Murdoch in the Mogul's Seat

By Stephen Koepp

Only a few hours earlier, Rupert Murdoch had confided to a visitor that he has no particular fondness for Hollywood's social circuit. But a show- business mogul must put on a good show. So there he stood last month sipping Perrier at a Beverly Hills reception, flashing a smile and chatting comfortably with the likes of Jack Nicholson and Dino De Laurentiis. Stars and studio bosses had all turned out. The party, in honor of Murdoch and his wife Anna, was the perfect opportunity for everyone to size up the Australian-born newspaper tycoon who has become America's newest video czar.

Murdoch aims to accomplish what no one has done in 40 years: forge a fourth American television network. The press lord has marched toward his goal with a zealous efficiency worthy of Citizen Kane. Murdoch began last March when he bought half of the 20th Century-Fox movie and TV studio. Then he agreed to pay an impressive $1.5 billion in May for six of Metromedia's big- city independent television stations, a chain that reaches one of every five U.S. homes. Finally, in September, Murdoch bought the other half of Fox. Now that he has acquired the pieces, Murdoch has begun to put his electronic assembly line into operation.

He revealed the scope of his ambition last month when he announced plans to merge his TV stations into a video conglomerate to be called Fox Inc. The company will have three divisions: the 20th Century-Fox film studio, a Fox station group comprising Murdoch's own six outlets and a Fox television network to sell programming to independent operators not affiliated with ABC, CBS or NBC. To clinch the deal Murdoch still needs approval from the Federal Communications Commission for his purchase of the TV stations. The agency's vote, scheduled for last week, was postponed because of protests from public interest groups that have asked questions about Murdoch's financial condition and his programming plans.

Those groups are not the only ones skeptical of Murdoch's epic vision. The Big Three networks contend that neither Fox nor anyone else can currently afford to provide the twelve to 18 hours per day of programming needed to compete with them. "What Murdoch has proposed sounds interesting, but it's not a network as we know it," contends M.S. Rukeyser, an NBC executive vice president.

20th Century-Fox Chairman Barry Diller, Murdoch's man on the spot in Hollywood, readily admits that it is "a bit grand" to believe that the new Fox Inc. in the next few years could assemble a network comparable to ABC, CBS and NBC. Instead Fox intends to form a loose confederation and build the business gradually, first offering perhaps an hour of programming per night. Says one Fox executive: "When you get to the point of selling a few nights of programming a few years down the road, you're looking very much like a network." Concurs FCC Commissioner James Quello: "Whether you call it a network or not, this makes Murdoch one of the major players in broadcasting."

Murdoch saw the makings of a fourth network among the booming number of independent stations. While the majority of stations (637) are still affiliated with one of the Big Three, the number of commercial, English- language independents has more than doubled since 1979, to 235, and their audiences have grown apace. Between 1979 and 1984 the networks' share of the U.S. viewing audience fell from 89% to 76%. Independents reckon they picked up about half that audience, with the rest turning to cable programming and videocassette recorders. "We think our opportunity lies in the decline of the networks' share of the viewing audience," Diller says. "Those viewers didn't just turn off their sets. They turned to independent stations and that's where we intend to reach them."

Besides forming the foundation for a network, Murdoch's independent stations already produce plenty of profits. The total advertising revenue among independents has grown from $1.3 billion in 1980 to $2.5 billion last year. An FCC ruling last April is particularly encouraging to Murdoch and other operators of independent TV chains: it allows an individual or company to own as many as twelve independent stations, up from seven. Predicts Lee Isgur, who follows the entertainment industry for the investment firm Paine Webber: "Murdoch will buy more stations as soon as he can finance them."

The growth of independents has produced a cavernous appetite for programming of the sort Murdoch hopes to provide. The independents' staple fare, reruns of recent network series like Webster, now earn their production companies as much as $1.5 million per episode in nationwide syndication deals. Independents will spend an estimated $750 million to buy programs this year, up from $75 million in 1975. Says Eugene McCurdy, president of the independent WPHL-TV in Philadelphia: "I think Mr. Murdoch's timing is excellent. The market is there, waiting to be served."

Murdoch will be able to offer a rich storehouse of ready-made programming from the 20th Century-Fox film library, which contains such old properties as the Star Wars movie trilogy, the M*A*S*H series and more recent shows like Trapper John, M.D. Says Analyst Isgur: "The Fox library is wonderful for Murdoch. There's little marginal cost and great profit potential." Gaining access to a film library was a prime reason for another big studio takeover in August, when Cable King Ted Turner bought MGM for $1 billion.

Besides selling reruns Murdoch will be able to offer the independents some brand-new shows produced by 20th Century-Fox's studios. This so-called first-run syndication business is flourishing right now. Among the biggest hits: Entertainment Tonight, Wheel of Fortune and People's Court. The Fox studio still lags behind such rivals as Paramount Television and Tribune Entertainment, an independent TV group that produces the cop opera Dempsey & Makepeace. 20th Century-Fox now makes only four shows for first-run syndication, including $100,000 Pyramid and Dance Fever. At the moment, Murdoch is in no hurry to assume the financial risk of turning out expensive first-run dramatic series, though he thinks the economics of such productions are improving. Says he: "The independent stations still can't afford first- run series now, but the way the prices are going up, they will soon be able to afford first-run programming better than reruns."

The venture into television is taking place at a time when 20th Century- Fox, which will supply some of the Fox network's programming, is losing its reputation as a flop mill. Under the ownership of Denver Oilman Marvin Davis, the studio churned out such clunkers as Rhinestone, which paired Sylvester Stallone and Dolly Parton, and Blame It on Rio, which featured Michael Caine at the beach. But Murdoch has the good fortune of inheriting a shrewd studio boss, Diller, who joined Fox in October 1984 after heading Paramount, where he turned out a stream of hits that included Terms of Endearment and Flashdance. One early result of Diller's stewardship is Commando, the hit film starring Arnold Schwarzenegger, which has grossed $27.1 million in its first four weeks. 20th Century-Fox also distributed the black comedy Prizzi's Honor (revenues: $27 million), starring Jack Nicholson, and has high hopes for this season's Plenty, a drama featuring Meryl Streep.

Diller is already turning around the financial fortunes of the Fox studio, which lost $85 million in fiscal 1984. One tactic: laying off 300 of the studio's 1,500 employees. Murdoch notes with satisfaction that "Barry has cut a lot of spending, and there's a lot more to cut." Diller is a tough negotiator who gets lower-than-usual prices on everything from production costs to actors' wages.

In spite of his reputation for hovering over his managers' shoulders, Murdoch so far has left Diller at peace. Murdoch spends only a few days each month at the studio, then returns home to his Fifth Avenue triplex in New York City. The mogul says that he and his wife have no plans to buy a house or apartment in Los Angeles. They appear content to stay in the small, secluded Bel-Air Hotel.

While at the studio, Murdoch works in his shirt-sleeves in a modest temporary office whose only personal touch is a photo of his wife. He spends much of his time conferring with bankers and lawyers, and meets daily with Diller, sometimes for lunch in the Fox commissary. Murdoch also occasionally picks up a yellow legal pad and drops in on a creative session in which Diller and his top lieutenants discuss TV and movie ideas. "Rupert is very quiet in these meetings," one participant reports. "He might ask, 'How much does that cost?' or, 'What does that mean?' Sometimes he takes notes, but usually he just listens. Two days later, he can recite it back to you, numbers and all. He has a phenomenal memory. And he always thanks us for teaching him about this business."

Murdoch is the first to admit that he knows little about television or movie production. He does not even watch much television. He catches the news, and on Sundays maybe 60 Minutes and Murder, She Wrote. Murdoch is no film buff, either, though he recalls liking Fox's summer hit Cocoon and Universal's comedy Back to the Future. But he observes that the video business seems to be "much like publishing, where you have to be able to motivate the creative people while keeping enough order to do good business." In the process of imposing his order on the film business, Murdoch is sure to produce some dramatic scenes in the months to come.

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With reporting by Dan Goodgame/Los Angeles