Reading Rupert

of an awful year, writes Cosima Marriner.

Rupert Murdoch likes to project an image of invincibility and immortality pummelling punching bags, jetting around the world striking billion-dollar deals, marrying a woman 40 years his junior, and fathering a fifth child when most men are playing with their grandkids.

Shareholders gathered in the bowels of the Hyatt Regency in Adelaide for News Corp's annual general meeting this week were at times treated to vintage Murdoch: their gracious charming chairman intoning ``News Corporation" in his distinctive New York twang and brushing off the massive $12 billion loss suffered by his media empire last year to focus on the good times ahead.

But more often shareholders found themselves in the presence of a fallible, more human Murdoch. The normally impeccable presenter made a series of uncharacteristic gaffes, miscounting shareholder votes, saying Gemstar when he meant BSkyB and often struggling to hear questions being asked.

It was a performance more reminiscent of an ageing parent than the world's most powerful media baron.

Indeed, it was Lachlan, not his father Rupert, who really exuded the aura of a mighty media magnate. And although it is natural for parents as they grow older to become increasingly dependent on their children, it was disconcerting to witness Murdoch being prompted by his elder son and heir-apparent with an answer during the post-AGM press conference.

Perhaps Murdoch is just suffering battle fatigue. It's been a tough 12 months for his News Corp empire, with seemingly little going the company's way.

It is battling the worst advertising recession in a generation, exacerbated by September 11 which alone cost the company $US100 million in lost ad revenue. But the advertising malaise is merely the backdrop for a succession of what Murdoch delicately terms ``setbacks" that have befallen News Corp over the past year.

As Murdoch confessed to shareholders this week, his famed ``entrepreneurial spirit" earned News Corp the dubious distinction of posting the largest loss in Australian corporate history.

It was this time last year when shareholders got an inkling that Murdoch's grand vision of creating a global satellite TV platform might not be easily achieved. Having spent the best part of 18 months pursuing US satellite broadcaster DirecTV to form the cornerstone of News Corp's Sky Global Networks Murdoch abruptly abandoned the hunt when it became clear he would be trumped by rival EchoStar.

The pay TV woes deepened in February, when it was forced to write off its investment in German KirchMedia group, which was teetering on the edge of bankruptcy.

But it was the spectacular plunge in the value of News Corp's Gemstar investment which sent the company plunging $12 billion into the red. News Corp's 2002 loss blew out when it was forced to slash the value of its 42 per cent stake in the US interactive TV guide by $US6.9 billion, after Gemstar became embroiled in a series of accounting scandals.

Murdoch excuses these multi-billion dollar ``setbacks" by saying News Corp did not have management control of these businesses. ``We are highly unlikely again to invest in businesses in which we do not have effective management control and responsibility," he promised shareholders.

He was even more candid after the meeting. ``We just spent too much time wrestling with really difficult problems in companies which we haven't had control. Things we thought were important strategic investments have turned out to be fairly nightmarish experiences."

While One.Tel was not mentioned, the reference to the failed mobile phone company was implicit. Indeed, the new investment strategy Murdoch espoused this week echoed comments he made over a year ago after News lost $576 million when One.Tel went belly-up.

``I think the lesson is that we would never again make a significant minority investment without at least having the right to appoint a CFO," he said at the time.

A spate of corporate collapses has sent the winds of change blowing across the Murdoch empire. Not only does News Corp now insist on management control of investments but it has bowed to the recent crackdown on corporate governance.

Tainted by its association with disgraced Enron auditors Arthur Andersen, News was at pains this week to prove it is beyond reproach. Not only has the chairman of its audit committee been forced to step down as he is not considered independent, but News Corp now requires all the CEOs and CFOs of its businesses to sign off their accounts.

But Murdoch shrugged off outrage at generous executive options packages to push ahead with a plan to issue options to non-executive directors.

Shareholder activist Stephen Mayne who stood for election to the News Corp board this week and a representative of the Australian Shareholders' Association were the only two News Corp shareholders who publicly took Murdoch to task over the company's corporate governance.

But of the votes cast at the general meeting, 79 were against the options scheme, and 85 were in favour. Of the proxy votes, one-third were opposed to the scheme. Murdoch disclosed Australian institutional investors had been split 50/50 over the issue, whereas ``98-99 per cent" of US institutions were in favour.

Murdoch was stoic in the face of the minor protest. ``We know what's right and wrong. We do what's right and we always have," he declared afterwards.

News Corp's share price has mirrored the decline in the company's fortunes. The stock, worth $27.50 at the height of the dotcom boom, has almost halved this year and is now trading around $9.

Murdoch says it has been ``frustrating and disappointing" as the shares fell. But as Kerry Packer is the bear of the media sector, Rupert Murdoch is its raging bull.

Shrugging off multi-billion dollar losses, advertising recessions and strategic setbacks, he declares News Corp is ``fundamentally as strong as we have been at any time in our history".

Core operations have chugged along. Filmed entertainment had some record movie releases last year, cable accounts for 10 per cent of earnings, newspaper circulation is holding up, and News has snared two TV stations in each of the three biggest US markets, New York, Chicago and Los Angeles.

BSkyB, the UK pay TV business considered the jewel in the News Corp crown, returned to profitability for the first time since its digital rollout began four years ago, and subscriber revenues are up 20 per cent. Meanwhile Murdoch's Asian pay TV play, Star, is expected to be ``modestly profitable this year".

Murdoch reassured shareholders News Corp was on track to deliver ``strong double-digit growth" this year as promised.

Murdoch may have put the worst behind him now. He has had three significant victories in the past 10 days, restoring investor confidence that the inveterate risk-taker will always triumph in the end.

First he managed to bargain debt-laden Vivendi Universal down to potentially half the price it asked for its Italian pay TV arm Telepiu. The deal is worth ?920 million ($1.6 billion), but News Corp could end up paying less than ?700 million once debt reductions and outstanding accounts payable are factored in less than half the ?1.5 billion agreed in June.

Telepiu will be merged with News Corp's own unprofitable pay TV operation, Stream, and News will own 80 per cent of the new company, Sky Italia. News Corp plans to spend a maximum of ?400 million on Sky Italia in the next year before a ``very fast turnaround" to profitability.

Murdoch is extremely bullish on the business's potential, claiming Sky Italia could be ``another BSkyB".

He had his second victory just hours before the annual meeting. The Gemstar board agreed to a management restructure which delivered News Corp effective management control.

Dr Henry Yuen was replaced as chief executive by Jeff Shell, Gemstar's chief operating officer and a former News Corp cable executive. Gemstar's chief financial officer, Elsie Leung, was dumped, and News's finance vice-president, Paul Haggarty, will act as CFO until a permanent replacement is found.

``Gemstar is finally back on the right track, and positioned to realise its enormous potential," Murdoch told shareholders.

But the greatest victory came yesterday, when the US Federal Communications Commission rejected EchoStar's proposed merger with DirecTV owner Hughes Electronics. The door is open for Murdoch to bid again for DirecTV, and at a much lower price than the $US22.5 billion he offered a year ago.

Murdoch claims he is ``certainly not decided" News Corp will make another play for DirecTV. ``A long time has gone since we last looked at that company. It had a lot of problems then. We have to see whether it still has them, or whether it's better or worse."

Murdoch flatly denied the ``myth" News Corp has been vigorously lobbying behind the scenes for the regulators to block the EchoStar/Hughes merger. ``Absolutely not ... It's just a matter of law. I don't think you can change law. It's creating a monopoly."

Which is rather ironic given that's just what News itself has been accused of trying to do with Foxtel (in which it has a 25 per cent stake) in Australia.

In a bid to persuade the Australian Competition and Consumer Commission to change its view that the pay TV program-sharing deal with Optus could create a pay TV monopoly, Foxtel has offered a string of undertakings. Key among these is its promises to allow cable network companies like TransACT to resell its pay TV service and to allow aspiring pay TV players such as Fairfax or Seven to broadcast their content on the Foxtel network.

News Corp and its Foxtel partners, Telstra and PBL, are desperate to have the deal approved, claiming it is the only chance the pay TV industry has at profitability. The man responsible for Telstra's 50 per cent Foxtel shareholding, Gerry Sutton, let slip last month Telstra could do more ``if we had to" to get the deal through.

But Lachlan Murdoch dashed hopes of further concessions from Foxtel this week, telling journalists: ``There is really no room left to move." The ACCC is to rule on the revised Foxtel proposal this month.

Having ostensibly settled their differences in the Foxtel partnership, there is a much greater sense that News and Telstra are on the same side.

Telstra boss Dr Ziggy Switkowski really upset Canberra when he hinted earlier this week at a closer alliance between Australia's largest telecommunications company and largest media company. ``Our interests are increasingly aligned and both of us would be open to building on that collaboration," he told European investors in Edinburgh.

Half a world away in Adelaide, Rupert Murdoch was vague on where News Corp's ``very good relationship" with Telstra would lead. ``We don't have anything specific to say." The most obvious target for a News Corp/Telstra alliance would be a TV station Ten if CanWest has to sell, or Nine if Murdoch and Switkowski are prepared to be Kerry Packer's next Alan Bond.

The tide may be turning for News Corp, but the trials and tribulations of the past year seem to have taken their toll on its founder. Back in the town from whence his $19 billion media empire sprang, Murdoch with his silver hair, lined face and jowls looked every inch his 71 years this week. Asked about the outlook for the News Corp share price, he could well have been remembering the experiences of the past year when he said: ``There is plenty of reason for optimism. There is also plenty of room for uncertainty."

JEWELS IN THE CROWN

FILMED ENTERTAINMENT

20th Century Fox (US)

20th Centry Fox Television (US)

Fox Searchlight Pictures (US)

Fox Studios (US/Australia)

PAY TV

BSkyB (UK)

Foxtel (Australia)

Star TV (Asia)

Sky Italia (Italy)

Sky Perfect TV (Japan)

CABLE

Fox News

Fox Sports

National Geographic

MAGAZINES

Gemstar TV Guide (US)

donna hay (Australia)

Inside Out (Australia)

The Weekly Standard (US)

NEWSPAPERS

The Australian (Australia)

The Times (UK)

The New York Post (US)

Independent Newspapers Ltd (NZ)

BOOKS

HarperCollins (Worldwide)

OTHER ASSETS

Festival Mushroom Records (Australia, US, UK)

Los Angeles Dodgers baseball team