Sunday, August 3, 2014

Into the rabbit hole: Murdoch’s bid for Time Warner



WHAT RUPERT wants, Rupert gets.” Those five words have been a maxim of the modern media world for so long now, it’s hard to remember when that wasn’t true. Like some modern-day version of a Barbary Coast buccaneer, Keith Rupert Murdoch has swept the high seas of media, creating or acquiring numerous high-profile media properties in the years since he was a maverick newspaper publisher in his native Australia.

The New York Post, Fox News, 21st Century Fox (the kinda-sorta-rechristened movie studio) and Dow Jones and The Wall Street Journal have fallen under his sword in the last 40 years. On Friday, his flagship company, News Corporation, acquired the Harlequin romance novel publisher for $418 million, the Los Angeles Times reported.

He’s not the rabid, swashbuckling velociraptor he used to be — he is 83, after all — but Jolly Rupert is still planning one more jewel for his crown, one last big job. Since early June he’s been quietly leading the charge for his 21st Century Fox to acquire Time Warner, the information and entertainment behemoth, for just north of $80 billion, or about $85 in cash and stock.

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When the news that Rupert was loose again first broke, early in July, you could smell the hair on fire in Hollywood and the Time Warner boardroom in New York. The shock of the speculation itself conferred a gravity on the speculation. But that didn’t last. The big pushback has begun, with Time Warner rejecting the bid on July 16, and undertaking various preventive measures intended to block acquisition by Fox — joining  Hollywood creatives equally opposed to what such corporate gigantism would almost certainly mean for their livelihoods.

Everyone’s waiting for Tuesday, August 6, when Time Warner CEO Jeff Bewkes, reports second-quarter earnings, almost certainly fielding questions from board members who wonder if rejecting $85 a share is a good idea for a company whose shares were riding handsomely in the low 70’s earlier this year.

It’s been almost exactly seven years since Rupert Murdoch last successfully scratched his itch for empire, with his acquisition of Dow Jones, the information giant and owner of The Wall Street Journal. Like Warner Bros.’ eternal mascot Bugs Bunny, Time Warner is hunkering down, prepping for the coming assault — not from Elmer Fudd, but from Murdoch ... who has a habit of getting what he wants.

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BUT MURDOCH is again doubling down on gigantism-as-leverage, a media strategy that was crumbling in 2007. In the years since then, social media, seismic shifts in content distribution, advances in personal technology and a more informationally intuitive Internet have changed the game.

Murdoch Fox may be the big kid of the schoolyard, but that doesn’t matter when there are a lot more kids in that schoolyard. Lean, strong, hungry, well-capitalized kids. Any one of whom could make a bid for Time Warner that would make more sense.

If it comes down to share price, Murdoch may have to sweeten the pot. A lot. And unlike in August 2007, there’s more players at the table now.

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Let’s name some of the names. Since Time Warner’s been put in play, such companies as Verizon and Comcast have been mentioned as possible suitors. Comcast isn’t likely to make a bid, having really just digested its acquisition of NBC Universal. For Hollywood, too, the prospect of combining Universal Studios and Warner Bros. into one company can’t be any more attractive than wedding Fox and Warners, and for exactly the same reasons.

A Time Warner-Verizon tie-up wouldn’t appear to make sense either. Verizon isn’t a content or entertainment company, regardless of how much content or entertainment is accessed by Verizon customers. At first blush, the potential for culture clash (to say the least) would be a concern.

How would Bugs Bunny feel about eating Apple with his carrots? Apple, a player with a history of jaw-dropping innovations and a reputation to revive in the wake of Steve Jobs’ death in 2011, would be an interesting partner for Time Warner, a marriage of Time Warner’s content and Apple’s devices and services. And with a market cap of $460 billion and $150 billion in cash on hand, Apple could cut a check for Time Warner without breaking much of a sweat.

Moody’s senior VP Neil Begley told Digital TV Europe that if big tech acquired Time Warner, “digital innovators could gain access to content and drive more rapid change in the digital and mobile worlds.”

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AND THEN there’s the big G. Analysts have been name-dropping Google ($360 billion market cap, $60 billion cash on hand) as a possible Time Warner suitor. For one media seer, this is a scenario that makes the most sense.

Anthony DiClemente, media analyst at Nomura, told Dominic Rushe of The Guardian: “At some point, technology companies such as Google or Amazon or Apple may begin to identify the value of professional content – and rather than licence that content, they may attempt to acquire a media content company.”

In a way, that’s already happened — when Jeff Bezos, Amazon founder and CEO, acquired The Washington Post last year. True enough, the WashPost buy was with Bezos’ own money and isn’t formally connected to Amazon. But you’d have to be naïve to think that Bezos won’t find ways to integrate Amazon and The Post before long.

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Animated by its own presumptive speculation, Murdoch Fox has already announced that it would sell its direct broadcast business, BSkyB, for about $9 billion, to help pay for a deal that hasn’t been consummated. And CNN, the flagship 24-hour news network, would also go on the block if the deal goes through — a fact that deserves to send shivers through many vertebrae in Atlanta.

But that needn’t be a disaster. If CNN is set adrift, it would be the perfect opportunity for CBS to make a bid for the assets of the 24-hour cable network that started it all. Speculation has ebbed and flowed in recent years about the likelihood of a full-on merger of CBS and CNN.

The two legacy news operations have joined forces before, picking their spots. Christiane Amanpour and Anderson Cooper have made appearances on CBS “60 Minutes,” in their roles as correspondents. This time, with Fox seeking a buyer if Murdoch’s stars malign, CNN could be just what’s needed to give CBS the entrée into cable it’s never had (or exploited) before.


“I don’t think the time is right for it at this moment, but I could be wrong,” said Hal Vogel, CEO of Vogel Capital Management, speaking to Variety on July 9 “For Google at least it would represent diversification and a reach into the content and consumer products business,” he said. “For Fox, I don’t know that it adds anything. It’s just duplicative.”

But maybe not. When you consider the voluminous content and broad cultural reach of the Warner Bros. entertainment combine, a Fox-Time Warner tie-up would have its duplicative aspects, but in other ways it’s almost exponentially accretive. If Fox were to acquire Time Warner, it would command more than 100,000 perpetually lucrative motion picture properties.

It would acquire 100 television series and add broadly to its cable (Turner and HBO) and broadcast presence. Time Warner’s sports portfolio would likely dovetail with that of Fox Sports; bulking up there would better position Fox against sports death star ESPN. All in all, the making of a new colossus. An ocean upon an ocean of content. An empire upon an empire.

At least that’s how Murdoch would see it.

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OTHERS? Not so much. In an insightful, refreshingly expansive Aug. 1 interview, Mike Fleming Jr., of Deadline.com, spoke with Gerald Levin, formerly a co-conspirator in the merger/debacle of AOL and Time Warner, and someone prepared to explain why Fox-Time Warner would be, charitably, a disaster:
LEVIN: It provides great theater; everybody gets excited when there are large transactions in the offing with iconic brands. But the fact is, it makes no sense, culturally or creatively. It’s not good for movies, and television, and storytelling. All it is is a financial construct that gets Wall Street going with valuations. ...

DEADLINE: Are you saying that if you were Jeff Bewkes at Time Warner, your company might be better off making an alliance with the guys who created Google than someone steering an established media company where the innovation is to eliminate duplicative assets and personnel to favor the bottom line?


LEVIN: That is exactly what I am saying. Everybody says, oh, well, this will be terrible for the market if you get a Google and a Time Warner. But just to use that example; what business is Google in? Google is in the content business with YouTube, and at the same time, it has a culture that says, we’re going to finance anything that’s crazy, anything that looks like a moonshot. There is an algorithm of creativity there. ...

Everyone will probably say, well, that doesn’t make any sense because AOL and Time Warner didn’t work, but that misses the point. It’s now 14 years later, and companies in the legacy businesses still haven’t figured out how to make it work. By that I mean the publishers, and the media companies, and the communication companies that are wrestling with, how do I either protect myself, or how do I get on board? It’s 14 years later, and they still haven’t figured out what role to play in the digital world. So, my view would be, yes, it would make more sense for Time Warner to be a part of digital platforms. The only reason I keep mentioning Google is I think they have the culture.
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But hold up. On its face, there would seem to be at least the potential for the same culture clash if a Google-Time Warner tie-up was in the offing. Think of it: the world’s pre-eminent ecosystem for cataloguing and organizing the world’s information, a technology company based literally and spiritually in Silicon Valley, in a merger with a white-shoe, legacy media conglomerate populated by risk-averse studio chieftains and analog-media holdovers? The chances of culture conflict in that scenario would seem to be as real as anything you could conceive of in a Fox-Time Warner deal.

Still, Levin thinks the time’s ripe for something truly transformative to happen in media. For him, though, Fox-Time Warner ain’t it.
LEVIN: It is so disruptive, particularly when you’re talking about two studios with vastly different cultures of their own. When you put these things together, usually there’s a push from Wall Street to cut back and make sure there are the right synergies, which there usually aren’t. It just means a lack of focus and trying to harmonize the cultures, particularly in this case, it doesn’t make any sense to me at all.
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LEVIN SEEMS to say, ironically enough, that a different, more enlightened gigantism could spare Time Warner from a merger with Fox — the kind exercised by companies with a reputation for both vast economic success and a free-wheeling, creative-driven culture that lets innovators innovate. Companies like Google and Apple.
LEVIN: A studio is not about having sets to make movies on. The studio is a home on the lot for as many producers, as many guys and women as you can handle, not looking for some kind of metric for their output, but letting them percolate and marinate ideas. ... if you’re loyal to those producers, through thick and thin, someone somewhere is going to come up with an idea that’s going to make it big. The only way that happens is just to let a thousand flowers bloom. Let as many producing companies as possible flourish.

That’s why you do need financial capacity, and some of these digital companies have that. If you look at the market cap of Apple and Google or the amount of cash they have, they have the financial capacity. If you just combine that with what we’re describing now, which is to support creative process by just putting the money there and not expecting an immediate return, letting as many ideas float as possible, well that’s the creative process. You don’t see that in financially-driven, Wall Street-pushing conservatism.
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All in all, Levin comes to the inescapable point that the burden is on Murdoch to show why a merger like this makes sense — not just from his perspective and Fox’s, but also from the standpoint of Time Warner. The burden’s also on Murdoch, in the wake of News Corp’s involvement in the reputationally ruinous UK hacking scandal, to show what a Fox-Time Warner merger does to burnish the Time Warner portfolio beyond the bottom line. Past performance matters. Reputation matters.

Levin thinks others are waiting in the wings: “The logic would suggest that something is going to happen. It’s not going to remain as is, and there’ll be a shareholder desire to want to cash in to the maximum feasible extent. Something else is going to happen, another transaction that’s going to change the profile of the business.”

Levin’s deeper point, something the House of Bugs well understands, is one that Murdoch confronts right now, in the suspicion and fear his proposed merger has aroused, in the media world and beyond: There’s nothing wrong with Time Warner that can’t ultimately be repaired by staying as far away from Murdoch, and Fox, as possible.

Image credits: Murdoch's golden carrot: Kyle Hilton/The Hollywood Reporter. Murdoch: Jason Reed/Pool via Los Angeles Times. Logos by their respective corporate parents.

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