Fortune to The Brave and Canny

By WILLIAM A. HENRY III

Ever since he started the Hearstian buying spree that made his News Corp. the world's most diverse media company, rivals have been waiting for Rupert Murdoch to overreach and fall. They mocked his ambition to become the first press lord to bestride three continents: Europe, North America and his native Australia, where his holdings account for 60% of total daily-newspaper circulation. They belittled his free-spending plunge into book publishing. They scoffed when he spent more than $2 billion for seven U.S. TV stations, plus a movie studio to provide programs, for his high-risk start-up of the Fox TV network. They predicted a comeuppance when he lavished at least $600 million more on launching Sky, a satellite and cable TV service for Britain and Ireland that purveys movies, sports and 24-hr.-a-day news in competition with established broadcasters, including the government-funded BBC.

Even supporters got nervous as Murdoch exploited permissive Australian accounting rules to run up $8 billion in corporate debt (vs. assets worth perhaps $20 billion), much of it short-term and in need of frequent refinancing. But Murdoch continued to insist to stockholders that "fortune does favor the brave." Says Steve Rattner, head of the media department at the investment bankers Lazard Freres: "Of all media moguls, Rupert has been the boldest. If Fox or Sky had crashed and burned, he would have burned too. He has an enormously strong constitution."

But if fortune favors the brave, it can also favor the cunning and prudent. Faced with losses from Sky of nearly $4 million a week and beset by British Satellite Broadcasting, a well-financed but smaller competitor losing four times as much, Murdoch this month negotiated a merger ofthe rival TV ventures on highly favorable terms. The result: a virtually certain monopoly for the service, projected profit as early as 1992 and -- most important to fretful financial analysts -- an immediate $300 million improvement in the cash flow of News Corp., which has suffered an advertising slump in all its markets. Says media analyst John Reidy of Smith Barney: "This greatly reduces the pressure on Murdoch to scrounge around and put up some properties for sale." Murdoch sounded a touch regretful: "With Sky and BSB, it was like two boxers tiring and declaring a draw. If times had been different, they might have gone another round or two."

Like almost every other media company, News Corp. has responded to a softening ad market with consolidations and cutbacks. Murdoch deferred construction of newspaper printing plants in two Australian cities, delaying capital costs of about $500 million, and folded two money-losing afternoon newspapers there into morning counterparts to save $20 million a year. He closed a proposed U.S. magazine, Men's Life, after a single test issue. Says Murdoch: "Newsstand sales were not enough to justify having any more issues, and it didn't grab me."

+ Last June he sold the Star, a supermarket tabloid that he launched in 1974 at a cost of $12 million, for $400 million in cash and preferred stocks from the parent of the rival National Enquirer. He is retooling other properties, including his costliest, TV Guide, for which he paid nearly $3 billion in 1988. Since then, circulation has dropped 7%, to 15.8 million, and ad pages have dwindled 28%.

Murdoch executives are still seeking to cross-fertilize among the properties. It has been nice to be able to feature the Fox network's hit The Simpsons in TV Guide and to make Fox's crime show America's Most Wanted the subject of a paperback from Murdoch's HarperCollins publishing house. It surely helped to feature HarperCollins author Bernie Siegel on the cover of Murdoch's magazine New York in June 1989, days before publication of his Peace, Love & Healing. But the company wants to develop more systematic and profitable "synergies."

Perhaps the most significant trend in Murdoch's latest maneuvers is that he continues to be willing to risk billions on video-related enterprises while balking at mere millions for print undertakings. Says analyst Rattner: "Clearly he has decided that the future of news and entertainment is electronic. Even buying TV Guide is tied in to that philosophy."

Murdoch, the son of a newspaperman, professes to love print -- "It's going to be around a long time after me, I hope" -- but concedes that his vision of the 21st century has more to do with cathode rays and satellites than with ink and paper. "Certainly in the medium future it appears there will be more growth in TV than in global print," he says. "We are focusing our expansion in electronics until we've got a better balance in our portfolio."

What is the optimal balance? Murdoch says he has no target in mind. But even in Eastern Europe, where he invested "a tiny $4 million" in two Hungarian publications and is making a profit, he will pursue print ventures only if he can find partners. "Nothing on our own," he vows. "You don't get in in a big way, because there is no money there and the situation is totally competitive." The ideal newspaper investment, he says, is "the security of a monopoly." He has the same goal in television. Having attained it after a fashion in Britain, he may yet prove that the Sky is the limit.

With reporting by Helen Gibson/London and Leslie Whitaker/New York