Murdoch's mistaken vision

In the media world, five years is ancient history. Consider the case of Rupert Murdoch, who in October 2001 lost out in his bid for DirecTV. At the time, the El Segundo-based satellite service was considered his ticket to providing News Corp. - the parent of Fox television, Twentieth Century Fox etc. - with a fool-proof distribution platform that couldn't be derailed by those pesky cable companies. BW reported at the time that when Murdoch's $22.5 billion bid for the satellite company went kaput, he ended up in "a mogul-sized funk." From BW's Sept. 9, 2002 issue:

The 70-year-old News Corp. chairman had been in and out of talks with DirecTV's parent, General Motors Corp. (GM ), for 18 months. When it became clear that DirecTV had slipped his grasp, a burned-out Murdoch thanked his negotiating team with dinner at New York's Remi restaurant, then decamped with his wife, Wendy Deng, to his Carmel ranch. In the following months, Murdoch vented frustrations by stepping up boxing matches with his longtime Aussie trainer.

Looking back, it's amazing that he made DirecTV such a big deal. He wound up getting controlling interest in late 2003 - more than two years after he first went after the company - but by then the landscape was starting to change. Satellites turned out to be a poor platform for high-speed Internet and voice services, and the cable and phone companies, after having invested many billions of dollars in upgrading their networks, began to take advantage. Not only that, insiders said DirecTV was an unwieldy business - quite bureaucratic (perhaps going back to the days when it was owned by Hughes Electronics) and price sensitive.

Of course, Murdoch's decision to give up DirecTV - in return for John Malone giving up his 16 percent stake in News Corp. - was based on more than just the struggling satellite business. He and Malone used to get along fine, but two years ago Malone's Liberty Media (with holdings in a bunch of media and entertainment companies) began accumulating a bunch of voting shares in News Corp. There was even talk that Murdoch's control of News Corp. was in jeopardy. The News Corp. board later adopted a poison-pill defense that prevented Liberty from buying any additional stock.

Now Murdoch is rid of satellites in favor of most things Internet, and he has ensured control of News Corp. Plus, he won't have to pay taxes on the deal because of the way it's structured. As if all that's not enough, "American Idol" will be returning in a few weeks to save the network - once again. No wonder the stock has been on a tear.