Fox-TCI Talks Point Up Power, Complexities in Media Business

The negotiations between Fox Inc. and Tele-Communications Inc. over Fox’s planned cable-news network illuminates the complex entanglements and veiled agendas at work in the increasingly concentrated media business.

It also brings together two of the most powerful media moguls, Rupert Murdoch and John Malone, who operate like lone wolves but exert tremendous power through their huge corporate interests.

Murdoch--who raided broadcasters for stations and bought NFL football rights to build his Fox TV network--has decided to get into the cable-news business, challenging Ted Turner’s CNN, which Murdoch has labeled as too liberal. But Murdoch is not a cable operator and the greatest obstacle to new cable channels is getting carriage on crowded systems.

To gain carriage for his 24-hour news channel, sources say, Murdoch has offered cable operators an unprecedented $10 per subscriber to carry his new service. And now he is negotiating with Malone, the chairman of Tele-Communications Inc., the nation’s largest cable-system operator, for a deal that could give TCI a 20% stake in the Fox news channel in exchange for distribution. Variety first reported the negotiations in a story published Tuesday.

Fox hopes to have 10 million of TCI’s 14 million subscribers when the channel launches this fall.

But TCI owns 21% of Turner Broadcasting, which owns CNN, the major competitor to Murdoch’s planned network. TCI’s stake in Turner also makes Malone a key player in the proposed Turner-Time Warner merger. Sources say neither Turner nor Time Warner is happy with Malone’s negotiations with Murdoch.

Some industry observers said that Malone’s deal with Murdoch would hurt his relationships with Turner and Time Warner and could adversely affect the Time Warner merger. But one Turner executive said: “Obviously, we wish he hadn’t done it. But, with our competitors complaining to the FTC [Federal Trade Commission] about Malone being ‘anti-competitive’ [by owning both programming and distribution], it wouldn’t be good for him” to refuse to carry a CNN competitor.

Malone’s willingness to negotiate with Murdoch may reflect a practical calculation that there will be competitors to CNN and TCI can have a say in which will succeed.

“I think Malone saw news channels coming from ABC and NBC and figured he’d rather deal with Murdoch, someone he’s already in business with--and try to shut out people he’s not in business with--the broadcast networks,” said David Londoner, media analyst at the Schroder Wertheim investment firm.

One industry executive said: “Murdoch and Malone both are politically conservative, but it’s business--not politics--that’s driving” the potential partnership, one industry executive said. “Murdoch needs distribution. Malone likes to play all his options--and own a piece of everything.”

Liberty Media, the programming arm of TCI, has an interest in dozens of cable networks.

Although Malone and Murdoch are rivals in the direct broadcast/satellite business, they are partners in a sports venture on News Corp.’s F/X network, and TCI has an interest in Murdoch’s Star TV in Asia. Sources say the talks between the two cover other interests beyond news.

NBC Network President Neal Braun said he remains skeptical about Murdoch’s ability to build a news channel quickly. “Murdoch’s channel doesn’t even exist yet, and he’s going to have to build a news division before he can get started,” he said.

ABC, meanwhile, dropped out of the news-channel race last week, saying it couldn’t compete with Murdoch’s $10-per-subscriber offer.

NBC is planning to obtain carriage for its news channel by converting an existing channel, NBC’s America’s Talking. NBC says that it will launch its MSNBC network in July with 20 million subscribers.

But executives at Time Warner, which operates the next-largest cable system after TCI, said Wednesday they think they need a new contract to convert the channel. But Braun said: “We have contracts with Time Warner, and we believe they are in force.”