In case it wasn't already clear, News Corp. Chief Executive Rupert Murdoch wants to remake his media empire for the Internet era. The latest evidence: He's ready to get rid of News Corp.'s stake in the DirecTV satellite business.
Big media companies are reconsidering the need for distribution systems, since consumers don't even need a TV to watch TV programs anymore. Anyone with a computer and a broadband connection can download full-length videos onto personal computers and even handheld devices such as Apple's (AAPL) iPod.
Murdoch is in talks to sell News Corp.'s 38% stake in DirecTV to Liberty Media (LINTA), which is controlled by fellow billionaire media mogul John Malone, according to a person familiar with the matter. In return, Malone would sell his 19% stake in the voting shares of News Corp., letting Murdoch's company buy back the shares, that person said. News Corp. and Liberty declined to comment.
BIG BUCKS. The deal could be worth well over $10 billion. News Corp. (NWS) has a market cap of $74 billion, and a 19% stake of the publicly traded stock would be worth $14 billion. DirecTV (DTV) has a market cap of $22.8 billion, which means the News Corp. stake has a current market value of about $8.7 billion. DirecTV had sales of $12.2 billion last year, which could be a basis for setting a price for the DirecTV stake. "It's hard to imagine that they could command a price higher than one-and-a-half times revenue," says Susan Kalla, an independent media and telecom analyst.
The negotiations are being handled for the most part by Liberty CEO Greg Maffei, a former Microsoft (MSFT) and Oracle (ORCL) executive, and News Corp. Chief Financial Officer David DeVoe, one person familiar with the talks said. Murdoch is said to be keeping tabs on the talks, although he is believed to have been on vacation in Italy and Greece. That same source said other deals, including the sale of News Corp. TV stations, have been on the table. But a TV station deal didn't work for Malone, that source said, since there weren't enough to create the kinds of cost savings that Malone wanted.
The time is right for Murdoch to leave the satellite business, at least in the U.S. Satellite had a stronger appeal some years ago when it was taking share from cable TV operations. "But now cable is fighting back," Kalla says. Satellite is a poor platform for high-speed Internet access and voice services, where cable is doing well. It can't hope to compete effectively with the high-speed data, video, and voice networks being built by phone companies like Verizon (VZ). Murdoch is expected to buy back shares of News Corp., which would boost per-share earnings and the price of the stock. That would let him use the shares to make more content acquisitions, especially on the Web, where last year's $580 million MySpace deal has been a success.
INTERNET FOCUS. Buying the DirecTV stake would give Malone more assets to get Wall Street to take Liberty more seriously as an operating company and less as a hodge-podge of businesses. Murdoch tried and failed to merge DirecTV with Echostar (DISH), the operator of the Dish satellite TV business, because he didn't want to give Echostar CEO Charles Ergen control of the company. Regulators didn't like the idea either, because they wanted the companies to compete. But Malone might have a shot at getting such a merger done.
A few years ago, big media companies took it for granted that they needed a distribution platform such as cable or satellite to ensure their content got before an audience. But News Corp., in particular, has been a pioneer of making shows such as 24 available on the Web. News Corp.'s online strategy is particularly well developed in the U.S. (see BusinessWeek.com, 8/9/06, "Fox to Make MySpace More Spacious"), although Murdoch probably needs to hold onto distribution in other parts of the world, at least for now.
Murdoch will likely put more focus on his growing Internet assets. Just last week, he bought control of mobile entertainment company Jamba from Internet security firm VeriSign (VRSN) (see BusinessWeek.com, 9/13/06, "A New Risk Tone for News Corp.").
Other big media companies already have moved to separate content and distribution. MTV operator Viacom has created separate stocks for its media and cable-TV system businesses, which trade respectively as VIA and VIAB. Many investment bankers say it's only a matter of time before Time Warner (TWX) spins offs or sells its cable TV systems (see BusinessWeek.com, 2/8/06, "Icahn's Plans for Time Warner"). The combination of content and distribution is rapidly coming to an end, as the Internet forces executives to rethink their strategy.
Rosenbush is a senior writer for BusinessWeek.com, based in New York.
BusinessWeek's Los Angeles Bureau Chief Ron Grover contributed to this report
Printer-Friendly Version