New World Vision : Murdoch’s News Corp. to Buy Broadcast Group
Continuing a wave of broadcast station acquisitions sweeping the industry, Rupert Murdoch’s News Corp. agreed to acquire New World Communications Group for more than $2.4 billion in stock, a move that would establish the largest web of television stations owned by a single entity.
For News Corp., whose holdings include Fox Broadcasting, combining the 10 New World stations with the dozen owned by Fox would create a group reaching nearly 40% of all homes in the United States. Assuming the merger is approved by federal regulators, Fox will eclipse CBS-Westinghouse--which reaches about 32% of the United States by virtue of its merger last year--and Tribune Co., which recently paid $1.13 billion for Renaissance Broadcasting, as television’s biggest station group. The deal is expected to take about six months to close.
The News Corp. acquisition and other recent consolidation in television and radio ownership have been fueled by the relaxation of Federal Communications Commission rules. With passage of the Telecommunications Act in March, Congress allowed station group size to expand from 25% to 35% of the United States, also eliminating a 12-station ownership limit. (Under FCC rules, the reach of UHF stations, which are higher numbers on the broadcast dial, counts only half, so the combined Fox-New World group comes in just under the 35% cap.) In addition to the stations, all currently Fox affiliates, New World--which is controlled by investor Ronald O. Perelman--is active in television production and distribution. Because Fox is strong in both areas, the acquisition does not bode well for the 300 employees in New World’s entertainment division.
The merger claimed one immediate casualty. Brandon Tartikoff, chairman of New World Entertainment, announced his resignation hours after the merger was announced.
“The only thing Murdoch wants is the stations,” said one executive. “All the rest of it is baggage that they’ll deal with later.”
Fox Television Chairman Chase Carey indicated that News Corp. will integrate parts of New World, but he conceded that the real draw is the TV stations--viewed as under-performing assets that Fox can make more profitable through sound management and cost cutting.
“If we just take these stations to the low end of what Fox does [in profit margins], on a three- to four-year basis . . . we’ll double the profitability,” Carey said.
Previous talks between the companies broke off earlier this year, with Perelman seeking $29 a share and Murdoch offering about $23. Under terms of the deal, News Corp. would pay 1.45 shares of its preferred limited voting stock in exchange for each share of New World common stock. News Corp. already has a 20% stake in New World.
New World shares soared $6.1875 to close at $21.375 on Nasdaq in response to the announcement, while News Corp. dropped $1.375, to $20.625, on the New York Stock Exchange.
Despite that reaction, analysts and executives generally praised long-term benefits of the deal. Harold Vogel, a media analyst with Cowen & Co., noted that the stations provide Murdoch with “critical mass” to distribute programming in a business that’s increasingly become “giants competing with giants.”
“They paid a lot, but in the full scheme of things, it’ll work out,” said John Rohrbeck, president of the NBC TV stations group.
The agreement offers a number of intangible pluses in areas such as promotion and programming, since Fox would have complete control over the stations, Carey added. Affiliates are more apt to preempt network fare.
Fox can also cash in with its NFL football contract because a number of New World’s stations are in NFL markets.
“On a lot of levels, it enables you to coordinate and push through” such efforts, Carey said.
As for Perelman, the entrepreneur essentially gives up his dream of building his own global television enterprise but cashes out at a huge premium.
“You can take me out too for a billion dollars,” Vogel joked.
The agreement scuttles a proposed $1.5-billion New World acquisition of King World Productions, the distributor of such programs as “Wheel of Fortune” and “The Oprah Winfrey Show.” Insiders believe that Perelman, who controls New World, was prepared to go through with that deal but also used King World to bring Fox back to the bargaining table after months of on-and-off negotiations.
King World probably remains on the sales block, still a formidable asset but in a climate with fewer potential buyers, analysts say. King World executives couldn’t be reached for comment.
Tartikoff, the loquacious former head of NBC Entertainment and Paramount Pictures, joined the company two years ago after New World had secured programming commitments through a major affiliation agreement with Fox. Since that time New World has developed a number of programs but failed to generate any hits.
In a statement, Tartikoff said, “My personal and professional goals are to get closer to the product, and therefore I concluded that those goals will best be fulfilled elsewhere.” The executive said he’ll continue to pursue TV and feature-film development as well as opportunities in publishing.
Beyond the stations, which would give Fox outlets in 15 of the top 20 TV markets, Fox would acquire a programming library that includes such shows as “The Wonder Years” and the soap opera “Santa Barbara.”
In terms of current programs, New World is teamed with NBC in producing “Access Hollywood,” a new syndicated magazine that will premiere in September, and it produces “Second Noah,” a returning ABC drama series.
New World also has a deal with veteran television producer Stephen J. Cannell that would probably be assumed by Fox. Other holdings that may prove a better fit include Guthy-Renker, a leading producer of TV infomercials, and a 50% stake in Premiere magazine.
A few observers questioned why Murdoch needed to make such an expensive acquisition, given that Fox has a 10-year affiliation agreement with the 12 New World stations inked in May 1994. That deal, in which News Corp. acquired a 20% stake in New World for $500 million, stunned the television industry and prompted a game of musical chairs among the networks to secure deals with stations in various cities.
There are economic efficiencies in larger groups, however, since stations can combine administrative and sales functions as well as pool news resources. That logic drove the Westinghouse-CBS deal, as well as that company’s recent $4.9-billion acquisition of Infinity Broadcasting, creating a massive radio station enterprise.
Owning stations also removes the threat of a rival network snagging affiliates away when current agreements expire, as Fox did to its older competitors.
Sources say Murdoch--spurred by a meeting earlier this month with Perelman at investor Herbert Allen’s summit of media moguls in Sun Valley, Idaho--decided he needed the New World stations and that, as one source put it, “they weren’t going to get any cheaper.”
The Sun Valley meeting also was the spawning ground for Disney’s then-record-setting acquisition of Capital Cities/ABC last year.
Times staff writer Jane Hall in New York contributed to this report.
Media Deal Coverage:
* Murdoch’s goal is straightforward: Expand his TV empire. D5
* Perelman profits nicely and will still be a big player. D5
* Time Warner-Turner merger would create world’s largest entertainment conglomerate. A1
* Merged giant expected to sell movie companies. D6
* FTC’s challenge was to dilute market control. D6
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News Corp.'s planned acquisition of New World Communications for $2.3 billion would make Rupert Murdoch the largest owner of U.S. television stations. If the deal is approved by regulators, these television holdings will join a plethora of media ventures News Corp. has delved into the world over. A look at News Corp.'s holdings here and abroad:
* Television: Fox Broadcasting Co.--which, with the addition of New World’s 10 stations, would reach 34.8% of U.S. homes with TV sets--has 140 U.S. affiliates and 12 TV stations and is gaining in the ratings war with ABC, NBC and CBS.
* Movies: Twentieth Century Fox is home to this year’s summer blockbuster “Independence Day” and last year’s hits “Speed” and “True Lies.”
* Publishing: HarperCollins, imprint for “Men Are From Mars, Women Are From Venus,” one of the biggest sellers in recent years, has slipped in the race for big books, falling behind Random House, Simon & Schuster and Bantam Doubleday Dell. It also owns TV Guide, the nation’s largest weekly magazine, and the New York Post newspaper.
* Cable: British Sky Broadcasting, 40%-owned by News Corp., is dueling with Bertelsmann, the Kirch Group, Canal Plus and the NetHold Group for a portion of the lucrative European pay TV market.
* Publishing: News Corp. owns the Sun (Britain’s undisputed mass-market leader, with more than 4 million copies sold daily), the Sunday Times and the Times of London.
* Hong Kong-based Star TV’s music station Channel V faces competition from PolyGram and MTV, a division of Viacom. Star TV is also being challenged by Telecom Holding, a subsidiary of TelecomAsia in a joint venture with state-owned Mass Communications Organisation of Thailand.
* Cable: News Corp. launched Foxtel with state-owned telephone carrier Telstra Corp.--each has a half-stake in the venture--in October 1995. Foxtel’s main competitor is Optus Vision, which is backed by Continental Cablevision, Optus and Seven Network.
* Publishing: Leading newspaper publisher in Australia with about 100 publications.
* Television: Direct-to-home satellite TV groups Sky Latin America--partially owned by News Corp., TCI, Grupo Televisa and Organizacoes Globo--and Galaxy Latin America--held by DirecTV International Inc., Cisneros Group, MVS Multivision and Televisao Abril--are racing to capture Latin America’s fledgling pay TV market.
Sources: Broadcasting & Cable magazine, company reports, Times and wire reports
Researched by JENNIFER OLDHAM / Los Angeles Times