Retreat of the Rupert Murdoch media empire is a 'stunning reversal'

Rupert Murdoch’s retreat is pragmatic, logical and commercially clear-headed – but it is also a stunning reversal that, until this year, seemed inconceivable. The media tycoon has barely taken a backwards step since he rescued himself from a dangerous debt crisis in 1990.

The tale for the past quarter-century has been one of single-minded expansion, with Sky leading the charge in the UK. Outsiders wondered whether the Murdoch empire would survive intact for long after his lifetime, but the family’s plans appeared to be set. Sons James and Lachlan were groomed for inheritance. One, or both, would take charge of 21st Century Fox and all the media assets accumulated by their father over decades.

With hindsight, the failure in 2014 of Fox’s bid for Time Warner was the moment their plans changed. The $80bn (£60bn) takeover attempt was an embarrassing flop. Warner’s board ruthlessly exploited the argument that the non-voting Fox shares that Murdoch was offering were a second-class currency giving the family too much control.

In a share-based takeover bid, Murdoch needed investors to applaud his vision in pursuing Warner and to inject momentum into Fox’s share price. That never happened. Fox withdrew and its lack of bidding firepower was exposed. Only a full takeover of Sky, where Fox owns 39%, seemed within reach.

Murdoch is said to be infuriated that new media upstarts such as Netflix are awarded princely stock market ratings and enjoy almost unlimited access to capital to pursue dreams that will only pay off over the very long term. By contrast, traditional media companies such as Fox are expected to deliver hard dividends and short-term profits.

Yet Murdoch has been forced to accept this shift in power. In selling most of Fox’s assets to Disney, he is acknowledging that his company is out-gunned and cannot easily win alone these days. It seems odd to describe a business worth $60bn-plus as too small to compete, but Disney is worth more than twice as much and faces its own challenges in confronting the streaming services of Netflix and Amazon. This is a case of two old empires attempting to strike back.

After acquiring Fox’s entertainment assets, Disney may be able to dictate better terms when selling content to Netflix. Disney will get a huge bank of film properties from Fox’s Hollywood studio – the likes of Avatar and X-Men – that can support its own planned streaming services. And it can also shift the likes of Avatar into its theme park operations, where it is dominant. Assuming US regulators approve the concentration of power, the commercial thinking makes sense.

Yet the Murdochs will emerge as diminished figures. The family’s stake in Disney will be just over 4% after the all-share transaction. The hopeful idea that James could emerge as a long-term successor to Disney chief executive Bob Iger remains a long-shot. James will help with integration but Iger will stay in post until the end of 2021.

For the Murdochs – or, at least, Rupert and Lachlan – the future lies in “New Fox”, essentially the Fox broadcasting network and stations plus Fox News. This news and sport operation could prosper. The business will start life with healthy annual cash flows to keep bidding for US sports rights. But it’s not the final chapter that was intended.

Even the idea that New Fox could be reunited with News Corp – the separately listed company that owns the Sun, Times, Sunday Times and Wall Street Journal – seems a non-starter. The split happened after the phone-hacking scandal in the UK that forced the closure of the News of the World. It is highly unlikely that non-Murdoch shareholders in New Fox would want to risk another adventure into UK newspapers.

Nor, if the deal succeeds, will Murdoch achieve his ambition to gain 100% control of Sky permanently. Fox’s current takeover offer will proceed and the Competition and Markets Authority will give its opinion next year. But it will be Disney that inherits the UK broadcaster. And it is clear that, if necessary, Murdoch will be prepared to close Sky News to complete the takeover. In the new world of smaller horizons, it seems clear Murdoch will allow nothing to jeopardise the sale of the bulk of his Fox empire to Disney.

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