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Risk-all Rupert doesn’t do free, but could learn from his rivals

FEW businessmen in the world are as willing to take the really big risks as Rupert Murdoch. He bought the failing Sun newspaper from the Mirror Group and successfully transformed it into the UK’s largest-selling newspaper, taking on the unions in the process and completely transforming the cost base of the newspaper industry.

 

He took enormous risks and invested massive amounts of money in building the Sky satellite system — twice. After initial heavy investment to create the satellite TV system, he spent a second fortune switching his system and all of his customers to digital TV.

 

Taking the big gamble of giving away satellite boxes and expensively buying up sports rights has paid off handsomely, giving him a dominant position in the UK’s broadcasting economy.

 

In the US, Murdoch has built the Fox network from scratch, successfully challenging the big-three established US TV networks with hit programs such as The Simpsons.

 

But not all the risks have worked. A few years ago, Murdoch’s News Corporation invested in a bunch of internet companies, most of which failed spectacularly in the dotcom bust. But while he was nursing his burnt fingers, several breakthrough internet businesses, such as Yahoo and e-Bay, have become some of the most profitable media businesses on the planet. Even AOL, which disappointed so many after its merger with Time Warner, recently announced that it had surpassed $lbn-worth of advertising revenue.

 

Other old-media publishers are climbing on the internet bandwagon: the New York Times spent $410m buying About.com; the publishers of the Wall Street Journal bought MarketWatch for $528m; and the Washington Post has bought the online magazine Slate.

By comparison, News Corporation’s internet cupboard is pretty bare and so it has called in McKinsey, the management consultants, to help it develop an effective internet strategy. Murdoch has even said that he intends to spend more time surfing the net.

 

But maybe the problem lies in the payment method. Traditionally, internet publishing is free to access and is supported by advertising, and Murdoch has a lot of trouble with free.

 

Growth in his Sky subscription satellite system has stalled since the BBC launched Freeview, its alternative digital-delivery system, which has quickly sold over five million units. And with the arrival of new, free channels, such as BBC3 and ITV2, many viewers are finding that they can get all the choice they want without having to pay a Sky subscription.

 

There are strong rumours that Channel 4’s E4, currently a Sky pay channel, is likely to go free soon to take advantage of the large and growing Freeview audience base.

 

In his newspaper business he is also having trouble from free competition. The Sun is steadily losing readership — 4 per cent down in the last year — and a lot of this seems to be down to the success of the free Metro newspaper. Metro is deliberately aimed at light readers and has grown dramatically in recent years. Murdoch has admitted that its success is having a serious impact on sales of the Sun.

 

It would be wrong to write off News Corporation; it has been incredibly successful in building global media businesses, with dominant positions in Australia and the UK, and huge strengths in the USA and China.

 

All it has to do is work out how to make money out of giving things away, free.

 

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