Old Campaigner Still Has Designs on Europe

Rupert Murdoch knows better than most how combustible the mix of media ownership and politics can be. The relationship between the UK's most powerful press baron and the government of the day is under constant scrutiny amid accusations that editorial support in his newspapers is conditional on political support for his business aims.

So it is likely to be with resigned frustration rather than surprise that he observes the wreckage of his latest European misadventure. In less than a month, the chairman of News Corporation has watched his attempts to break into key markets in Germany and Italy thwarted by a combination of fear, loathing and old-fashioned political manoeuvring.

A £1bn minority stake in Premiere, the pay-television arm of German media empire Kirch, has been written off as the country's most influential private television group begins to buckle under a mountain of debt and the venture's operational deficiencies show little improvement.

Last week News Corp took a further $809m charge relating to the disposal of its stake in Stream, an Italian pay-TV business that has brought it nothing but losses and headaches since an initial investment in 2000. Murdoch only set his sights on Stream after abandoning plans to merge British satellite broadcaster BSkyB with French pay-TV business Canal Plus in 1999.

To exit in such a way will have been a big disappointment, particularly as the buyer was Jean-Marie Messier, the chief executive of Vivendi Universal, who has come to symbolise the new generation of media mogul snapping at Murdoch's heels.

Age no barrier

In the UK at least, Murdoch can draw comfort from the relentless outperformance of BSkyB. But will he ever crack continental Europe? Although he is approaching his 71st birthday and had a brush with prostate cancer 18 months ago, analysts do not believe that time is running out. Peter Shorthouse, a media analyst who follows News Corp for ABN Amro in Sydney. "He's still going strong and probably working on the basis that he's going to be around for the next 20 years. Europe is a potentially bigger television market than the US and he cannot afford to ignore it."

Yet as a foreigner by virtue of his American citizenship, Murdoch has found entering - let alone dominating - a landmass with disparate languages, cultures and media ownership rules far from easy. "No one has made good money out of European pay-TV," admits an executive from a rival firm. News Corp insiders believe, with some justification, that for all the European Union's rhetoric about free trade, nationalism and protectionism in the region's media runs deep.

Murdoch has been a successful provider of content to German TV through shows such as Ally McBeal and The Simpsons, and films from 20th Century Fox. Yet attempts to own the route through which those programmes are distributed - as he does BSkyB - have been deemed unpalatable.

Politicians in Berlin and Bavaria talked about finding "a German solution" for Kirch when it emerged that News Corp was circling the troubled group. News Corp executives in New York privately expect Germany's banks to eventually bail out Kirch. Analysts believe that the centre-left chancellor Gerhard Schröder would rather not let Murdoch gain influence over such assets.

France has been no less charitable. During BSkyB's failed pursuit of Canal Plus, politicians there were uneasy about the prospect of a foreign company gaining influence over domestic media. Murdoch responded by describing BSkyB as an asset "we don't want to let become a football for French politicians".

In Italy, the potential political barriers are formidable. Silvio Berlusconi, the country's most powerful media magnate, is now prime minister. Letizia Moratti, briefly head of Murdoch's European media interests until a series of blazing rows ended their relationship, has gone on to become education minister.

Threat

"Europe is particularly nervous of Murdoch because they believe he is smarter than the other moguls and they see him as a real threat to the existing media infrastructure," said Shorthouse of ABN Amro. "Murdoch has an aggressive long-term strategy where he's prepared to wear losses while he restructures an industry in the way he did with both UK newspapers and pay-TV."

The opposition of local politicians plays into the hands of the incumbent media barons, says one of Murdoch's most senior former lieutenants in Europe. "At the end of the day it is the local barons who want to hold him off and, if he does make inroads, lock him into minority and non-influential stakes."

After the French, German and Italian setbacks it is unclear where Murdoch will move next in Europe. Analysts say the German pay-TV market in particular needs to be radically restructured before real money can be made. Messier's Vivendi Universal is making hay in France at the moment and a restructuring of Canal Plus is under way.

Most analysts believe that in the short term, Murdoch will sit tight and attempt to ride out the advertising recession. He knows when he does move he will face powerful rivals: Bertelsmann, the German group, and AOL Time Warner, the world's largest media company. Messier will also be looking for a seat at the top table. Yet with four decades of newspaper and 15 years of pay-TV experience in the UK behind him, an ageing Murdoch will prove a testing adversary.