<nettime> Interview with Murdoch Analyst Neil Chenoweth

["geert lovink" <geert@xs4all.nl>]

(Latest news: despite the record 4 US billion writedown of Newscorp's
Gemstar investment, the Australian stockmarket today responded mildly
positively about the latest Newscorp figures. However, News Corp shares have
been declining lately and not much seems to stop its fall, despite strong
results in certain sectors. If anyone is interested in printing the
following interview (or parts of it), please let me know. /geert)

Interview with Murdoch Analyst Neil Chenoweth
By Geert Lovink

Neil Chenoweth is a Sydney-based journalist and Murdoch watcher, working for
the Australian Financial Review. Virtual Murdoch, his biography of News Corp
empire offers a detailed study of Murdoch's countless media deals,
intertwingled with complex family stories. Chenoweth describes Rupert
Murdoch's central mission as a tough and heroic fight over global access.
The history of Murdochs centres around countless aquisations in order to
control print, cable and satellite systems in Australia, UK, USA and Asia.
Chenoweth's book offers a psycho-economic framework to understand the
complicated business networks and family politics of this media mogul. In
the case of the Murdochs there is a fine line between human interest and
corporate analysis. There may be a global market for finance and media
content but the same cannot be said of access. National media regulations in
the UK, Australia, USA and on the European continent differ widely and are
political in nature.

One may classify News Corp as an allmightly global media player, but Neil
Chenoweth shows that all the deals, from print to satellite news and sports
are highly volatile. Rupert Murdoch is not always a winner. While reading
Virtual Murdoch one gets the idea that the life of a media mogul mainly
consists of shifting billions of debt. Last year Murdoch was blocked access
to the US-American satellite and pay-TV market when he lost his bid over
DirecTV. AOL TimeWarner, EchoStar and CNN's Ted Turner all have their own
reasons keeping News Corp out. Recently, heavy losses were made in the cable
market when revenues of European soccer games collapsed. Like others,
Murdoch lost a fair bit in the dotcom crash, including the involvement of
his son Lachlan in the collapse of the Australian Telco One.Tel. The
question now is whether Murdoch will be clever enough to hack German
politics to get his share of the collapsed German media giant Kirch, the
biggest bankrupcy in German history. All in all, the media business doesn't
look right. With a slump in add revenues, beyond boom and bust, what are
viable business models?

The interview centres around the issue of the relationship between old and
new media. The promise of cyber visionaries, one-to-many broadcast media
would be crushed by new interactive technologies, has proven unjust.
Instead, the dotcom themselves went bust. But this somewhat simple picture
of the media landscape may look different if you look at the longterm
shifts, and crises, from the perspective of global media players such as
Murdoch.

GL Neil, you write: "whatever changes the new media would usher in, the
ground rules would remain the same: media is about content, and about a
distribution system to deliver that content to customers." The Internet
ideology, as it has established itself in the nineties, is not based on this
rule. Officially there are the ISPs, the telecoms and data carriers that are
presumed to be neutral, and then there are the 'content providers'. Content
proved to be a disastrous business concept and the Internet economy so far
hasn't figured how to make money with content, perhaps with AOL as the
exception. So who is right? Murdoch's old media laws or the latest lessons
of the Internet generation?

NC: My description of Murdoch as a post-modern hero is somewhat ironic. In a
sense he's the anti-hero who doesn't get the nasty fate he deserves, and is
instead condemned to endlessly re-invent himself. Media has always had a
tension between having something to say, and some way to say it. "Content is
king" was the mantra for mainstream media in the 1990s. That philosophy was
carried over into Internet business models. At one level there was no
alternative. The Net was not a distribution-based medium. There were very
low levels to entry for rival businesses, and no effective way to hold on to
eyeballs except for content. The rise of portals became one attempt to do
this, to create a critical mass that could attract then hold on to Internet
users. The tech crash put a lot of new media analysts out of work. I think a
telling example is Michael Wolff, the author of Burn Rate, who I found one
of the most interesting media writers in the US, with his column in New York
magazine. I think he lost a lot of his bite when the New Media economy died.
The next thing you heard was that HarperCollins was paying him $US750,000 to
write a book called Autumn of the Moguls, in which he was going to argue
that old media was dead, the big media combines were breaking up, the
advertising-based business model doesn't work any more.

What I think really happened was that Wolff and a lot of new media analysts
basically were out of a job, as new media died. So suddenly they remade
themselves as old media analysts, and said well we know that advertising
driven content models don't work in new media, so obviously they can't work
in old media. The market keeps splintering into smaller and smaller groups.
And presto, they have reinvented their careers.

Old media remains, as a whole, profitable, even after the recent falls in
advertising revenues. I think the lesson of the last half-decade is that
most times, incumbency wins. We're moving back in the direction of
monopolies, of less diversity. There are few if any new entrants that are
economically viable. In fact, if a media/tech company was not in existence
and viable before the tech boom, it probably won't survive. And incumbents
are usually people with increasing monopoly control of distribution. So in
the last week in the UK, ITV Digital goes into administration, cable company
NTL goes into default with its bondholders, and Telewest is holding on by
its fingernails. BSkyB is the big winner. Kirch is heading into meltdown,
UPC has just postponed its accounts, both French cable groups are reportedly
up for sale, America is no the way to having just two big cable companies
and one satellite broadcaster. Australia will have just one pay-TV content
company. All of these things are taking the power away from content
producers, and giving it to the gatekeepers, the cable and satellite
companies who control distribution of media. So you have a burst of fights
over access and carriage fees e.g. Channel 7 wanting access to Foxtel in
Australia, Disney's legal fight with Echostar over carriage fees for the
Family Channel, the YES channel fight with Comcast in the US over carriage
of the Yankees.

The simplest indicator that the balance of power has moved away from
content: across the world, sports clubs are going bankrupt as media groups
go bust, and they are faced with only one buyer for their broadcast rights.

GL: Hackers would say: we have always been right, content should be free.
There is no way that money can be made with content. If Murdoch and others
don't know how to make profits with content in old media, then why should
this same business model work within new media? Many in the new economy have
come to the conclusion that content cannot be encrypted, hidden behind
passwords. People should just produce their own films and text and music in
their free time (or get state and corporate sponsorship for culture). The
sinking price for digital equipment and bandwidth seem to underpin this. Do
you agree?

NC: I hope that content remains free. I can't see how it will. What troubles
me is that the most idyllic pictures of the way that the Internet will
empower everybody-and consequently should not be restrained by any
cumbersome legal restrictions-come from members of right-wing US think tanks
who are also lobbyists for major telecommunications companies, eg "We are
all becoming broadcasters in our own rights, with our PCs and broadband
connections between them. We are all gaining inch by inch the power of a Dan
Rather or a Peter Jennings." That was a 1995 quote from one of these US
commentator/lobbyists, Peter Huber, on "The Progress Report with Newt
Gingrich", a US cable television show sponsored by Gingrich's Progress and
Freedom Foundation. Huber's gift to the world was to rewrite George Orwell's
Big Brother with a happy ending.

I'm gloomy. Maybe it's a national viewpoint. Someone once said, British
business journalists explain how deals work, while American business
journalists explain why deals are done. By contrast, I find that Australian
business journalists spend most of their time explaining how deals are done
without anybody going to prison. It's a more cynical starting point to most
discussions.

I think history favours the big battalions, the large bank balances. Big
media will do whatever it needs to do, to survive. That's why cable modems
have asymmetrical connections, designed for receiving, not for broadcasting.
The alternative you describe where everyone makes their own media entails
the collapse of the worldwide entertainment industry as we know it, and
there are formidable forces-and technical limitations-which would be arrayed
against such an outcome. My bet is that big media will survive in whatever
form it takes to enable Julia Roberts and Tom Hanks to continue earning
$US20 million for every movie, and a few dollars for the philanthropists who
run Hollywood studios.

As you say, encryption becomes one of the keys to whether big media
companies can survive in an on-line future. This is no small thing. But I
still have to conclude that they will work a way to contain it, or to live
with the damage. Maybe that my technological ignorance talking. It's
interesting that national security agencies are just as insistent that they
have the capacity to decrypt messages so that they can eavesdrop (I'm told
that Murdoch conditional access operation, NDS Group, from its start has
shared its software codes with MI5). So media companies have to find a form
of encryption that hackers can't break, but which national security agencies
can. (The $US3 billion court case in California between two conditional
access companies, Murdoch's NDS Group and Canal Plus Technologies, takes
this a step further, with accusations of major corporations hacking rival
businesses-the ultimate digital nightmare). Meanwhile it is interesting to
see Michael Edmund O'Neill, an assistant law professor at George Mason
University who is a commissioner on the US Sentencing Commission, is
reviewing sentencing guidelines for convicted hackers. There will be many
more reviews.

GL: In 'The Age of Access' Jeremy Rifkin talks about the shift from
ownership to access. "Use it, don't own it." Rifkin points at the long-term
shift from work to play, from geography to cyberspace, from matter to mind,
from physical property to intellectual property. Concepts are the real
items, not the buildings or pipes. Murdoch doesn't seem to fit into this
picture. As an old school media mogul. Murdoch has always been after real
ownership, not lease agreements, for instance. Would you agree with this and
what does this say about Murdoch-and Rifkin's thesis, for that matter?

NC: Rifkin's thesis is part of a broad discourse by management consultants
in the 1980s and '90s, which was then taken up in the tech boom to justify a
whole range of wildly optimistic Internet start-ups. The kind of
efficiencies that the Net offers to business will continue to grind through
the system for many years. I am a little skeptical about how much further
the 'Access' concept goes in the short term. It's an entrepreneurial concept
based on using Other People's Assets. Murdoch by contrast is an old-time
entrepreneur who buys assets using Other People's Money. In this sense it's
not so far apart. In any system there are a few good entrepreneurs, and lots
of bad ones.

What is striking is the way that some of the most forceful advocates of the
age of access have actually been spending enormous sums on assets, on
physical property. At the height of its power, AOL does a deal with Time
Warner for access to its cable networks. It's a great deal for AOL (which
gets the assets), a rotten deal for Time Warner (which gets the AOL
intellectual property). Media giants are getting bigger, not smaller (with
the exception of the AT&T break-up, which I think is a factor of management
competence). In deal after deal, the rhetoric says one thing, the money says
something else. A parallel argument has seen media companies argue that
technology brings diversity, when they themselves are investing hundreds of
billions of dollars on the assumption that it won't. This is so pronounced
that you have to wonder whether the rhetoric of access and diversity merely
serves the advance of Big Media. This is not to say that the rhetoric is
wrong, but that you have to be very careful in deploying it, to identify
whom you are assisting.

GL: Instead of the expected convergence of technologies, we see a
technological divergence taking place, in which platforms such as
television, print, mobile devices and the Internet exist parallel to each
other. The point where media crossovers are much less then expected. People
use certain tools in specific situations. The 'all in one' multi-purpose box
turns out to be business baroque. Murdoch has built his empire on the
premise of media convergence and cross platform ownership. Will history
prove he was wrong? So far Murdoch has been so successful, despite the set
backs you describe.

NC: I think most of the new technologies are going to run out of puff. For
example G-3 is not going to be the killer application the European telcos
were so confident about. The new technologies should be making pay-TV
providers redundant . . .who needs a cable company as a middle-man when you
can go direct to the channel you want, via broadband Internet? Instead I
think that cable companies will control the future of media. They have a
business model that works, and they will use their market power to ensure
they are never displaced, that they will quietly subsume all their new media
rivals. Murdoch's whole approach has been based upon skepticism about new
technology. Despite the rhetoric, his Sky Global satellite platform was
actually a bet against convergence, an assumption that everyone would return
to the basic pay-TV business model with a few bells and whistles. I think at
the turning points of his life, Murdoch's first impulse has always been to
bet against technology. Against that, he's a guy that loves gadgets. He has
been talking for years about a technology to download your newspaper to you
anywhere in the world, in 30 seconds. But he has never made the mistake of
thinking it was commercially viable. He just loves it for the control it
offers him, sitting on a geostationary satellite 24,000 miles above
government regulation.

GL: You seem to be neither a Murdoch watcher who criticizes his conservative
agenda and media manipulations, nor do you celebrate him as a successful
media entrepreneur. Rather, you emphasize the tragic aspects. As the epic
drama of the Murdochs unfolds, the outcomes seems to be that Murdoch will
end up as a loser, or let's say, a second rank figure. Recent developments,
with Murdoch ultimately losing his bid to control the US satellite market,
seem to prove you're right. Your explanation why Murdoch was 'excluded' has
a conspiratory touch. You seem to say that US-American media giants such as
Echostar, AT&T and AOL/Time Warner got together to prevent a dominant
position of the 'Australian' Murdoch in the US market.

NC: From late last year, the Murdochs and News Corporation executives have
taken to complaining to my employer about almost everything that I write
about them. I have fairly strong personal views about Rupert Murdoch, but in
writing about him I decided that the most important thing for me to do was
not to focus upon whether or not I thought he was a good person, nor what I
thought about his media product, but rather to try to understand and explain
how he operates, and why he has the global effects that he has. It is
important to avoid the temptation to demonize or lionize him: first because
you don't want to give him that much power. But secondly, because I think he
is just the leading edge of a wave of change that is reshaping our media
horizons, and our societies. If you say, this is all because of Rupert, then
naturally you will assume that when he dies or retires, it will all stop.
And of course it won't. So in writing about Murdoch I was trying to be like
a filmmaker who just follows one subject around a party as he talks to
everyone, and from that tries to build a picture of everyone at the party.
Also, I think it is important to be amused by some of the interpersonal
interactions and rivalries between the executives who run the big media
companies, rather than shocked.

The media business has many concurrent narratives. At a personal level, I
find it fascinating that Murdoch went to Oxford with one of the pioneers of
game theory. One of the basic tenets of the Prisoner's Dilemma is that
acting opportunistically for short-term gain will ultimately catch up with
you, because people will invariably expect you to trick them or double-cross
them. Murdoch's position today is that anything he does is inevitably
regarded as deeply suspicious. He is regarded as the villain in the
pantomime. As a matter of self-interest, many media players want to see him
fail, because of what he has done to them in the past, and what they rightly
fear he will do to them in the future. It's a position entirely of his own
doing.

At an operating level, Murdoch's empire has a ferocious management culture
that has never worked successfully in a partnership, and which I believe in
18 months was unable to forge a relationship of sufficient trust with
General Motors executives for the negotiations to be concluded. At a
strategic level the DirecTV struggle was a proxy battle between Microsoft
(which was providing $US4 billion to fund Murdoch's bid) and AOL Time-Warner
for access to set-top boxes. Stopping Murdoch stopped Bill Gates. At a
tactical level, the merger of DirecTV with Echostar opened the door for a
flood of cable company mergers. The short to medium-term outcome will be to
reduce the number of US pay-TV operators to one satellite company and two
cable companies. So there were a number of people interested in Murdoch
being defeated.

GL: In 'Virtual Murdoch' you rightly state that Murdoch's enterprises had
become transnational and had 'outgrown it Australian roots; its British
past; its American heart. It had taken up permanent offshore residence. It
existed stateless somewhere beyond the archipellos.' One the other hand
Murdoch's empire very much depends on media regulations of national
governments. Are these two views contradictory?

NC: Murdoch operates in a lot of parallel universes. Outside the US, his
reach is so wide that any effort to curtail him is something that a national
government needs to consider carefully. Inside the US, he is a secondary
player who has a dominant role not by what he does but by the response he
evokes.

GL: What you seem to predict is a return to the ancien regime of Hollywood
plus television. Perhaps we could add computer games there. Millions of
youngers, growing up in the nineties had other ideas of the new media
landscape. What will happen to their dreams of open source and free
software? They will hack infinitely in a parallel universe? Isn't the
Internet with now 500 million users a bit too big already to simply ignore
it? Or are the film and television powerful enough to do so? Some say that
the marriage of computers with visual culture was a bad dream to start with.

NC: You forgot to mention pornography. Porn channels were a major part of
the latest business plan to turn around the losses in Leo Kirch's Premiere
World pay-tv operation, while telcos are talking about using sexual content
to raise revenues from 3-G phones (just as a recent US survey suggests that
porn site traffic is down). I think there is a real risk that technology, as
it has on many occasions in the past, will deliver the exact opposite of
what it promises. So where the Internet's great promise has been more
diversity, it may actually deliver less. I think we are currently in a
hiatus period where film and television cannot yet be delivered easily over
the net with broadcast quality. When they can, in five to ten years or
longer, they will become the dominant usage of the Net. Media companies have
an infinite capacity to get the future wrong, to resist and under-estimate
change, and generally to mess up . . . and yet to emerge the winners at the
end of the day. As you say, 500 million Net users are too big to ignore. But
now is the time to think hard about where the future is going, and if you
don't like the picture, to come up with some creative ways of changing it.
As most of the Internet growth will be in non-western countries, that will
be the most interesting area to watch.

GL: Could something be learned from the pay TV disaster? Did Murdoch, Kirch
and others overestimate the market? There is the idea that a pay-per-view
model could work for the Internet, at least in the mid-long term. Early
dotcom e-commerce models failed, but what could replace them? You are right
about the growth of the Net outside the West. But what could we conclude
from that if we look into sustainable economic models for the Net?

NC: I think the big casualties from the Kirch and ITV Digital collapses will
be Posh'n'Becks. Maybe it's a big call, but I think the growth prospects for
English soccer-playing-pop-star celebrity couples are looking pretty bleak.
David Beckham was a perfect example of the sports stars who were the chief
beneficiary of the wave of money that flooded into sports rights in the last
decade, a move principally triggered by Rupert Murdoch. I thought the amount
of the money movements amounted to a form of social engineering, as an
entire sports economy was created. Players had always been famous. With
pay-tv rights they became rich and even more famous. The football star was
once again a major celebrity, marrying super-models, or skinny pop singers
like Victoria Beckham, the former Posh Spice. The sports economy was built
upon attempts led by Murdoch to use sports broadcasts to buy market share.
The prices paid for sports rights were never commercially viable, but they
were never meant to be. They were the cost of access. The latest collapses
have reduced competition, and left in some cases a near-monopoly. That sugge
sts the battle for market share is over, at least for now. That means the
end of the sports economy as we know it.

Pay per view has not had much impact to date. It will be a while before
anyone is brave enough to jump back in the pool, in terms of Internet
businesses. I think the cycel will turn again, but in the mean time the
digital pay-tv operators have that extra time to dig themselves in and make
their position unassailable. There are some high-volume subscription sites,
like the Wall Street Journal. The Financial Times is supposed to be about to
become subscription. I think we'll see incremental growth.

Non-westerners use technology differently. Look at the way Khomeini's
followers used cassette tapes to foment the Iranian revolution in 1979, or
the rise of Al-Jazeera (which is not just another CNN). The West generally
sees this as incredibly subversive and so distrusts it.

---

Neil Chenoweth, Virtual Murdoch, Reality Wars on the Information Highway,
London: Secker & Warburg, 2001. Crown Business, a Random House imprint will
bring out an updated edition in the USA this fall. A UK paperback edition
should appear later in the year. Neil Chenoweth's email:
nchenoweth@afr.com.au.

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