<nettime> new media is so last year... (chenoweth on the direcTV deal)

[geert lovink <geert@xs4all.nl>]

The article below deals with the consequences of Rupert Murdoch's lost bid
to gain control over DirecTV, the US-American satellite broadcasting
company. Neil Chenoweth, author of 'Virtual Murdoch' (London: Secker &
Warburg, 2001), journalist with the Australian Financial Review and Murdoch
specialist, points out the long ranging consequences of the DirecTV battles.
Chenoweth predict a  tidal wave of direct US-programming outside of the USA,
downloadable via broadband. This in turn will fragment audiences of the
free-to-air audiences. /geert

(posted with permission of the author)

from: nchenoweth@afr.com.au
Sent: Monday, November 12, 2001 7:55 PM
Subject: Re: posting of AFR article

The men who would grab Rupert Murdoch's mantle

Is Rupert Murdoch's reign over? He's lost his bid for DirecTV, and access to
the lucrative US pay-TV market and put his rivals in the box seat just as a
new era of broadcasting is beginning.

Byline: Neil Chenoweth

Last weekend, a curious mixture of motives in a New York boardroom triggered
an extraordinary realignment of world media power. Such moments pass with
little fanfare. What attention they attract is usually devoted to the
intense inter-personal tensions that drive them.

But this is a turning point in the future of the world media business. Its
aftershocks will be felt around the world.

We will certainly be rocked by them in Australia, though it is doubtful that
many will realise where these waves are coming from. Instead, we will merely
be asking, perplexed, in five to 10 years' time, whether Channel Nine and
Channel Seven have a viable business model ... whether the television
industry in Australia as we know it will continue to exist.

This all seems rather remote from the decision by the General Motors board
last Sunday night to sell its subsidiary Hughes Electronics, with its
DirecTV satellite broadcasting arm, to rival EchoStar Communications for
$US25.8 billion ($50.76 billion).

There are two reasons this will affect Australia. First, after the crash of
the technology stock boom and the demise of new media, this deal will
produce the next wave of communications giants. It ushers in the era of big
media, where the future will be determined by three powerful figures: Steve
Case at AOL Time Warner, Charlie Ergen at EchoStar, and whoever Michael
Armstrong at AT&T sells his AT&T Broadband cable operation to.

For the past two decades, the mantra of the world's media industry has been
that content is king; that good programming will always be the key to making
money in media.

But that is about to change. Despite all the hype about the communications
revolution, the future belongs to the US distribution networks and this has
serious implications for Australian television and culture.

The other reason this latest deal affects everybody is that it is all about
Rupert Murdoch.

How does Murdoch inspire such fear and loathing in US boardrooms? In
Australia or Britain you could understand it. Anywhere beyond the 12-mile
limit on the US coast, Murdoch is the most powerful media baron in the
world. Ask any politician.

But in the US, after three decades of striving, Murdoch is a second-ranking
media figure. He's not even in the top three. Yet time and again, Murdoch
emerges as the bogeyman of US media. By general consensus he is the Man Who
Must Be Stopped.

While everywhere else in the world Murdoch changes history by winning,
Murdoch has spent the last decade in the US dictating the course of the
media industry by being beaten.

In 1997, Murdoch's plan to merge his nascent US satellite business with
Ergen's EchoStar produced such panic and opposition among US cable companies
and television networks that within weeks, Murdoch had been forced to back
down, to dump Ergen and agree to the terms for a humiliating surrender to
the cable companies.

That defeat produced a series of stock rises on Wall Street worth more than
$US200 billion, and was a factor in triggering the technology stock boom.

In 1998, Murdoch's alternative satellite plan, to join with the cable
companies, was blocked by the US Justice Department. That setback put the
whole cable/satellite industry in play again.

The same year, worried TV executives, looking over their shoulder at what
Murdoch might be doing, bid up the rights for North American football by
$US8 billion over eight years. It crippled Disney. As NBC's president, Bob
Wright, put it during a 1996 discussion about the future of communication,
``That's not the question! The question is, where's Rupert?''

The Murdoch factor surfaced again last weekend, when the General Motors
board decided to dump 18 months of torrid negotiations to sell Hughes to
Murdoch, and instead chose Ergen, the rank outsider.

Ergen has a deadpan delivery and a lethal Tennessee charm, and he was
offering an attractive deal, if it passes the regulators. But the GM
directors' decision at the end was probably not so much pro-Ergen as it was
anti-Murdoch.

To understand why this deal is so important, you have to appreciate how much
Wall Street is over the tech boom. New media is so last year.

That doesn't mean the technology race will stop. It is just that the new
kids who looked so invincible two years go aren't going to be the ones that
get to play with the high-tech toys.

For Australian television, lurking over the horizon is the threat that some
time in the next five to 10 years, television programming will be carried
over broadband internet, and their geographical monopoly will break down.

Australian consumers will be free to download TV programs directly  and
immediately  from US programmers, rather than wait for them to appear on
Australian television.

At the very least, this tidal wave of direct US programming will fragment
the audience for Nine, Seven and Ten. At worst, they will be reduced to
replaying US reruns, and local production. With advertising revenue slashed,
make that very cheap local production. Think mid-'90s Channel Ten.

The most valuable piece of television real estate could well be the ABC,
with its huge local production library. If so, expect Nine to make a move to
assist the ABC's online strategy.

A US media consultancy, the Yankee Group, is predicting that in four years
the US will have 31.5 million homes with broadband internet access. The slow
train is coming, but it's not here yet.

Other studies have shown that people are spending less time exploring the
internet. The novelty value is over. They know the sites they like, and
that's where they hang out.

Perversely, as consumers surf the net less, in the US they are surfing
television channels more, flicking back and forth across the dial. This does
dire things for the fragmenting audience numbers of the free-to-air
television networks and their advertising revenues.

After the tech crash, and in the middle of the one of the worst advertising
downturns in recent history, US investors have decided that the future lies
with pay-TV.

Consumers don't really want to spend their evenings on the net; they just
want to watch the tube. Pay-TV offers far more choice, and a business model
far less directly dependent on advertising, than anything else.

This has given the biggest half-dozen US cable companies time to consolidate
their move to digital, and slowly introduce interactive services and video
on demand. Whatever happens, they will be in the box seat.

In fact, what happens next is that they are going to grow a lot bigger. This
is why last weekend's deal is so critical  Ergen's combined EchoStar-DirecTV
operation will have 16.7 million subscribers. The two satellite companies
are adding 3 million subscribers a year (compared with 400,000 new cable
subscribers), which means by the time this deal settles, Ergen will have 20
million subscribers ... more than the population of Australia.

Ergen will have more than 1,000 channels to juggle. And hardware? As a Nine
Network executive eloquently put it in the early 1990s, when Kerry Packer
was big in the space race: ``We've got satellites coming out of our arse.''


Earlier this year, Murdoch was saying he could push DirecTV alone to 30
million subscribers. A combined operation under Ergen with no satellite
competitor must at least be able to match that.

On this logic, Ergen will end up the most powerful man in world media, with
40 million-plus subscribers, and half the US pay-TV market.

But before this happens, his cable rivals will make their presence felt.
They will use Ergen's every advance to argue that they should grow bigger.

It's already under way. Michael Armstrong is selling his cable network, AT&T
Broadband, with its 15.1 million subscribers, probably to Cox
Communications, with 6.2 million subscribers, or Comcast, with 8.3 million.

That will leave AOL Time Warner, with only 12.7 million subscribers,
scrambling for a dance partner. When the music stops, you're likely to see
the US pay-TV industry reduced just to two cable companies and a satellite
company, each with about 30 million subscribers.

EchoStar's legal counsel, David Moskowitz, says the argument that cable will
have to merge to keep up with satellite is nonsense. ``If you argue they
have to merge to compete with us, I think this is silly,'' he says. ``Do I
think they will ultimately merge [for other reasons]? I think that's quite
likely.''

In 1996, when Murdoch launched Fox News, his biggest problem was getting a
coalition of cable operators to agree to carry it. Murdoch's business model
was that any new channel needs at least 20 million subscribers to be viable
(ultimately it needs far more, but that's the base).

The three emerging giants of pay-TV, who will each have far more than 20
million subscribers, will be able to produce their own programming and know
that it will be viable from day one.

That changes the whole balance of power in the media business, between
content and distribution.

Access is everything. Murdoch used to own what was the world's most popular
internet gaming site, Kesmai. Then in 1996, AOL dumped Kesmai from its home
page, and replaced it with its own gaming site. Overnight, Kesmai lost 95
per cent of its traffic. It never recovered.

Ergen has never been interested in content, but what happens when the other
pay-TV giants do the same thing with cable channels?

Whichever way this pans out  and Ergen has an uphill fight to get the Hughes
deal approved by the Justice Department  in five years or so a tidal wave of
US content is going to hit Australia. We had better know who our new
gatekeepers will be.

------------------------------
Publication: Australian Financial Review
Publication date: 3-11-2001
Edition: Late
Page no: 22
Section: Perspective
Length: 1500
------------------------------

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