James Murdoch

October 2009

James Murdoch joined the family business, News Corporation, at a very young age, and his ascent through the ranks has been rapid. As the heir apparent to the company founded by his father, Rupert Murdoch, the younger Murdoch has demonstrated an ability to run pay-television platforms and a good grasp of how technJology can enhance media businesses.

After attending Harvard University he started working at his father’s nascent digital businesses and at 27 was appointed CEO of the STAR pay-TV platform in Asia. At 30, in 2003, he moved to the U.K. to head up BSkyB, of which News Corporation owns a controlling stake, and in December of 2007 he became the chairman and chief executive of Europe and Asia at News Corporation.

In his current position he oversees a range of businesses that include The Times of London, BSkyB, SKY Italia, Sky Deutschland (formerly Premiere), STAR, and stations in Turkey and Bulgaria. Managing this portfolio of businesses, he must keep up with a range of TV markets across two continents, each with its own characteristics.

In Asia, home to diverse markets at different stages of development, STAR launched in 1991 and pioneered satellite television in the region. The company was recently reorganized and divided into three units: STAR India, STAR Greater China and Fox International Channels (FIC), which encompasses the Star World, Star Movies and Channel [V] International pan-regional brands.

The U.K., a mature TV market, which for years has accommo­dated both public and private channels, boasts BSkyB, arguably the most successful pay-TV operation in the world. It has led the way in offering its subscribers a variety of features: a clear and easy-to-navigate electronic program guide, the famous interactive red button on the remote control, the Sky+ digital video recorder, the broadband service Sky Anytime, Sky Mobile TV and, now, HD channels as well. Today, with some 9.5 million subscribers, the Sky platform reaches one in three homes across the U.K. and Ireland.

Germany—a crowded market that sees two strong public broadcasters, ARD and ZDF, counterbalanced by more than 30 free-TV channels—has struggled with making pay TV a viable, profitable proposition. For years, Premiere was unable to significantly enlarge its subscriber base, in part due to poor management, in part due to the fact that German viewers already pay a license fee on top of cable subscriptions.

News Corporation started investing in Premiere a few years ago, and today holds a 39.96-percent stake. Under Murdoch’s leadership, the service was rebranded as Sky Deutschland over the summer.

Italy’s TV market has had a very different history than either the U.K. or Germany. The Italian market has been dominated by the state-run RAI and the commercial broadcaster Mediaset, both of which are now controlled by Prime Minister Silvio Berlusconi. No one in the Italian media industry thought SKY Italia had a chance of succeeding, especially when the two previous competing pay-TV platforms, Telepiù and Stream, had had such a hard time gaining subscribers. And yet SKY Italia has been able to breathe new life into the somewhat stale Italian TV market, stimulating the independent production community that had been at the mercy of only two commissioning sources, RAI and Mediaset, but most important, offering viewers innovation and choice.

And that is precisely what Murdoch believes in fervently—giving viewers choice. He talks to World Screen about running his businesses in today’s constantly evolving media landscape.

WS: For many years, Premiere struggled with increasing its subscriber base. What attracted News Corp. to invest in it, and what potential did it see in the service?
MURDOCH: The Sky Deutschland story for us is pretty straightforward. First of all, you have the largest TV market in Europe, with some 37 million TV households and [high] per capita [spending]. Yet you also have pay-TV penetration that is a fraction of what it is in other countries. Pay-TV penetration in Italy is not yet 30 percent—it’s 28 percent—and still has a long way to go. And yet in Germany, a much larger and wealthier marketplace, it’s only about 13 percent. And even though that’s grown over the past few years, we think the opportunity ahead will dwarf what has happened in the past.

We saw the opportunity to bring to Germany, for the first time, what we feel is a world-class, 21st-century digital-television product, with fantastic packaging and programming, with content and technology working together. For example, [we are working on] a tremendous high-definition offering that isn’t available anywhere else in the marketplace, an electronic program guide [coming out] later this year or early next year, a PVR [personal video recorder] product like Sky+, the one we offer in the U.K., and we think there is a big opportunity for that. Increasingly, as we spend more time at the company, we see that the problems Premiere faced in the past were not so much market-specific problems. We believe that Sky Deutschland with a different model, one that really cares a lot about its customers and a lot about programming and content and technology working together, is a model that is going to have real benefits for customers. It’s very early days, but we think that the Sky brand in Germany has an enormous future ahead of it. It’s one of the more exciting things that we are working on.

WS: You had your share of naysayers telling you it was too difficult to make inroads into the German market.
MURDOCH: In Germany, all of the reasons people gave us for why what we wanted to do wouldn’t work are similar to what we’d heard in the past: it’s very complicated, you won’t be able to secure rights to sports events, there are a lot of free-to-air offerings, ARD and ZDF are very strong. Only five years ago, when I first went to the U.K., people said the market was mature, that it couldn’t grow anymore, that the BBC was too strong, etcetera, the same things they’ve been saying for a long time, and yet we’ve managed to grow the subscriber base in the U.K. enormously since that time. That is contrary to what anyone would have believed possible, and the same goes for Italy, where people said that to merge Stream and Telepiù would be very difficult, and the marketplace was too challenging, and Italian customers were very happy with RAI and Mediaset.

We disagreed, and we think that customers around the world like choice. They like a company that cares about them. They like great programming and they will pay for a great offering and they’ll pay for consistent innovation. We’ve seen that over and over again and I don’t see a major reason why Germany should be any different.

WS: While the German market is crowded and very competitive, the Italian TV market is much different. Dominated by RAI and Mediaset, the market has always been competition averse. Despite the environment there, what has been the key to SKY Italia’s success?
MURDOCH: I’ll neither concur nor disagree with your characterization! The key characteristic of SKY Italia’s success is that the marketplace has been very welcoming to us. So far, almost 5 million families have chosen from us a service that is of great quality, that is reliable, and that has an enormous amount of choice associated with it. We’ve brought high production values to the programming we do, be it original dramatic production, or our coverage of Serie A football, or the bouquet of Fox channels, as well as Sky Uno. That combination is doing very well. Our high-definition offering is going very well right now, and our PVR product, MySKY, as we call it in Italy, is doing well.

Each of our businesses—in the U.K., in Germany and in Italy—is different, and these are local companies. The Italian business is to my mind a great Italian success story. This is not a cookie-cutter approach, but the themes in each territory are similar. They are ultimately about trusting your customers and respecting them and understanding that if you pay attention to them and you invest in programming and services for them, you’ll do well.

The reality is that across Europe, historically over a 50-year period, there hasn’t been a lot of choice—there has been a public service/primary licensee duopoly in a lot of markets. And over time that has underserved both customers and advertisers. What we’ve seen over the last ten years has been digital growth, to different degrees, across all of our regions, which has been opening the floodgates of choice and control for customers and their families, and doing it at price points that are very, very attractive. In Italy we’ve been pretty dogged, but we’ve got a great and talented team. We’ve taken our lumps for sure in certain instances, but I think the best testament to the business there is the customer base. While it can go up and down, and we’ve had some issues this year with the 20-percent increase in VAT, for example, which has impacted churn a little bit, those things are not that significant. Over time, this is a business that has great durability by virtue of the scale of its customer base and in terms of what it offers them.

So we feel we are in a good place in Italy, and it’s going to continue to grow over the next few years. The story is by no means finished. Over the last four or five years, pay-TV penetration has gone from 15 percent to almost 30 percent, and we think that is going to keep growing. And the pay-TV market is going to be competitive. Mediaset’s Premium offering is going to grow. There are questions about how effective the IPTV offerings across the region can be. But the Italian business is very exciting because the Italian customers remain fundamentally underserved. PVR penetration and the HD penetration are only just beginning to accelerate. But if history is any teacher, be it in the U.S. or in the U.K. or elsewhere, that acceleration foreshadows a period of growth and a lot of great products for our customers, and that’s the key thing.

WS: In Italy, Prime Minister Silvio Berlusconi controls the three state-run RAI networks, the three commercial Mediaset networks, of which his family is the majority shareholder, and he influences these networks’ news coverage. What impact has SKY Italia’s newscast had on the Italian market?
MURDOCH: We are very proud of [the news channel] TG24. We are very proud of having very independent news operations, whether it be Sky News in the U.K. or TG24 or our nightly news in Turkey. In Germany we’ll see whether the team wants to do news over time; it’s probably expensive right now. In our news coverage we exist outside of industrial and political factions and our customers appreciate and understand that.

Way back when, when I was in India bringing 24-hour news to that market in an independent manner, we thought news was a good part of an offering. From a production quality point of view as well as a raw journalistic point of view, TG24 is really a standout service, and we are going to continue to grow it.

But innovation in news is still developing. In the U.K., Sky News will be broadcasting in HD pretty soon and it will be a tremendous thing for customers. We broadcast the inauguration of President Obama in high definition in the U.K. and it was a knockout. I’d like to think our customers are in for a treat as we continue to grow these platforms and the capabilities of what we can do.

WS: How are you building on the success of BSkyB? Are you on track to meet your goal of 10 million subscribers?
MURDOCH: Jeremy Darroch, BSkyB’s chief executive, was clear at the last results: the business is performing hugely well. We’ve got a company, and a team, that is really a world leader in its category. The quality of the people at Sky and their commitment to setting the pace and improvement is impressive, as is their belief that innovation is best for customers.

If we look at Sky Arts and Sky Arts 2 or at our original drama commissioning, which is going very, very well, or at what Sophie Turner Laing and the team at Sky1 have done, or at our sports coverage, we’ve moved from strength to strength. The overall package is tremendous for all of our customers. As we have done with broadband, with high definition and with constantly evolving our program offering, we will continue to innovate.

We have announced that we are developing 3-D broadcasting for residential consumption and no one else is close to being able to do that around the world. We believe in constantly trying to make [the offering] better and do new things. Not everything works, but hopefully enough does that we can move forward. We think Sky is a great business; it’s a business that confounded its skeptics and delights in doing so.

WS: In light of the restructuring announced at STAR, is India becoming an increasingly important market for you?
MURDOCH: India is a big priority for our company. We’ve been a leader in the Indian marketplace since 2000–01 in entertainment broadcasting and particularly in Hindi broadcasting. In the following years we have really built a foothold in cable television with some 20 percent of one of the strongest cable networks [Hathway], as well as cable MSOs. We have 20 percent of what we think is the leading DTH provider [Tata Sky]. It’s not the largest in terms of sales, but it’s got about a 30-percent share. And it’s a very high-quality provider. And also over the last year, we’ve expanded our overall network into Bengali and Marathi and Telugu and the southern languages. Now we have a national footprint for the first time, and that is very, very powerful. So our total network is the leading network in the marketplace. It’s a very competitive market, one where you can come up and down, but we are in the pole position today to make healthy profits and we believe we can build a much bigger Indian business.

In the restructure we announced, we have also created, with the merger of the STAR regional business and the Fox International Channels (FIC) business, Asia’s leading multi-country bouquet of channels. This is under the Fox International umbrella and it’s a combination that creates a lot of strength in the region, from Japan to Jakarta and into the Middle East. And in our Greater China business, we have a strategic interest in Phoenix Television and a number of smaller channels in the mainland marketplace as well as a good position in Taiwan. We feel that we have to keep our presence in the mainland market, which is one of the most important broadcast markets in the world, even if it does have challenges.

WS: Is Turkey one of the new territories you are focusing on?
MURDOCH: We really like Turkey. It’s a large, developing, fast-growing, entrepreneurial, democratic so­ciety that is very exciting for our sector and for others.

We have, from a money perspective, a smallish company, Fox Turkey, as well as a handful of cable channels within the Fox group there. Fox Turkey has gone from being number eight in the marketplace last year to number four. We’re doing particularly well with youth audiences. We are very proud of our news audience as well. We have challenges in Turkey—challenges with respect to the ratings systems and all the normal things you have to deal with as a new player coming into a market. But Turkey is a place where we’d like to grow our business.

Looking across Europe and Asia, we have a presence spread out in most multichannel markets, largely driven by the National Geographic Channel and the FoxLife brands. And then there are markets where we really go deep, and the U.K. is obviously one, Italy is one, Germany is becoming one, India is one, and Turkey could be one. We’re excited about it.

WS: Many people are saying that the broadcast-network model will not be able to be sustained, while the cable or satellite model with a dual revenue stream of advertising and sub fees is probably where television is headed. Is the dual revenue stream a better place to be in today’s media world?
MURDOCH: I think it’s less about today’s media world because we’re in a funny place right now, with a cyclical problem in advertising and some structural challenges and it just feels very painful.

In tomorrow’s media world, as in today’s and yesterday’s, yes, we generally prefer [dual-revenue-stream] businesses, certainly in the markets that I deal with. We think they are durable, they create incentives to invest, they create employment and they are not small businesses.

The traditional broadcast model in many markets is still the place where reach is achievable in a manner that is a little ways off in the multichannel or pay sector. There are great franchises in the free-to-air marketplace, be it Britain’s Got Talent or Coronation Street. We’re not a major free-to-air player in Continental Europe, but we do think free TV has its role. If you can create events that can really connect the nation, then you can do well.

Our Bulgarian business, which is a somewhat small business, is giving attractive returns, because in Eastern Europe the free-to-air sector has a lot of legs left in it and we can really reach advertisers very effectively. And I still think that companies like ITV and others can do that in unique ways as well. How they adjust their business models over time is a really good question.
There is a role for pay-TV broadcasting within all of these models, and the idea that you have to choose between one model and another is not right.

There is no question that brands can encompass a variety of different broadcasting models, and there are rules for each. There is a question about what the cost to serve each one is and how reliable, from a countercyclical perspective, some of these are, but you have to adjust your portfolio accordingly. I think free-TV brands are going to continue to thrive if they can make it through this crisis and adapt their business models. 

WS: How are your customers watching programming?
MURDOCH: Ultimately, customers are very comfortable with a much more fluid interaction with content and programming than we might think they are. They will watch television on a TV screen, [but] in a different situation, if the TV screen is not convenient, they’ll watch on their laptop, or they’ll take a clip from their iPhone app  and watch that. It’s similar with newspaper readers—they are reading physical newspaper products as well as consuming those brands online or in other ways. And they are reasonably comfortable switching back and forth, so it’s not a zero sum game between screens. It’s about giving customers the flexibility to consume content the way that they would like to. And it’s about being a step ahead of them and offering content and ser­vices they really want. For example, look at the Sky News iPhone app. It looks great, it’s really easy to use—you get all the news, you get video, you get text—and it works really well. That’s proving to be pretty popular.

Obviously, the majority of the television business remains on the TV screen. But it’s not necessarily right to think of these screens as one replacing the other; it’s going to be much a more a fluid mix. We have customers today with their Sky Anytime service, where they can pay for programming and watch it on their PC. Any movie in Sky Movies in a given month is going to be available to them in the format and on the screen that they would like to have it. 

With mobile devices, particularly when you look at the development of new screen technologies, we are in for a period of very rapid innovation, as opposed to the very limited, primarily phone-based device that is out there now. That is going to be very exciting.

WS: How important is HD?
MURDOCH: As far as the television business goes, the two things that can really transform the experience for customers are the breadth and quality of the HD programming we can offer, and the PVR [personal video recorder]. The MySKY platform in Italy or Sky+ in the U.K., which are developed through Sky and NDS, are world leaders in PVR technology. When you combine that with HD and with what we are doing in the U.K. and soon in Italy, which is to provide a VOD service on those same platforms, it’s a tremendous experience. And you don’t have to dig up the road to do it. It’s simply a box and a broadcast system and it works very, very well.

The breadth of HD programming was something that we were worried about a number of years ago. We had to invest quite a lot and work to get third-party channels to really focus on it. If you look at the offering we have in Italy or in the U.K. and how fast it’s growing, and even in Germany, where we introduced seven high-definition channels with the launch of Sky Deutschland, that’s really transformational. HD is going to be a big part of the story, and establishing HD as a mass-market proposition is going to be fundamental for us.

WS: What is News Corporation learning from the popularity of Hulu?
MURDOCH: I don’t want to comment too much on Hulu—News Corporation is just one of four shareholders. I do think, if you look at user response to Hulu, which has been strong, it’s emblematic of the fact that customers are very comfortable consuming content in a variety of different ways. What we are looking at, and we have to get comfortable with as an industry, is that ultimately we will have a more complex mix of consumption to deal with, and serving the demand for that consumption is going to be full of wheres and what-fors with respect to pricing and all the issues that are going to continue to evolve. But around the world we’re seeing interesting changes in consumption.

In India alone, we are in the cable business, the direct-to-home satellite business, as well as the broadcasting business. In India we have today a DTH sector, a 21st-century digital broadcasting system going gangbusters, and that’s extraordinarily exciting for everyone involved. There is a real hunger for quality, choice and control across markets that have a free marketplace, which is open to competition and innovation.