Rupert Murdoch and Time Warner: Brace yourself for the biggest media battle of all time
Even by the old buccaneer’s standards, it was a daring, improbable approach – one that may have been rebuffed, but which may spark off one of the biggest media bunfights in history.
Rupert Murdoch has Time Warner in his sights
I’m talking, of course, about Rupert Murdoch’s audacious $80bn (£46.7bn) bid for Time Warner on Wednesday (16 July). Although the move on first glance seems like a last throw of the dice by a capricious man desperate to bow out with one last mega-deal, I think there could be more to it than that.
Murdoch has always been a risk-taker, someone who likes, in his own way, to be as disruptive to established business practices as, say Google or Amazon. He’s been taking risks ever since 1969, when he bought the News of the World from the Carr family (brilliantly outmanoeuvring his rival Robert Maxwell in the process) and the then sinking Sun from IPC, which was happy to get rid of it. Then in 1989, he bet his by-then considerable empire on pay-TV by setting up Sky.
Given Sky’s current huge profitability, it’s easy to forget just what a gamble Sky (and pouring millions into football) was – but had it failed, Murdoch would have probably gone bankrupt.
As well as being a risk-taker, Murdoch is ruthless when it comes to pursuing, and snaring, his prey: in ’69 there was the NoTW and The Sun; in 1981, the Times newspapers; in the early 90s, it was putting rival satellite broadcaster BSB out of business; and more recently, there’s been the long and ultimately successful pursuit of the Wall Street Journal.
There have been failures of course – buying MySpace for $580m and selling it a few years later for $35 was a bit of an embarrassment; and there was The Daily, the digital newspaper he created for Apple’s iPad, which was a dismal flop. Old Rupe is an “old media” guy at heart: he has print (and to a lesser extent TV and movies) running through his veins, and doesn’t really understand digital.
But despite his huge emotional attachment to newsprint, and his struggles to understand new media, the old man knows that paper is a thing of the past – and that if his empire is to endure, it has to be built on different foundations from those upon which it was founded.
Many have questioned why an 83-year-old man, who is already the world’s best-known, and arguably most successful, is pursing what may turn out to be a complex and long drawn out (and exhausting) deal when he owns so much, and so much that is successful. I don’t think it’s that difficult to understand.
Murdoch, like Sir Martin Sorrell or Maurice Levy, lives to make deals, and he has a deal-maker’s DNA. He probably couldn’t stop, even if he’d wanted to. And let’s not forget, the past three years have been hugely humiliating for Rupert Murdoch, especially in the UK. Thanks to the hacking scandal, his political influence in the UK is a shadow of what it was, and his dreams of owning 100 per cent of Sky have been put (permanently?) on hold; he was forced to close down the newspaper upon which his empire was built, and he has had to shell out hundreds of millions of pounds.
A huge, disruptive deal such as buying Time Warner would restore lost pride, and cement his position as the preeminent media mogul in America. He has US citizenship, after all, and the States is where the real media power and money is. And age does not seem to have diminished Murdoch’s hunger, tenacity or energy – he could be a major player for another decade or more; after all his mother, Dame Elisabeth, was a very sprightly 105 when she died.
So, despite the initial approach being rejected, don’t expect the matter to end there. Murdoch is nothing if not tenacious. More offers are likely to be tabled in the coming weeks. Murdoch’s splitting his empire in two (21st Century Fox for TV, movies and broadcasting and News Inc for print) should ease any deal through with the regulators and nervous shareholders.
And the sale earlier this week of BSkyB’s 6.4 per cent stake in ITV for £481m to Virgin Media owner Liberty Global has freed up valuable cash (and, in a side note, increased the possibility of Liberty making a takeover bid for the UK’s foremost free-to-air broadcaster).
What’s interesting is that the winning bid – if it comes – may not be from Murdoch. The deal will pique the interest of other bidders, although there are very few potential suitors who have the money to buy or merge with Time Warner without massively over-leveraging themselves.
And Time Warner would be an attractive buy for the right company.
After years’ worth of consolidation and an increasingly globalised market, in media content creation and distribution scale is now everything. A merged Fox (or other studio) and Time Warner would certainly have scale, and would have more bargaining power with its customers, from pay-TV operators like Comcast to online distributors such as Netflix. Time boss Jeff Bewkes, who’s 62 and nearing retirement, has been selling off assets over the past few years, and the rumour mill has it that he’s been saving the crown jewels to sell off at a huge profit so that he can exit stage left to wild applause from Time Warner stockholders. So he and the board will be playing hardball.
Apple and Amazon are two possible buyers, but as “retailers”, they may find that owning Time-Warner’s content might compromise their ability to negotiate with other content owners and studios (and Apple doesn’t really “do” owning content); an ambitious US telco operator like Verizon is a faint possibility, as are AT&T (which is trying to buy DirectV). Facebook could be interested, but would be going outside its comfort zone; US cable giant Comcast is already buying Time Warner’s cable operation so can probably be discounted; so I’m going to take a punt and say that Google could be the strongest bidder.
For me, it ticks all the right boxes: it’s ambitious and cash-rich, it has the distribution infrastructure and, most importantly, it has to broaden its business model. Google is a stunningly successful company, but its problem is that, despite all its innovations, it only really makes significant profits from one thing – search. This leaves it vulnerable. But acquiring Time Warner would give it a new business stream, ie content.
In YouTube, Google has a fantastic distribution channel, but it has never really been able to fully leverage its unprecedented reach, or to feed it with the content it needs (so something that advertisers would be interested in being associated with, rather than endless 'LOL Cats' videos). With Time Warner, Google could acquire a huge number of high-quality content assets: HBO, Hanna-Barbera, Cartoon Network, Boomerang, New Line Cinema, Castle Rock, DC Comics, Warner Bros, TCM and Turner Broadcasting System. Unlike Murdoch, a Google-owned Time Warner wouldn’t have to sell CNN either, so could beef up its news offering.
For me, this seems like an offer too good for Google to pass on, and a property like Time Warner may not come up again for years. I wonder if, over at Mountain View, Messrs Brin, Page and Schmidt might be preparing an audacious bid of heir own.
Whatever happens, the next few weeks are going to be hugely exciting for M&A buffs, so hang on to your hats folks!
Andrew Moss is a partner at Green Square, corporate finance advisors to the media and marketing sector.