NEWS ANALYSIS : Murdoch Again Gambles to Add Building Block to Vast Empire

In 1954, Rupert Murdoch--whose company has just bid $1.4 billion for MGM/UA Communications--headed a family firm in his native Australia that owned two newspapers in Adelaide. Now, 35 years later, his newspaper, magazine and television holdings on four continents are said to be worth $8 billion to $10 billion.

Which begs the question: How did he do a thing like that? Did the 58-year-old son of a newspaper executive have a grand plan, some global ambition learned at Oxford where he was educated?

No, the truth is, Murdoch pursued no plan. Rather, he took chances and he borrowed money. Lots of money.

If Murdoch is successful in adding the MGM/UA movie studio and film library to News Corp.--the New York Stock Exchange-listed firm that is 43% owned by his family--the company’s total debt could total more than $8 billion. Yet, in a time of general concern about debt, there’s little doubt that Murdoch will be able to borrow the money. His lenders support him, and he is mindful of them. “He talks in private about how important it is to never be late with a payment,” says one of his former executives.

But investors showed concern about the MGM/UA deal Thursday as News Corp. stock fell $1 a share to $24. Murdoch wants the United Artists film library to have something to show on his new British satellite TV venture, where costs are mounting. He has poured $120 million into the British Sky Television venture so far, and it could take four times that before the operation sees a profit. Murdoch must not only buy programming but finance the leasing of satellite dishes to build a whole new market.

Why is he doing it? Because in Britain and all of Europe, television--once a government monopoly--is opening up. If successful, News Corp. will have one of the main news and entertainment systems in a gigantic market. “It’s a good idea long term but financially risky short term,” says analyst John Tinker of Morgan Stanley & Co.

Or, as another analyst put it, alluding to the fact that most corporations don’t take such chances: “Sky TV is not the kind of investment that any idiot with a calculator could make.”

But Sky Television is only Murdoch’s latest gamble. In 1986, he paid $1.65 billion to buy television stations from Metromedia, and in the short term one could say he lost. “By today, over three years later, he might be able to sell those stations for what he paid for them,” says Jessica Reif, an analyst with CL Global Partners, a brokerage firm run by France’s Credit Lyonnais.

But Murdoch didn’t lose. The stations became the nucleus of the Fox network--which resulted from Murdoch’s earlier purchase of 20th Century Fox--and the whole enterprise is worth more today than the separate parts, Reif says.

And the possibilities if he gets MGM/UA are even more interesting: With two studios, Murdoch could produce 50 movies a year--a Movie of the Week for Fox and Sky, the whole package owned by News Corp.

That’s how you build value in a business.

Formula Failed

To be sure, Murdoch doesn’t always win. He didn’t really win in the U.S. newspaper business, which he came to in the 1970s fresh from triumphs in Britain where he capitalized on racy, saucy tabloids. News Corp.’s profits are still swelled by the cash flows from British newspapers that sell 4 million copies a day and throw off hundreds of millions of pounds a year.

But the racy formula didn’t work as well in the United States, where the mass market readers that Murdoch sought had moved to television.

So Murdoch moved to TV too, bringing tabloid journalism to the Fox network in such shows as “A Current Affair”--shows that his major network competitors are scrambling to imitate.

So what’s the bottom line on Murdoch? That he’s a classic entrepreneur.

He learns from his mistakes. One reason that he’s so eager to buy programing today is that, long ago in Australia, he was slow to realize the importance of programming, and his TV channels lost out competitively.

And he’s competitive. A story in Thursday’s Times tells of Murdoch--who lost out to an Australian firm, Qintex, in earlier bidding for MGM/UA--throwing a party in May to introduce the Australian boss of Qintex to Hollywood. Wednesday, of course, Murdoch’s News Corp. submarined Qintex’s attempt to buy MGM/UA.

Because Murdoch takes chances the way the Paleys and Sarnoffs of an earlier TV age did, he has built a worldwide company with $6 billion in revenues that may be worth far more than the stock market gives it credit for.

Which is all right, because Murdoch is still building. One day, when he passes on News Corp. to someone else, it may settle down to generate orderly quarterly profits and a stable stock price. Somebody else may be able to manage Rupert Murdoch’s global empire, that is, but nobody else could build it.