The Birth of Murdoch.com


By Steve Rosenbush Rupert Murdoch stunned the broadcasting industry in 1994 when News Corp. (NWS) outbid rival CBS (VIA.B) for the right to televise the NFL's National Conference games. The deal established News Corp.'s young Fox Network as powerful rival to establishment players CBS, ABC (DIS) and NBC (GE).

And that was just the beginning. Fox News went on to usurp the dominance of CNN (TWX) in the cable news market. And thanks to popular TV shows like American Idol, Fox ranked number-one last year among 18- to 49-year-old TV viewers.

MYSPACE AT RUPERT'S PLACE. Now the 74-year-old media mogul is looking to make a similar mark on the Internet. That became apparent during the last few weeks, when News Corp. announced it would spend $580 million to acquire Intermix (MIX), the parent of wildly popular MySpace. The social-networking site is popular among younger users, who use home pages to create extended networks of friends. It has a particularly strong following among fans of independent and rock music (see BW Online, 6/13/05, "Hey, Come To This Site Often?"). News Corp. also recently announced the acquisition of Scout, a leading college sports site.

Murdoch drove the point home during a conference call with investors on Aug. 10. He used most of his quarterly earnings commentary to lay out his thoughts on the strategic role that the Internet will play in the future of the company.

"There is no greater priority for the company today than to meaningfully and profitably expand its Internet presence and to properly position ourselves for the explosion in broadband usage that we're now starting to see," Murdoch said.

BROADBAND'S IMPACT. The highly adaptable patriarch of the family empire always has been willing to embrace new technology. First he forged into the world of cable-TV, and then satellite, buying DirecTV.

Now his empire is at a critical juncture. The world is changing and Murdoch is ready to change with it. The younger viewers at the core of the company's audience are drifting away from TV, spending more time online. They're using the Web to socialize and communicate, downloading songs, listening to Internet radio and podcasts, and playing online games. It won't be long before they turn to the Web for longer-form video and TV, thanks to the rise of broadband. About 35% of the U.S. population has broadband, which is getting faster and cheaper every year.

And advertising dollars are shifting from TV and print to the Web. Worldwide, online advertising is expected to soar 50% this year, to $13 billion, from $9.6 billion in 2004, according to Ken Marlin, managing partner of Marlin & Associates, an investment bank and advisor to media companies. Most TV and print categories are growing at single-digit rates. "Murdoch has shown a remarkable ability to adjust and adapt his company to the moment. He's a smart guy. He's got to be looking around, saying, 'There's an opportunity to be a major player on the Web, and it's closing,'" Marlin said.

GOODBYE, PORTALS. In the last few weeks, Murdoch has consolidated Internet operations throughout the News Corp. empire. He created Fox Interactive Media, now run by president Ross Levinsohn, 42. The former general manager of Fox Sports Interactive also has worked at CBS Sportsline and HBO. He's responsible for a stand-alone, profit-making business unit, which also will make acquisitions, building on the MySpace and Scout deals.

The Internet business, known as FIM, is big for a startup. Once the Intermix deal closes, News Corp. Web sites will have an aggregate 50 million unique visitors a month, the sixth-largest audience on the Web. And it has the resources of a massive corporation behind it. With a market cap of $51 billion, News Corp. is just slightly larger than Yahoo! (YHOO) or Google (GOOG). But its revenues of $23 billion a year are nearly six times as large as either rival.

During his conference call with investors, Murdoch explained his desire to create "an original type of portal." As technology improves and users become more sophisticated, they won't need portals such as AOL, MSN (MSFT), or Yahoo to navigate the Web. Already, they're able to find their own way around, using increasingly powerful search engines to locate what they want. The key will be allowing users to customize their experience of the Web, drawing on the vast resources of News Corp. and the Internet at large.

BROAD VISION. "Our strategy is quite simple," Murdoch said. "News Corp. at its core is about content. The Web at its core is about personal choice. What we are aiming to do is combine the two, and in the process redefine the meaning of [an] Internet vertical."

The company's presence in such "verticals" as sports, news, and entertainment creates an enormous amount of content. Over the next few years, users will be able to customize it by using tools from acquisitions such as Scout and MySpace. Scout will enable so-called citizen journalists to file and share reports on things that are important to them, such as local high-school sports games.

Murdoch suggested the company will acquire additional tools in the areas of advanced search, e-mail, customization, accessibility, or even voice communications. "Users will be able to personalize their experience to take advantage of the vastness of the Internet as a whole," he said.

NEXT ACQUISITION? The next piece of the puzzle is about to fall into place. Murdoch said News Corp. was in "advanced talks" to acquire a search company. He said investors wouldn't consider the price significant, a sign that News Corp. wants to buy a relatively small outfit.

It now appears that a deal isn't that close. News Corp. has had merger talks with Blinkx, an audio and video search company that has obvious relevance for a media empire with TV and movie holdings. "We have had discussions with them and others but are not near a deal at this point," said one person familiar with the negotiations. Blinkx declined comment. If News Corp. and Blinkx can't come to terms, there are plenty of other potential targets in the search market, including icerocket.com, mama.com, snap.com, miva.com, looksmart.com, and lycos.com.

Murdoch has even taken a look at Internet phone upstart skype.com, which allows users to place free phone calls from one Skype-enabled PC to another. But he said reports that News Corp. had made a $3 billion offer for the company were wrong, and that Skype said it wasn't for sale. It appears that an IPO is more likely for Skype, because few buyers are willing to pay $3 billion or more for the company (see BW Online, 8/10/05, "Skype: On The Block"). Murdoch also hinted that the company will expand its presence into several other "verticals." Given its youthful audience's affinity for edgy programming, those verticals might include hot areas such as gaming and music. Marlin, the investment banker, thinks that gaming site ign.com would be a good fit.

"TIMELY AND INEVITABLE." Problem is, IGN recently filed for an IPO, and with an expected valuation of $1 billion it could be expensive. And the Intermix acquisition already gives News Corp. access to hundreds of games, in addition to MySpace. Marlin believes News Corp. eventually may beef up its music offerings by acquiring a peer-to-peer network such as grokster.com, which would help distribute music and video to users.

Over time, News Corp. could help reshape the power structure on the Web. Until now, big media companies have relied on portals such as Yahoo and MSN to distribute their goods. News Corp. is trying to bypass the existing portals, at least in part. "What News Corp. is trying to do is both timely and inevitable," says Leo Hindery Jr., managing partner of InterMedia Partners, a private investment firm. He is formerly CEO of the YES Network and CEO of TCI and its successor AT&T Broadband.

"Until recently, there was always a sense that someone needed to stand in the middle between the content provider and consumers, but that is not necessary if the content provider has aggregated large amounts of diverse and compelling content," says Hindery.

HARD ROAD. Other media companies have tried this approach, without real success. Disney failed to turn its "Go" network into a major presence on the Web, although its espn.com has been a huge hit. Time Warner reached for the stars by acquiring AOL, but the combination has never quite worked, and there's speculation that AOL could be spun off if its new identity as a free portal fails to work.

And if the big media companies have largely failed to create their own portals, the big portals don't own their own content. Yahoo, MSN, AOL, and Google distribute goods that are produced by others.

News Corp. wants to merge the content of a big media company with its own portal. It won't be easy. Time Warner still struggles to make its AOL deal work. But Murdoch may just succeed, just as he succeeded in upending the TV business in the 80s and 90s.

Rosenbush is a senior writer at BusinessWeek Online in New York


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