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Murdoch: 'Frightened’ of Triple Play

9/19/2008 8:00 PM Eastern

News Corp. chairman Rupert Murdoch told an audience at an industry conference here last Wednesday that his decision to swap his interest in DirecTV Group with Liberty Media was made in part because of his fears that the satellite giant would not be able to compete with cable operators and telephone companies.

“I was frightened of the triple play in cable and then a superior service coming from the telephone companies,” Murdoch said at the Goldman Sachs Communacopia Conference Sept. 17.

News Corp. agreed in December 2006 to swap its controlling interest in DirecTV for Liberty’s 19% voting stake in News Corp., in a deal valued at about $11 billion. The swap helped clear up some major issues for News Corp. — it solidified the Murdoch family as the largest holders of voting shares in the media giant.

But since the swap, DirecTV has performed well against cable and telephone-company competition — it reported 129,000 net new subscribers in the second quarter — well outpacing analyst estimates.

Murdoch admitted at the conference that his fears may have been a bit premature. But he believes they may play out in the future.

“I might have been wrong,” Murdoch said. “I don’t think I’m wrong in the long term.”

Murdoch praised News Corp.’s cable channels, adding that the cable networks have reported strong revenue growth, despite the sluggish economy. He pointed to Fox News Channel, which is in the middle of renegotiating its affiliate deals with several distributors as another example of the strong performance on the cable side.

And he said that some of the company’s newest networks are beginning to turn the profitability corner.

Murdoch said that its college sports channel, the Big Ten Network, cost about $83 million to launch. But in the past few months, BTN has reached distribution deals with most of the major cable operators — it signed pacts with Comcast and Time Warner in June and August, respectively— and is expected to report a small profit this year.

Its other new network, Fox Business Network, is expected to lose money in its first three years “but will be a very valuable asset.”

But despite the strong performance across most of its business lines, News Corp. stock has been hammered this year. Its shares are down about 35% so far this year, in part because of the company’s exposure to newspaper assets. The company’s $5.6 billion purchase of Dow Jones & Co., publisher of The Wall Street Journal, didn’t help that perception.

Murdoch said the Journal has the potential to be a strong revenue generator. He added that he expected the paper to boost its online subscription revenue by $300 million annually over the next three years. Ad revenue at its WSJ.com Web site should be about $100 million alone each year, the News Corp. chairman said.

But Murdoch added that the Journal was probably the last newspaper property News Corp. would acquire for some time.

“We’re not interested in buying any more newspapers,” Murdoch said. “We think we have something very special in Dow Jones.”

September