/ 10 January 1997

Keeper of the global gate

Rupert Murdoch is way ahead of his media competition. Henry Porter wonders if anybody realises his power

IN Full Disclosure, Andrew Neil’s telling account of his life as a Murdoch editor, he reveals that Rupert Murdoch’s presence is so strong in News International that he appears to his executives in their dreams.

It’s a pity that politicians have not shared his experience of being woken in the night by the vision of Murdoch. If they had, they might begin to dwell on how thoroughly his personality has penetrated Britain’s affairs; and they would almost certainly scrutinise the strategy that is about to give his company an unparalleled advantage in national broadcasting.

But the deed is practically done and if you talk to politicians, broadcasters, government departments and the regulatory bodies charged with overseeing the introduction of digital broadcasting by BSkyB in a year’s time, you find a mixture of trust, ignorance and defeatism that can only result in commercial triumph for Murdoch.

People seem simply not to grasp the implications of digital broadcasting and the speed with which Murdoch is moving to introduce it by satellite. They don’t see how much power will accrue to this foreign national, nor even the danger his company, News Corp, represents to what is an essential and ill-guarded part of British culture.

True, the subject of digital television requires concentration but it shouldn’t mesmerise quite the number of officials that it does. They insist Murdoch will have to behave, although there is scant evidence of his ever having respected a British institution or any of its regulations. Murdoch is global now, and national governments are only interesting to him inasmuch as they may help or impede his enormous ambitions.

To understand what is at stake, you must grasp the technical advances in television. In a nutshell, digital broadcasting is the transmission of high-quality TV along frequencies previously not powerful enough to be used for TV. Because the signal travels in bites of information rather than the conventional analog, it may be compressed during transmission and then decompressed when it reaches a TV set. Vast amounts of information may therefore be carried and this will enable, for instance, BSkyB to broadcast up to 150 channels simultaneously.

A digital broadcast adds greatly to the quality of the picture and allows the viewer to watch a wide-screen TV that can also take a sidebar of different programmes. So, while watching the football, you may also keep an eye on the news or another match – all of which makes it the perfect advance for the Age of Distraction.

The more important point is that a digital broadcast does not have to go through a satellite. It may be received by a conventional aerial and TV set, provided the viewer has a device known as a set-top box to convert the digital information into sound and pictures.

This is where Murdoch comes in and where everyone gets confused.

BSkyB has announced that it will launch a digital service next year and for this a special set-top box will be designed and marketed. Murdoch’s box will be tailored to do two things: decompress the stream of digital information and then decode it. After all, this is a subscription service and, like the present signal from Sky, will be broadcast in code so that only those who have paid will be able to watch.

Parallel to Murdoch’s activity are the plans by Britain’s established broadcasters – the BBC channels, ITV stations and Channel 4 – to develop digital broadcasting. Remember, the digital signal may be conventionally transmitted from a terrestrial station and all that is needed by the viewer is a set-top box.

The trouble is that Murdoch has already put out tenders for the design and manufacture of his own box. It will be on the market well before any equivalent device can be agreed upon by the terrestrial broadcasters. This is the crucial advantage he has seized. For it is highly unlikely that the British market will accept two separate boxes for the satellite and terrestrial digital services.

The point about these boxes is that their manufacture is costly and requires guaranteed orders. While Murdoch has the commercial drive to back the manufacture of his box with orders, the terrestrial broadcasters don’t. They are waiting to see what his box looks like and whether it can be adapted to take terrestrial digital signals.

Murdoch naturally got the point of all this long before anyone else. In effect, he has set up what is known in the trade as the “gateway” to digital services. For a period his gateway will be the sole means of access to the new TV technology. Even the BBC and ITV companies have come to recognise that they must dance to his tune, although they continue to insist that the development of the alternative terrestrial service will go ahead and that arrangements will be made to manufacture their own device.

So it would seem that you have a simple race between the satellite and terrestrial delivery digital systems in which Murdoch has a head start. But it is not nearly as simple as that because the BBC and the biggest ITV company – Granada – have signed up to be among the 150 services offered on Murdoch’s satellite.

This is an extraordinary development. After all, Murdoch threw the BBC off his Star satellite in Asia as it was offending the Chinese government. But now, in a display of corporate forgiveness or forgetfulness, the BBC plans to entrust all its services to him.

More important is that if BBC and Granada go on the BSkyB satellite, there is a considerably reduced incentive for them to establish a terrestrial service which competes with Murdoch.

It’s all very odd: on the one hand the corporation is co-operating with Murdoch by adding to the value of his service, yet on the other it issues a statement like this: “The first danger is the dominance of the gateway into the home. No one person or group should be able to abuse control of the set-top box to inhibit competition. If the digital age is to fulfil its true potential we need in the UK a unified regulatory framework to ensure open and non-discriminatory access to providers on fair financial terms.”

One has the impression of the establishment discreetly waving Murdoch through. It is an impression shared in the City. “There have been rumours,” said a media analyst, “that he has contacted both main parties … rumours of him having lunch with Michael Heseltine and the other side.”

Certainly he has talked to Labour’s leader, Tony Blair, on aspects of his media interests. If the Labour leader is prepared to be accommodating on the ownership of newspapers by a foreign national, there is no reason why he would object to the advantages Murdoch is taking for himself in digital TV.

The same is true of the Conservative party, which is persuaded by the argument that Murdoch has taken huge risks in the launch of satellite TV and is due an initial period of protected growth. With an election imminent, it would be crazy for either main party to take on Murdoch now.

Regulation on the design of the box has come in the form of a statutory instrument, which has been drafted by the Department of Trade and Industry and will be enforced by Oftel, the regulatory body for television.

Oftel may also like to look at British Telecom’s (BT) relationship with Murdoch. BT’s interest in Murdoch’s set-top box is to do with the huge amount of telephone traffic that digital broadcasting is expected to generate from people interacting with their TVs. Within five years or so we will be able to summon videos and purchase things we see on TV. Our orders will be made along a telephone line.

At present, the established terrestrial broadcasters have done no such deal, which means this BT facility will add to the value of Murdoch’s service.

The box is important but in some ways it is a distraction, and it seems certain that Murdoch has realised this. What matters to him is launching first with a range of appealing programmes. The main sales drive will be made by sporting rights and movies.

It is remarkable how the cards seem to fall so well for him. But there again Murdoch has the genius and aggression to think through likely developments, then act on his conclusions. He is also adaptable. Five years ago, he thought movies would do the trick, but then he realised sport was bringing in far more viewers.

Sport is what will make Murdoch the de facto gatekeeper. That is the only thing you need to understand about the launch of digital TV by Sky.

Murdoch has sensed that there isn’t the political will to contain his power. He has discovered worldwide that governments will drop their objections for short-term political advantage.

Murdoch said last July: “When you are the monopoly distributor you are inclined to dictate.” The Americans are beginning to get the picture that in the age of information it is the means of distribution, not supply, that call the shots. Viacom’s chairman, Sumner Redstone, who had been forced to sell an interest in one of his companies to Murdoch in order to get it on to BSkyB, said: “Rupert wants to rule the world and he seems to be doing it.”

At present he has more than 30% of the British newspaper market and he is likely to achieve a 25% penetration of the satellite digital broadcasting market.