Murdoch Tries to Dig Way Out of Asia Hole : Star TV: The media mogul’s remarks raised political hackles in the Far East.

Rupert Murdoch is learning the politics of global TV the hard way.

Weeks after acquiring control of Star TV, the linchpin of his worldwide television empire, Murdoch managed to offend some of his most important viewers--Asian political leaders--when he declared satellite TV to be an “unambiguous threat to totalitarian regimes everywhere.”

The remarks, part of a speech made in London and beamed live to a Hong Kong breakfast given by Star TV, startled the Chinese in the audience. Shortly afterward, the Beijing government passed a law to curb use of satellite dishes in China--a step that could undercut Star TV’s viewership.

The Chinese crackdown was followed by a similar rebuke from Malaysian Prime Minister Mahathir Mohammad, who has long been suspicious of the Western media. Why, Mahathir wondered, did Murdoch--known for using his media properties to advance his own agenda--buy control of Star TV “if he is not going to control the news that we are going to receive?”

The backlash prompted Murdoch to make a goodwill trip to Beijing and Kuala Lumpur. And it revealed the kinds of obstacles outsiders face as they establish themselves in Asia, where many rulers are sensitive to the intrusion of Western news and entertainment.

Beijing’s clampdown “was a signal to Murdoch that he couldn’t go on providing (satellite TV) without taking heed,” said John Kaye of Survey Research Group in Hong Kong.

In fact, in the nearly seven months since Murdoch’s News Corp. took over Star TV, the new management team at the satellite TV service has managed to offend or alienate many members of Asia’s power elite. While perhaps not fatal, News Corp.’s missteps mean Murdoch will end up having to spend a lot more money--and time--getting Star TV off the ground than he had imagined.

The satellite network--whose offerings include the BBC World Service TV, MTV Asia and Prime Sports--beams five channels to 53 countries over an area that stretches from Indonesia across China, India and the Middle East.

More than 2.5 billion people--about two-thirds of the world’s population--fall under Star TV’s satellite shadow. The potential audience is big enough to dwarf the viewership of the four American networks combined, but until recently, most of those countries had only one or two state-run TV channels, and programming was heavily censored.

Political problems have, for now, forced Murdoch to shift most of his attention to Star TV’s faster-growing Indian market. The company also is rethinking its English-only programming policy, which has drawn tepid response from advertisers. And potential allies have emerged instead as competitors in the wide-open market.

That’s quite a switch from last summer, when pundits declared Murdoch’s $525-million purchase of a 63.6% stake in the pan-Asian satellite broadcaster had given him the final and most crucial component in his global TV web.

News Corp. executives deny that Star TV has presented any major surprises. They insist that growth rates and operating results are in line with expectations and, in some cases, exceed them.

Murdoch’s experience is important because he is the forerunner among a cadre of satellite broadcasters racing to introduce television to every nook and cranny around the world.

Last month, Discovery Channel went on the air in Asia, joining other American channels such as CNN, ESPN and HBO. Later this year, Ted Turner’s TNT and Cartoon Network will jointly launch their own pan-Asian satellite channel. Disney is considering its own pan-Asian channel. Tele-Communications Inc. and Dow Jones & Co. are partners in Asian Business News. And several Asian companies are hoping to start “indigenous” satellite channels.

“Right now, Star TV is catching all the flak,” said Gary Brown, regional media director at the Leo Burnett advertising agency in Hong Kong. “It’s the first time anybody has put up a satellite system to over 50 countries. Whatever the outcome, broadcasting in Asia has been changed forever.”

The troubles Star TV faces were underscored by Murdoch’s arrival in Hong Kong early this month. The globe-trotting media chief, who had lately made his base in Los Angeles, has rented a house on The Peak, the tony neighborhood overlooking Hong Kong’s harbor.

From there Murdoch, on his private G-4 jet, is embarking on missions to India and other countries, meeting with government ministers and potential business partners who will play pivotal roles in Star TV’s success or failure.

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Given the turmoil of recent months, Star TV deserves Murdoch’s undivided attention.

A legal dispute with Hong Kong’s cable TV operator has kept Star TV off what is expected to become the world’s biggest cable TV system. Star TV also fell out with its advertising sales agent for the lucrative Taiwan market. The company’s staff has been slashed 20%, to 620 employees.

Potentially troublesome is an escalating feud with Viacom over its license agreement for MTV Asia. Viacom has been pressing for an equity stake in the channel, but Star TV has refused to budge. At the same time, Sony, Time Warner and Viacom are negotiating to buy a stake in Hong Kong-based satellite broadcaster TVB, the world’s biggest producer of Chinese-language programming. Star TV could suffer if the media giants’ movie studios, Columbia Pictures and Warner Bros., funnel their films exclusively to TVB.

Star TV’s hardball tactics could turn out to be a costly mistake when Murdoch starts new pay TV channels later this year and needs films for broadcasting. Before Murdoch’s arrival, executives had hoped to enlist the major Hollywood studios in a joint venture for new pan-Asian pay TV channel, but the Murdoch management team scotched the plan.

Star TV also has been plagued by management turmoil. It has had five managing directors in 2 1/2 years, three of them within the last six months. Gary Davey, the latest, is a former executive with Murdoch’s BSkyB in London and a protege of Sam Chisholm, the salty News Corp. director who oversees satellite TV operations. (Chisholm’s trademark opening question on meeting new Star TV employees: “How much we pay you?”)

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After a spate of bad publicity, Star TV last month released a survey it commissioned that showed the satellite service was received in 42 million homes, including 30 million in China, 7 million in India and 2.4 million in Taiwan--representing growth of 279% in one year.

For the most part, however, Star TV cannot say how many people who are able to receive its signals actually watch any of the five channels. In Taiwan, where sophisticated measurement is possible, Star TV says a recent ratings survey found it achieved an average 7.8% share of the audience, with its Mandarin-dialect Chinese Channel drawing twice as many viewers as the other four.

Murdoch clearly did not foresee many of Star TV’s problems when he bought the service. He chased after it in typical Murdoch style, hastily negotiating the investment in 48 hours with Richard Li, who ran the service for his magnate father, Li Ka-shing. The 28-year-old Li flew to the Mediterranean to meet Murdoch, Chisolm and Fox Inc.executive Chase Carey on Murdoch’s yacht, The Morning Glory, and cut the deal.

“He didn’t do any due diligence,” said Craig Erlicht, a Hong Kong banker and former Star TV executive. “Murdoch bought into a cash flow that, to a large extent, was disappearing.”

Still, it could be argued that if anyone can make Star TV succeed it’s Murdoch, who has a track record, from Fleet Street to Fox, of turning troubled businesses into immensely profitable franchises.

Only two years ago, BSkyB--Murdoch’s satellite TV service in Britain--was losing $15 million a week. After a merger with its chief rival, the company is now in the black. And Murdoch started the Fox network in the United States to a chorus of naysayers predicting it couldn’t be done.

Despite persistent reports in the Hong Kong press that Star TV is losing between $60 million and $80 million annually, Murdoch recently told The Times that the service will lose no more than $20 million in the fiscal year ending June 30. Analysts peg its revenues at between $60 million and $70 million.

Since Star TV is “free-to-air”--meaning the signal is not scrambled and anyone with a satellite dish can receive it-- advertising support is crucial to Murdoch’s strategy.

Under Li Ka-shing, Star TV inaugurated the “foundation advertising program,” in which 80 advertisers each commited to initial expenditures of $2 million. In many cases, Li--a Hong Kong real estate tycoon--leveraged his business relationships into advertising contracts.

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The problem is that many of these early advertisers, such as Japan’s Mitsubishi Heavy Industries, bought ads only out of loyalty to Li. Many of them are not renewing.

Leo Burnett’s Brown estimated that only about 20% of Star TV’s advertising time is sold. “They are working hard to improve that, but there are few marketers that want to say the same things to the vast markets of China and India,” he said.

Obstacles imposed by the Beijing government have forced Murdoch to rethink his strategy, as well. The quiet shift entails focusing immediate resources on India, which is more open to Western culture and is rapidly commercializing TV.

In addition, Star TV acquired a 49.9% stake in Zee TV, a fast-growing Hindi-language satellite TV channel in India. And Star hopes to enter the subscription TV business later this year when it launches the first of what are expected to be several pay TV channels.

“In terms of prioritizing their markets, India is now No. 1, because of the (satellite dish) curb in China,” said Steven Li, an analyst with Jardine Fleming Securities in Hong Kong. “India is more developed, and the TV market more liberalized. China is longer term.”

Although News Corp. executives deny that China has been put on the back burner, people close to Star TV say that Murdoch had his sights set on China when he first bought into the company. In part, that reflected a strategy inherited from Li Ka-shing, whose good relations with the Beijing government signaled easy access and robust growth.

Star TV also is having to move away from its dedication to being an English-language programming service aimed at the wealthiest 5% of viewers. Instead, the emphasis will be on developing indigenous-language channels.

“The lesson from Star TV is that you can’t be all things to all people,” said Andre Nair, managing director of Ogilvy Media Asia in Hong Kong. “The advertising hasn’t been there. A marketer in India may not be interested in Asia.”

Although Beijing is fostering the growth of cable in China, most TV executives in the region say the policy owes as much to the government wanting to control content as it does to the economic benefits.

Especially sensitive is the matter of the BBC World Service news channel carried by Star TV, which has broadcast reports embarrassing to the Chinese government.

A Li-era contract prohibits Star from dropping the BBC, but Murdoch is trying to negotiate a deal that would substitute documentary and educational programming for the British news service. Others believe that Murdoch wants to supplant the BBC with news programming from BskyB and Fox.

With Star TV’s attention shifting to India, however, Murdoch is said to have become acutely aware of the need to find politically well-connected partners who can ease entry into that market of nearly 900 million people. Possible candidates: Bennett Coleman & Co., owner of the prestigious Times of India newspaper, and Hindustan Times, the country’s second-largest newspaper group.

But Murdoch will face new competition as India loosens media controls. “The Bold & the Beautiful” and “Santa Barbara” on Star TV have become cult with middle-class Indian women dissatisfied with the state-run TV service.

But new Indian TV stations are expected to be much more market-driven in their programming. And, across Asia, the coming onslaught of popular programming from satellite-broadcast competitors has Star TV on the run.

“Now they are in a situation of come-from-behind,” one former Star TV executive said privately. “They blew a tremendous lead.”

Murdoch’s Global Television Empire

Rupert Murdoch has built Australia-based News Corp. into a globe-spanning media web. Television accounts for roughly 15% of News Corp. revenue. Other properties include the Fox movie studio, leading British and Australian newspapers and the HarperCollins publishing group.

U.S. TV Holdings:

Fox Broadcasting Co.: Analysts estimate that America’s fourth network will have revenue of $630 million and operating income of $88 million in the year ending June 30.

Fox TV Stations: Eight stations in major markets, including KTTV-Channel 11 in Los Angeles, WFLD in Chicago and WNYW in New York. Estimated revenue is $588 million this year, with operating income of $222 million.

U.K. TV Holdings:

British Sky Broadcasting: News Corp. owns a 50% interest in the six-channel satellite TV service. BSkyB has 3.25 million subscribers. Revenue for 1994 is estimated at $855 million, with operating income of $264 million.

Asian TV Holdings:

Star TV: News Corp. owns 63.9% of the five-channel, pan-Asian satellite TV service beamed to 53 countries. Estimated revenue is $70 million, with a loss of $20 million expected for 1994.

Zee TV: News Corp. owns 49.9% of this Hindi-language satellite service, available in 7 million Indian households. Estimated 1994 revenue is $24 million.

Sources: McIntosh & Co., Paul Kagan Associates (for Zee TV), industry sources (for Star TV)