (CBS:US) and Fox have begun capturing retransmission fees from pay-TV services as existing contracts expire. While cable programmers routinely charged Comcast Corp. (CMCSA) and DirecTV (DTV:US) for their programming, the practice was new for broadcasters.

‘Political Avenues’

This year, Fox is forecast to collect $472 million in payments from affiliate stations and fees from pay-TV systems in markets where it owns stations outright, according to Michael Morris, a Davenport & Co. analyst who recommends buying News Corp. shares.

“We will continue to aggressively pursue our rights in the courts, as well as pursue all relevant political avenues, and we believe we will prevail,” Carey said in a statement.

News Corp. owns 27 TV stations in nine of the biggest U.S. cities, according to its annual regulatory filing, second among the four major networks. Its signal is carried to the rest of the country by independent station operators such as Sinclair Broadcast Group Inc. (SBGI:US)

Rival Networks

CBS Corp. (CBS) owns 30 local TV stations, Comcast Corp. (CMCSA) has 25 and Walt Disney Co. (DIS)’s ABC has eight, the companies said in regulatory filings. All also have affiliate relationships with independent station owners. Representatives for ABC, CBS and NBC Universal declined to comment.

About 100 million of the 114 million U.S. homes with TV sets subscribe to cable, satellite or fiber-optic pay-TV systems, according to Nielsen and SNL Kagan.

“The way things are going in the television industry, it’s high time the networks started selling its programs as cable networks, because that’s what’s really happening anyway,” Matt Polka, CEO of the trade group American Cable Association, said in an interview.

While facing a more crowded field -- including cable TV programmers and Internet services like Netflix Inc. (NFLX:US) and Amazon.com Inc. -- the four major broadcast television networks remain the most popular source of home entertainment, regularly drawing the most viewers.

Long-Term Decline

Together, the major broadcasters account for more than 21 percent of prime-time viewing in the current TV season, down from almost 75 percent in the early 1950s, before cable programmers emerged, according to Nielsen data.

Aereo, starting at $8 a month, gives subscribers access to broadcast programming and lets them record it for later playback using its digital video recorders. The system constitutes a private performance under copyright law, the company said.

“Aereo has invented a simple, convenient way for consumers to utilize an antenna to access free-to-air broadcast television, bringing television access into the modern era for millions of consumers,” the startup said in a statement. “When broadcasters asked Congress for a free license to digitally broadcast on the public’s airwaves, they did so with the promise that they would broadcast in the public interest and convenience, and that they would remain free-to-air.”

A move by Fox would challenge broadcast competitors to follow, and present thorny questions for regulators of the U.S.- owned airwaves. It also raises questions for professional and college sports.

NFL Committed

“We are committed to our partnership with Fox,” Dan Masonson, a spokesman for the National Football League, said in an e-mailed statement.

Carey garnered support from Univision Communications Inc (UVN)., the largest U.S. Spanish-language broadcaster.

“We need to protect our product and revenue streams and therefore we too are considering all of our options, including converting to pay-TV,” Haim Saban, chairman of New York-based Univision, said in a statement.

Murdoch has defied media-industry norms over his career. In 1986, he founded Fox Broadcasting with stations acquired from Metromedia Inc. and eventually overtook CBS, NBC and ABC in the weekly Nielsen ratings.

In 1996, Murdoch started Fox News, a 24-hour cable news network that now dominates Time Warner Inc.’s CNN and Comcast’s MSNBC in viewers. When piracy began to threaten TV shows, Murdoch joined in 2007 with NBC Universal to create Hulu.com to provide ad-supported prime-time shows online.

Now it’s Diller’s turn to disrupt the industry, making his former TV colleagues very uncomfortable, said Douglas Arthur, analyst with Evercore Partners Inc. (EVR:US) in New York.

“The networks are taking the Aereo threat very seriously,” he said. “They feel like they’re being violated.”

To contact the reporters on this story: Edmund Lee in New York at elee310@bloomberg.net; Andy Fixmer in Los Angeles at afixmer@bloomberg.net; Alex Sherman in New York at asherman6@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net; Anthony Palazzo at apalazzo@bloomberg.net


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Companies Mentioned

  • NWSA
    (News Corp)
    • $15.02 USD
    • 0.13
    • 0.87%
  • CBS
    (CBS Corp)
    • $54.97 USD
    • 0.37
    • 0.67%
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