Murdoch Just Heeding Knock of Opportunity

Once again the world is agog at Rupert Murdoch, the Australian-born international media baron who made a deal on Sunday to pay a reported $3 billion for the company that owns TV Guide and other publications.

This is the same Murdoch whose company, News Corp., already carries $4.7 billion in debt--almost one dollar of debt for every dollar of stockholders’ investment. It’s the same Murdoch who surprised the world three years ago by spending $1.65 billion to acquire seven television stations and used them as the nucleus for the Fox network--a venture that is widely reported to be losing a lot of money.

But it is also the same Murdoch, a 57-year-old Oxford-educated son of an Australian newspaper executive, who has become the largest newspaper publisher in Britain and Australia and the owner of book publishers, magazines and other communications companies in several countries.

So while one chorus of opinion asks how long Murdoch can go on, another talks of him as the builder of a world communications empire--a global Citizen Kane who exemplifies media today, a glamorous business in which properties always go up in price. (That’s a line reinforced by such recent deals as that for CBS Magazines, which was bought and sold within six months at a profit of $300 million, and billion-dollar leveraged buyouts of TV stations within the past year).

What’s the truth of the matter? The truth, less dramatic than much that is being said or written about this deal and the man himself, is that Murdoch saw a good opportunity and took it. The facts are he’s getting a very valuable property, probably without overpaying, and doesn’t really have any worries about financing.

Unique Opportunity

To begin with, Sunday’s deal is undoubtedly for less than $3 billion in real terms, thanks to contingencies, stretched-out payments and the like. “What Murdoch shows to his bankers is often quite different from what the public hears,” says a deal maker familiar with News Corp. operations.

Secondly, TV Guide--a publication that goes into 17 million homes--represents a unique opportunity. Each week it takes in about $12 million in gross revenue--and probably yields $6 million a week in circulation revenue (after supermarkets and distributors get their cut) for Triangle Publications, the owner. That’s before advertising kicks in an additional $6 million a week.

How profitable is TV Guide? There are some estimates that it makes only $150 million a year--less than it used to because of new expenses for cable listings and increased local competition. But who knows? Triangle, which also owns Seventeen magazine and the Daily Racing Form, is a private company owned by Walter Annenberg, a former U.S. ambassador and friend of President Reagan--and private companies don’t give out numbers.

Time Inc., the giant magazine publisher, says it considered buying TV Guide but didn’t like the price Annenberg was asking (Time Inc.’s judgment is not that sound: Four years ago it launched TV/Cable Week to compete with TV Guide, lost $46 million in five months, and gave up.)

What did Murdoch see that Time didn’t? Maybe something as prosaic as paper. News Corp., as the world’s largest purchaser of newsprint and a major purchaser of coated magazine stock, will push suppliers for discounts of 20% and more on its paper. Otherwise, it will use its clout at the check-out counter to help its other publications--the Star, New Woman and others.

Do banks really lend billions on such calculations? Not really; they lend on your record for paying back--and Murdoch’s is excellent. “He’s never missed a payment, and he’s never late,” says a former associate. “It’s something he’s proud of and talks about in private.”

Do lenders worry that the Fox network is said to be losing $80 million a year? Not if they understand the TV business. The point about Fox is that its expenditures on new programming, and the breaks on programming costs it gives to network stations, have lifted the value of the seven News Corp.-owned stations (in Boston, Chicago, Dallas, Houston, Los Angeles, New York and Washington) by roughly $200 million.

As a result, Fox stations are not facing falling market values--as most non-network independent TV stations are these days. Contrary to lingering impressions of boom, says analyst J. Kendrick Noble of Paine Webber, “prices for TV stations and magazine properties are declining.”

Yet Murdoch is buying? Why? Because he sees new opportunities to “deliver audiences to advertisers,” says an associate. “Stripped to its core, that’s what his business is all about.”

Like most people, Murdoch is complex--an Oxford graduate who swears like an Aussie newspaperman, a man who goes out of his way to repay old scores or to buy companies his father worked for. But whatever his personal make-up, the secrets of his business are pretty plain and basic: Cut costs and stay on friendly terms with your banker.