NEWS ANALYSIS : MGM/UA Offers Murdoch Way to Get Films He Sorely Needs

If movies are ammunition in the global media wars, Rupert Murdoch’s decision to bid for MGM/UA Communications Co. could give him access to a badly needed arms factory.

Murdoch’s News Corp. already owns 20th Century Fox, one of the seven major Hollywood film studios. But a single studio can’t supply enough movies to support his far-flung distribution channels--and buying from outside suppliers has proved difficult in recent months.

Most notably, the Australia-based media giant has been scratching for a steady supply of Hollywood films to fill his new Sky Television, a British satellite TV service that could become, along with his pan-European Sky Channel, a model for other Murdoch-owned satellite ventures around the world.

Launched earlier this year, the four- channel British service--which is broadcast by satellite to in-home receivers and to cable systems--has consumed some $120 million of News Corp.’s cash in its first five months of operation. Yet it is expected to reach only about 1.15 million subscribers by year-end, far less than the 2.5 million originally projected by the company.

To feed the service, which includes an all-movie channel similar to Time Warner’s HBO, Murdoch can draw on Fox’s 2,000-film library--along with the roughly 30 movies that Fox plans to release each year under a stepped-up schedule that will soon double its former pace. (Walt Disney Co. recently announced a similar production step-up, even as smaller Hollywood companies have been struggling to hold their own against the rapidly expanding major studios.)

Deals for 2,000 Films

But Murdoch has also been competing fiercely with British Satellite Broadcasting, another planned satellite service, for rights to prime films from other studios. Funded by a consortium of media companies, including Reed International and Granada Group, BSB expects to begin operating next spring--which puts severe pressure on Murdoch to lock in subscribers as quickly as possible.

So far, BSB has tapped its $650-million programming budget to sign deals for some 2,000 movies, including packages of recent films from Columbia, Warner, Paramount, Orion and others, according to a spokesman for the service.

In one of its key deals, BSB acquired an exclusive six-year license to 198 recent MGM/UA films, including “Rain Man,” “A Fish Called Wanda,” “Moonstruck” and the two latest James Bond films, “Living Daylights” and “License to Kill.”

Sky Channel has signed deals for similar film packages with Warner (which licensed “Batman” to Murdoch), Disney, Orion and others.

Yet the Murdoch channel suffered a major setback earlier this year when Disney back-peddled on an agreement under which it would have co-owned Sky Television’s movie channel while providing its Disney Channel to the service.

When Disney pulled out, Murdoch sued for $1.5 billion. Under a settlement agreement, Disney sold its stake in the joint venture back to Murdoch but will license at least some of its films to Sky Television for five years. Yet Disney is free to deal with competitors as well, spokesmen for both Fox and Disney said.

BSB has claimed it has an edge in the fight for movies because it was quicker than Murdoch’s service to promise that it would scramble its signal to prevent non-paying viewers on the European Continent from stealing a look at the movies. According to BSB, Sky Television has now agreed to develop a scrambling system as well. A Fox spokesman said he wasn’t certain about plans for scrambling or the precise number of films that Sky Television has licensed to date.

Disappointing Performances

If Murdoch’s bid for MGM/UA succeeds, the 1,000-film United Artists library--which includes the Rocky, Pink Panther and James Bond movies--will clearly provide instant ammo for Sky Television.

Yet Fox’s purchase might provide new headaches for Murdoch managers, including Fox Inc. Chairman Barry Diller, who might be hard pressed to revive MGM/UA’s sagging movie production operation at time when the 20th Century Fox unit is still struggling to get its own movie unit in order.

Fox has been plagued by the disappointing performance of “The Abyss” and other films this year and by constant executive changes, including the recent resignation of Fox President Leonard Goldberg in favor of a new movie chief, longtime producer Joe Roth.

According to Daily Variety’s box office reports, Fox ranks last among the major studios, with 6.4% of U.S. ticket sales this year--just behind MGM/UA’s 8%.

(MAIN STORY: Part I, Page 1)