TBS Contributing Editor Chris Forrester caught up with Murdoch to talk about News Corp's expansion into Europe

Preparing for a snapshot interview with Rupert Murdoch is a difficult challenge for any journalist. First, the man is, for all the publicity that surrounds him, something of an enigma. We all know him so well, yet we know so little about him. One week recently he was reported to be in discussions with leading figures in China, in London, in Paris, in New York, in Moscow and in Hong Kong. Can one man really travel, Superman style, quite so quickly around the globe, or were some of the reports simply fictitious? Either way, this most powerful of media men is without doubt one of the planets top "movers and shakers." Only Microsoft's Bill Gates can compare with Murdoch.

But at the end of last year he did grant a few moments of his time, and in his formal presentation revealed just why he has such importance. The reason was the launch of News Corporation Europe, a fresh venture. He made a few vague promises to expand his News Corp media empire into mainland Europe--and instantly wiped 8.5 percent off Canal Plus share price (Nov. 23). Murdoch, at a Savoy Hotel press conference, said News Corp Europe (NCE) would not have a set budget but instead would examine each project on a case by case basis. Canal Plus, at the time, made no response to Murdoch's announcement.

First step would be an Italian pay-TV joint-venture, then NCE's first specific project would be a new channel, set up with Paris-based network TF1, targeted at 15-24 year-olds, due to launch in 2000 on the Television Par Satellite (TPS) pay-TV bouquet. Mrs. Letizia Moratti, formerly head of Italian pub-caster RAI, will be chairman of NCE, and will join the main News Corp board and BSkyB. Murdoch said BSkyB would be welcome to join the new Europe-wide venture as partners, "if that was the decision of the board of BSkyB."

The Italian pay-TV venture would have been a direct confrontation with Canal Plus, which is already heavily involved in Italian pay-TV. The real battle between the two platforms will be fought over the TV rights for live Italian league football for the period 1999-2005. Murdoch has already offered L4,200 billion ($1,470 million) for the exclusive contract to transmit all league games in pay-TV. More will be known on December 3 when the TV rights issue will be discussed by the Italian Football League (FIGC). Preoccupied with the imminent arrival of Murdoch, Telepi has been actively buying up the TV rights from the best clubs such as Juventus, Milan, Napoli and Inter. In London, Murdoch would not comment on Italian football rights, beyond noting that there were "a lot of rights still available in Italy."

Later Murdoch said "There are two great markets in the world, one is in North America and the other is Europe." He added, "You cannot globalize your company's activities without having a major presence in Europe. We place the greatest importance on this." Moratti said mainland Europeans typically spend only $300 a year on entertainment, well behind the typical $900 spent in North America and the U.K. No comment was made on how much the Arabic-speaking community spent on its televisual entertainment, but it's probably a great deal less.

News Corp has spoken to virtually every major European player at some time in the past few years, notably Silvio Berlusconi ("We speak all the time") and Leo Kirch ("Talks are progressing, but very slowly"), and he hinted that if the Telecom Italia/Stream talks falter he has other ideas in mind for the Italian and European markets. Those plans could include fellow-News Corp investor Prince al-Waleed from Saudi Arabia, long reported to want to expand his media interests in Europe.

Murdoch, in fine humor, spoke for almost an hour and touched on almost every European market, but his strategy seemed to come from the success in France of Television Par Satellite (TPS), the rival platform to Canal Plus. "When TPS began I have to confess I was a skeptic and thought they were late to the scene. They have done remarkably well and have shown that it is quite possible to start second and build a viable and strong alternative." One region not on his agenda is Eastern Europe: "We are constantly being offered possibilities but have not yet been tempted."

Since the interview much has happened. In mid-February the Italian talks between News Corp and its suggested partner Stream fell apart, only to be replaced--almost on the same day--with high-level discussions between Murdoch and his Canal Plus opposite number Pierre Lescure.

One highly skeptical observer summed it up as the latest "rumor du jour," but any talks between Murdoch (via his BSkyB London-based pay-TV organization) and Paris-based Canal Plus were bound to make headlines around the world. A Wall Street Journal report added fuel to an already blazing fire, speaking of Murdoch and Lescure having held "preliminary" meetings.

Officially BSkyB remains silent, but a Canal Plus spokesman stressed that Canal Plus had conversations with Murdoch from time to time and that this latest meeting required no special comment. But over the following days details emerged which give this latest report some legs, not least well-placed sources which suggest that the talks are, in fact, already past the preliminary stages.

According to analysts the options for the two media giants are varied. A full merger into one company might be the best way forward, and while the regulator may validly argue against the creation of such a dominant force in European broadcasting, the new entity could respond that when measured against other European players, it was a minnow.

BSkyB's annual revenue for last year was $2.3 billion, slightly less than Canal Plus's $2.8 billion. But Germany alone (on 1997 data) accounts for some giant media players. CLT/UFA takes in $2.67 billion, RTL Germany $2.14 billion, and Pro 7 $1.1 billion. In France the giant TF-1 had an income of $1.83 billion.

However, any talks of merger still have some way to go before they find credibility among all London analysts. Mathew Horsman, senior media analyst at investment bankers Henderson Crosthwaite, says on first blush the deal is unlikely to get approval from the Brussels media regulator Karel van Miert.

But there are elements in this already complex relationship that are worth restating. The first is that Canal Plus already holds a stake, via another company, in BSkyB. French media conglomerate Pathe has a 17 percent holding in BSkyB (prior to last November it was slightly greater). Canal Plus, and its major shareholder Vivendi, on January 25 acquired a 24.6% stake in Pathe, which in a roundabout way makes Murdoch and Canal Plus Lescure fellow investors in BSkyB. And in return News Corp holds a 10 percent stake in Pathe.

The net result of these cross-holdings suggests that if the French investments were treated as one entity, then News Corp and France would each end up with around 25 percent of a merged operation.

Another option is for BSkyB and Canal Plus to carve Europe up, as one analyst put it. A more acceptable suggestion is that some sort of nonaggression pact would emerge between the two rivals. Canal Plus is active in France, Italy, Spain, Poland and the Scandinavian countries where, either on its own or with strong local partners, it has analogue and digital distribution. It is also active in the UK via a software agreement with digital terrestrial pay-TV outfit ONdigital, which uses Canal Plus-developed MediaGuard conditional access and MediaHighway software systems.

BSkyB, meanwhile, dominates UK and Ireland pay-TV. The missing market is Germany, and some three years ago BSkyB came close to agreeing to a joint-venture with Leo Kirch to take a significant stake in the DF-1 digital platform.

Another name that is also linked from time to time with most of these players is Saudi Arabia's Prince al-Waleed of Kingdom Holdings. He has investments in News Corp, and he is close to Italy's Silvio Berlusconi (and has investments in Berlusconi's Mediaset). Al-Waleed is known to be keen to see his already considerable media-related investments grow and sees Europe as a logical next step.

With or without Prince al-Waleed, a merged BSkyB/Canal Plus operation will have the media Euro-regulators scratching their heads, not to mention provoking anti-trust examination. Additionally, the numbers of hurdles, obstacles and egos that each would have to overcome would be immense. Which is not to say it cannot be done. A News Corp Europe spokesman, speaking in Milan earlier in February, said News Corp was still very much interested in Italy. Or, as an analyst suggested, "It's all part of a normal negotiation."

These negotiations are a constant game of bluff, and double-bluff, of never letting your friends (let alone your enemies) know what you are doing, and seems to be a core element of Murdoch's strategy. But one of the shrewdest European operators is the former head of RTL in Germany, Dr. Helmut Thoma. He retired at the end of last year, having led RTL from zero income to being Europe's most profitable broadcaster. By any measure Dr. Thoma is one of the characters in this business, and as recognition of his status he was awarded the highly prestigious 1999 Nymph d'Honneur at the Monte Carlo TV Festival in February.

Speaking after the award ceremony, Thoma just about summed up what Murdoch is all about, and gave Murdoch a pointer as to where he should seek to make his next fortune. "Forget about Italy and Russia and Eastern Europe," he said. "Instead Murdoch should look to Germany, where he will find the most money and the least governmental restrictions."

But whichever country he selects, Murdoch creates a high degree of controversy. He is loathed and admired in more or less equal measure. But have no doubt, his action can make governments tremble and competitors anxious. One London-based analyst summed up the situation perfectly, saying, "Working with him is more desirable than working against him."