Disney And News Corporation Report

Disney & News Corporation UNI–MEI (Media, Entertainment & Arts) and UNI Graphical Company Profiles Regan Scott Labour & European Research London, March 2005 Disney & News Corporation Company Profiles Editor: Union Network International (UNI) Av. Reverdil 8-10 1260 Nyon Switzerland Tel: +41 22 365 21 00 Fax: +41 22 365 21 21 E-mail: contact@union-network.org www.union-network.org Author: Regan Scott E-mail: reganjscott@gmail.com Ref. No. UNI/MEI/04-2005/0012 - EN © Printed by UNI 1260 Nyon Disney & News Corporation Company Profiles 1. Disney Global player, but still family friendly? Three years of headline hitting troubles, stock price dramas, absent divisional profits, public relations skirmishes, and a corporate leadership crisis do not seem to have dented too badly the short and medium term strength and sense of direction of what is one of the world’s leading multimedia and leisure industry corporations. It ranks in the top three for the media sector, and, though considerably smaller, third in the global brand league, after Coca Cola and MacDonalds. It therefore has huge brand assets as well as a strategic role in the global media and entertainment industry. But the troubled period invited a takeover bid, and longer run the boundaries of the creative media industry are expected to melt as new communications technologies – broadcast video in particular – attract communications carrier companies sideways into the world of content creation and distribution. Global scale A turbulent period has come to a company which is routinely described as being in a neck to neck race with Time Warner to be top player in the global media industry. AOL and Time Warner merged in 2001 into a $165bn mega corporation. The AOL link left Disney on a smaller scale – capitalised at about $50bn, and normally ranked after Viacom, which owns CBS, Paramount Studios and Blockbuster. Murdoch’s News Corporation ranks fourth, with slightly smaller turnover and capitalisation than Disney, but it needs to be remembered that Murdoch is linked to Hughes Electronics to reach this sort of scale. Sony and (French) Vivendi – now divesting and in crisis – have been the other top names. Disney’s ABC television broadcast operations rank 5th in the USA top 10 league. Disney is 60th biggest in the USA top 500 company listing, has commercial relations for branded Disney products with as many as 40,000 foreign suppliers, and big shareholders in the public pension fund world who have become active players in its leadership crisis. By its own count, 127,000 people work for Disney, although it is unclear which overseas workers are included in this figure. It has 10 TV stations and 74 radio operations in the USA, extensive ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 1 cable holdings, its own global Disney Channel, and 80% of ESPN, the massive sport programming network corporation, which reaches 165 countries in 21 languages. With Hearst and General Electric it holds 38% of A&E Television networks (Arts and Entertainment) and 40% of E! Entertainment Television. Disney bought ABC in 1995, with all its own media networks, in what was then the largest media takeover in history. The statistics are not easy to digest: 27 radio stations, 40 Spanish-speaking sport radio stations; Disney television channels, not just programmes, in 27 countries; 50,000 employees in the single city of Orlando, Florida, at its biggest theme park and resort complex, the biggest single employee site in the USA. There are 2000 Disney stores, half outside the USA. In 1996 a Chinese-language radio station opened from Hong Kong able to reach 400 million listeners in mainland China. 40,000 factories are on its international supplier database in 50 countries, plus 6,000 overseas licensees. It’s not all successful: remember that Disney’s big European investment and sole European flagship, the (two) Paris theme parks, have accumulated debts so far of $1.5 billion. Disney has a 40% minority share. Of specific interest to this profile, Disney boasts • • • • a home-grown employment culture – workers in some of Disney’s many divisions are called ‘cast members’, job applicants are called ‘Disney employment clients’ and its own International Labour Standards code. a huge, complex and segmented workforce. a strategic dependency on new global markets led by its traditional products, with big current and planned investments in Hong Kong, China and Vietnam leading the charge to establish a foothold for multi-media television marketing opportunities. a huge sports business sector serving its television, radio, news, programming and networking businesses, both pivotal and subject to intense competition. James Stewart, author of the very successful Disney War book, published Feb 2005, on feuding and problems at Disney Corporation under then chairman Michael Eisner, says Disney employees with stock have been asking his advice about Disney’s future. SmartMoney.com released this press statement from Stewart, March 3rd, 2005: ‘Disney’s prospects, - and its stock – are clouded by unresolved issues and uncertainty. Its board, now entrusted with the most important decision they are ever likely to make, has a sorry record of bowing to Eisner’s wishes, which in this instance include his desire to stay on in some capacity, perhaps as chairman – once again – and chief creative officer. It is daunting that COMCAST, in its pursuit of Disney, never increased its offer, a stock swap, and indicated it didn’t think Disney was worth much more than that. And apart from management issues, Disney is in an industry confronted with historic technological changes.’ The company has substantial shareholdings in the hands of the famous US employee pension funds, CALPERS and others, which have pioneered responsible ethical and commercially sound investment strategies. They have variously raised corporate governance and shareholder value issues so effectively that Disney’s modernising CEO and chairman Michael Eisner, architect of ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 2 Disney’s multi-sector corporate expansion into a global top player, has been forced to resign as chairman, and had promised to leave the company by 2006. Eisner started with Disney in 1984, and finally gets the push in September 2005, a year early. The leadership crisis was resolved quicker than expected, when in March 2005, the board selected an internal candidate, Bob Iger, prominent executive figure and former ABC boss, to succeed Eisner. Following the Sarbanes-Oxley governance reforms, the CEO and chairman of a company have to be separate, so Iger becomes CEO, and Eisner goes early in September this year and promises to cut all links with the company. Eisner will have had over 20 years – a long period of dramatic change. Iger is 54, with a long run ahead of him, and predictably, a lot more change. A taste of the new mood came with the announcement that Disney would also divest from Miramax as a studio, keeping its names and distribution rights, but no longer funding Weinstein Brothers films. This move, a classic of the Disney business model, came after Miramax’s Gangs of New York flopped after absorbing $100m capital. The scale of the leadership crisis in Disney Corp can be measured by the recent, unsuccessful and withdrawn, take-over bid by the USA’s leading cable media company COMCAST. In 2004 they bid between $48bn and $54bn: Forbes magazine argued that the asset break-up value of Disney would be at least $70bn. That’s a big gap, an index of uncertainty. And, after a long period of massive expansion and diversification, which has been in the main very successful, but it is also a measure of current underperformance. Global Spread Leads the Business The Walt Disney family firm started to change radically in the mid-1980s. It diversified, took on outside, professional management, and became multi-sectoral and multinational. The current 50th anniversary of Disneyland obscures the fact that the company’s earnings are now only partly dependent on theme parks and the branded products of the children’s and family entertainment market. The most marked feature has been international market growth. While the first California Disneyland 50th anniversary next year bolsters the impression of a US rooted corporation, foreign earnings (profits) rose from 23% of the Disney total in 1995 to over 50% by 2000. And the overseas expansion has been fast, building quickly on expansionary initiatives in the US. The Disney TV Channel was created as late as 1997, but went straight into 24/7 programming to North Africa, the Middle East, France, Taiwan, Australia and the UK. Branded Mickey and Friends stores overseas now have a bigger turnover than the US stores. Overseas there are about 1000 stores, in the USA about the same number, until the recent big sell-off with its lucrative licence fees. The first non-USA store was London in 1990, the first US store opened at Glendale, California, in 1984. Disney sports interests have developed with speed and on a grand scale. Starting out from the Hollywood Studios, inheriting sports products with the takeover of ABC news and broadcasting, the biggest development was the acquisition of the cable portal ESPN, which gave Disney huge ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 3 domestic and international sports markets. ESPN International gives access on a 24/7 basis to 165 countries and offers programming in 21 languages. ESPN – a software breakthrough company that became a dotcom miracle – is once again on the edge of a technology leap, as digital processes absorb video and high-definition imaging which will work through to mobile phone video and global news, film and programme access. In effect, if the economics works out, it will be at the centre of a new media experience allowing a mobile phone user to watch a ‘live’ video football match taking place on the other side of the world - along with hundreds of millions of other viewers. Disney has therefore put footprints down in key areas, as with its European television holdings, which average between 20 and 30% in 5 European TV channels. And it is using its tested, branded products – leisure resorts and Disney film and television products – for getting into huge Asian markets. Business Overview, Segments & Markets Yahoo Finance gives the following for 2004: Turnover Market capitalisation Employees Gross profit margin Net income(profit) $31bn $59bn 127,000 13.14% $2.4bn (This gives, incidentally, $18,500 profit per employee) Disney Corporation uses a four sector, or segment, model for its company business reports to shareholders and the tax authorities, but conventional business reporting and corporate profiling gives a much broader impression of the range of its businesses, the interconnectedness and the synergies. But even this approach doesn’t get much further with business figures than the official unified business results and figures for the four segments, so it is only through anecdotal sources that a picture can be gained of how the business actually works. Some reflections and hunches on this theme are added in below. The four business segments are o o o o Parks and leisure resorts Studio entertainment Consumer products Media networks Parks and resorts are not the big business segment. They are just over half the size of the media networks and studio entertainment businesses, while retail is half the size of parks and resorts. ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 4 An annualised version (by the author, solely for explanatory purposes) of the Dec 31st 2003 quarterly company report figures shows the proportions, and the different trend profit levels for the business areas. MEDIA NETWORKS (revenues) PARKS & RESORTS STUDIO ENTERTAINMENT CONSUMER PRODUCTS Total $12.5bn (profits) $1.2bn $6.5bn $0.9bn $11bn $1.9bn $3bn $0.9bn ($33bn) ($4.9bn) In 2000, revenues totalled $25bn, 27% came from parks and resorts, and 24% from studio based entertainment. The growth area seems to be media networks, a leading activity reflected in the movements amongst competitors. Net income (profit) had been $920m in 2000, went into the red by $158m in 2001, recovered to $1,240m in 2002, and in 2003 rose to $1,268m. The 2004 figure of $2,400m was quite a recovery. Profits and stock values hit a low in 2002, starting the troubles with shareholders. Share prices were volatile, and fell badly during the Eisner crisis, but recovered by about 30%, a dramatic turnaround compared to Standard and Poor’s 500 figure of 7.4% for the year 2004. The Businesses FILM PRODUCTION & DISTRIBUTION – involves both products and audience revenues: Walt Disney Pictures, Touchstone Pictures, Hollywood Pictures, Caravan Pictures, Miramax films (title, distribution and assets), Buena Vista Home Entertainment (video). TV PROGRAMMES AND CHANNELS: NETWORKS: ABC, The Disney Channel, Soapnet, ESPN (with Hearst), A&E (with Hearst and GE), the History Channel (with Hearst and GE), Lifetime (with Hearst), E! (with Comcast, MediaOne and Liberty media). TV STATIONS: 10 in USA, full Disney Channel in 27 countries. TELEVISION PRODUCTION & DISTRIBUTION: Buena Vista television, Touchstone TV, Walt Disney television, Animation Group. RADIO: ABC Radio Networks, Radio Disney, ESPN radio, 27 US city/area radio stations. INTERNET: DISNEY GROUP – Infoseek (43% share), Toysmart.com (majority share) ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 5 BUENA VISTA GROUP – ABC.com, ABC News.com, Oscar.com, Disney.com, Family.com, ESPN Internet Group, NFL.com, NBA.com, NASCAR.com, Soccernet.com (60%). RECREATION/HOLIDAYS, SPORTS & THEME PARKS: 10 Disneyland sites (four USA), Disney-MGM Studios, Walt Disney World, Epcot (futures park), Disney Cruise Line, two Anaheim sports teams. Walt Disney Theatrical Productions. RETAILING/ MERCHANDISING: Mickey and Friends Stores – in 2000, half were overseas, US/Canada stores were sold off for license rents. PUBLISHING: Walt Disney Company Books, Hyperion Books, Talk/Miramax Books, Discover Magazine, Disney Magazine, ESPN Magazine, Talk, US Weekly (50%), and daily newspapers Country Press (Mi), Oakland Press and Reminder (Pontiac, Mi), Narragan Times, St Louis Daily Record. MUSIC: Buena Vista Music Group, Hollywood Records, Lyric Street Records, Mammoth Records, Walt Disney records. Disney’s Sites Tell the Story DISNEY HOLLYWOOD – The home of what is termed ‘The Mighty Mouse’ Corporation. It spawns partnerships (see below) and special relationships, like the strategic tie-up with Pixar Animation Studios, who have done the Disney brand special for some time although the agreement is about to expire according to media observers. ANAHEIM, DISNEYLAND CALIFORNIA – The original Disneyland park, employs 20,000 full and part-time employees, and a further 3,800 work off-site at Disney facilities in ‘Downtown’. The Disneyland resort supports 65,700 jobs in Southern California according to a special report celebrating the 50th anniversary. FLORIDA, ORLANDO – The second park to open, and now the biggest, the Disney World Resort has 50,000 employees. Jobs at its four on-site theme parks are distributed on the basis of age and experience (young, cheap labour to the forefront for the public), and this is the biggest single employment site in the USA. The four parks are boosted by 17 resorts, three waterparks, two nightlife venues, and Walt Disney World, and draw 41 million visitors yearly on a 30,000 acre site. There is a business ‘Division’ called ‘WD Attractions’. The four themed parks are the Magic Kingdom, Epcot (futures), Disney–MGM Studios, and the Animal Kingdom. Universal Pictures has expanded a smaller theme park nearby, investing $1bn. Disneyland is organised by the US Service Employees International Union, which holds a contract covering 22,000 full-time and 5,000 part-time employees. DISNEY AMERICA VIRGINIA – A history theme park, due to open in 1993 but actually opened in 1998, with a $130m start-up grant from the state of Virginia. Employment likely to be several thousands. ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 6 ABC HOLLYWOOD – A huge acquisition, taking Disney deep into broadcasting and widening its film base and establishing a strong news brand, bought in 1995. ABC is now 7/24, global, has studio assets and a family division which produced 8 original broadcast movies in 2004. ABC was owned by Capital Cities, and bought for a record $419m. New CEO Bob Iger came from ABC. MGM STUDIOS – A leisure/film theme location based on MGM/United Artists history, sited in Orlando, Florida. MGM itself has been taken over recently, largely because of accumulated debt, by a consortium involving Sony of Japan and COMCAST who made the failed bid for Disney. MIRAMAX – Studios and cinema chain, bought in 1993 for $74m. The Oscar winning quality studio made Fahrenheit 9/11, and hit the headlines when Disney bosses had a try at blocking distribution to favour Bush in the election run-up period. The Weinstein brothers, who sold Miramax to Disney, have just been (March 2005) given it back, plus an estimated $150 m pay-off, minus distribution rights, the name and the library. This was because they had moved from low budget quality successes to big budget flops – Gangs of New York cost $100m and made no money. In its time Miramax had delivered 300 films producing $4.5bn in box office revenues. A&E AND E! ENTERTAINMENTS - Popular entertainment companies, the business stake is shared with Hearst and GE. BUENA VISTA and BV INTERNATIONAL – Both a syndicated Disney media product distributor and a live performance booking company brand which is part of Disney media networks. BV had 36 film titles on offer in 2004, attracting 100 million people to the box office. BV laser does video and DVD distribution of the same products. Based at the Orlando Florida park. TOKYO DISNEY RESORT – The first overseas Disneyland venture, opened in 1983, is now two parks: Disneyland and Disney Sea Park, operated by Oriental Land Company on a licence. OLC are currently investing $1.28bn – up to 2008 – in expansion of facilities, producing a steady stream of royalties for Disney USA. PARIS, THE MAGIC KINGDOM – The Paris theme park, which opened in1992, on a vast site, was meant to be the European showcase, but has been a cumulative failure and burden, financially reconstructed in 1994 by a big lease-back sale of the land assets, then added to in 2002 with a second Walt Disney Studios park to turn the business around, at a cost of $600m, and apparently not working. Disney Paris is becoming a long run liability, drawing 13 million visitors, not the 18 million target. It has been financially reconstructed once again in the past 12 months, with $330 m new capital raised on shares, and owes $2.4bn. 39% is Disney, the rest is with two big Paris banks and Saudi Prince Al-Walid Bin Talal, whose share has dropped from 17% to 10% with the new share deal. Approximately 10,000 people work there, 70% French. It was not initially a successful employer, and some unionisation has taken place. HONG KONG – A theme park which has taken just five years to develop, now open, it was funded by the Hong Kong Government to the tune of $2.8bn of the total $3.2bn capital required in 1999. Disney has a 43% stake in the park, which has an associated 1,400 room hotel and island commercial centre, but Disney has only been required to put $314m of its own money into the enterprise. 18,000 jobs were expected to be created, rising to 35,000 over a 20-year period. The venture came rapidly after the failure of a first bid to build a Disneyland in China, stalled after Disney funded a pro-Tibet film which upset the Chinese government. ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 7 CHINA – Disney’s latest animated film Mulan is based on a Chinese legend, to placate the Chinese authorities after the Tibetan film imbroglio. It has a Chinese-language radio station in Hong Kong, and a successful Disney Toy Store in Shanghai. The Chinese state TV company uses Disney’s sports network ESPN for about 50% of its programming on its sport channel, and there are plans to go ahead with a Shanghai Disneyland: in 2002, a letter of intent was signed with the Shanghai authorities, for a 2008 opening. This would coincide with the Beijing Olympics in 2008. Disney wants a full TV channel, has an eye on a possible 2010 World Expo in Shanghai, and meanwhile the Pudong district site will also have the world’s biggest ferris wheel. Formula One motor racing will also get its Shanghai track soon. Disney Corp has been under some pressure for using Chinese factories to make retail products in sweatshop conditions. A shareholder motion which got near to 10% support in 2003 asked that Disney Corp subscribe to the China Business Principles. The company argued that it had its own International Labour Standards (see below). VIETNAM – February 2004 saw the announcement of a $1bn resort backed by six US companies, with Disney leadership. The backers were formally described as ‘Disneyland Paris, Tokyo Disney, Disney California, MGM, Warner Bros, and Hong Kong Disney’. The specificity of this ‘six company’ formula may indicate that another level of business and tax personality lies behind the global corporation image. At Phan Thiet, a 600 acre coastal site, it will house 5 distinctly charactered resorts, and it will be all premium class – a Vietnamese Government official said in the press statement that the American investors do not want to see middle level products. DISNEY TV CHANNEL – Available in 27 countries, the spread of the channel started in 1995 with Taiwan and Ireland, Australia followed in 1996, France and the Middle East in 1997, North and South Latin America in 2000, and Sweden, Norway and Denmark in 2003, with Japan and India being negotiated. Mexico now has 2 million Disney Channel subscribers. Total subscribers via cable are 115 million worldwide, of which 83.4 m are in the USA. Overall, Walt Disney Television – the formal brand name – distributes $1bn of television films and programmes outside the USA annually. ESPN & ABC TELEVISION – Sports Cable Network and ABC broadcast. ESPN reaches 89 million households, ABC broadcasts to 109 million. ESPN works through 26,000 cable providers. It is 80% owned by Disney with Hearst, and is the cable colossus. For example, the American Football League (AFL) is currently negotiating a six-year contract with ESPN worth $900m annually. ABC pays $550m a year for its Monday Night Football deal, but has been losing $150 m through lack of advertising and viewer numbers. The AFL has total television fee income of $11.5bn. Disney broadcast programming commitments (purchasing rights) were just over $10bn in December 2003, of which $7.6bn was for sports rights. The capital allocation was to be spread over four years. News Corps’ Fox channel is the other big sports bidder. Globally ESPN has 437 million subscribers for sport programming, and other cable companies where Disney has substantial holdings include A&E Cablenet (live entertainment) with 37.5% Disney ownership and 88 million subscribers. The total subscriber numbers for Disney, ABC, ESPN and other channels is around 1,200 million – including, of course, some people subscribing to several programmes/channels. ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 8 ESPN’s digital centre is at Bristol, Connecticut, with 17,000 sq feet of studio space. It is the largest global digital and HD centre, planning 4,000 hours of programming a year (of the 8,760 hours in a year). ABC’s News Live is an interesting partnership operation, available to Time Warner AOL members who number 24 million, out of a claimed ABC total of only 30 million via the internet. ABC has 10 solely owned stations, all going digital. DISNEY TV INTERNATIONAL, INDIA – In 2001, Walt Disney Television International (Asia Pacific) planned to establish a Disney subsidiary company joint with the Indian venture finance Modi group, with whom it already had a 50/50 free-to-air television venture. Conflicting partnership interests and other problems blocked investments from the Indian Foreign Investment Promotion Board. Disney therefore had no Disney branded channel in India, being just one of the products available through Sony. The problems led Disney to decide finally to launch an independent pay-to-view channel, which they claimed would not interfere with the free-to-air joint venture with Modi. The story shows that partnership and joint ventures in a fast moving media portal world are not always easy. DISNEY INTERNET – Is composed of a broadband distribution deal with COMCAST, ABC News and Disney’s own internet group. Buena Vista do a lot of Disney’s internet (see above). DISNEY VIDEO GAMES – This business is growing, with a current $40m investment programme, a substantial investment in a very varied market. DISNEY RADIO STATIONS – 27 of them, scattered across the USA, providing the launch pad and experience base for its media expansion. RETAIL PRODUCTS – Disney stores US have been sold recently to retailer The Children’s Place under a royalties deal. Third-world outsourcing is an issue. The company is under pressure about poverty wages in Haiti and China toy factories in particular. Key People Michael Eisner – Transformed Disney from the 1980s into a global corporation across a wide spectrum of the media and leisure industries. Voted out as Chairman in 2004 but remains CEO until his promised resignation in September 2005. Bob Iger, President and Chief Operating Officer – To be CEO after Eisner steps down. Iger is an Eisner protégé, despite the Disney Wars book saying Eisner thinks little of Iger. Iger says Disney’s future is ‘creativity and content, technology application and overseas expansion’. His debut interview reiterated the famous business model: ‘the wonderful thing about our business is that no business exists in isolated form: they all feed each other and the brand’. And he confirms in his public statements that multimedia is Disney’s lead sector, while TV has overtaken film creation for popular characters and images: 15 television programme ideas can be experimented with for the same money risk as one studio film, he says. On the distribution side, Iger sees a likely sideways move by cable providers, satellite, telecoms and even power companies (GE have substantial content interests already) into content creation. But he remains confident that a well-branded creative/content company can reach and create markets best, so stresses that the ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 9 ABC, ESPN and Disney brands have to be kept to the fore. Overseas targets are China and India: Iger is proud of Disney’s international brand work, with 22 international Disney channels, plus prospective broadcasting (ie: full programming) in China and brand-leadership with theme parks. Paris, despite its acute problems remains Europe’s biggest tourist destination (i.e. single location). His AGM speech also indicated that the established domestic parks in the US now need less than $1bn capital investment per year, so provide a good capital source for other business areas. Tom Staggs, Finance Director – In his 2004 pronouncement, Staggs indicated development into multicultural markets, and announced that Disney have 40 Spanish-speaking sport programmes which are, in turn, syndicated. He said the business mix for Disney is now less capital intensive overall, with media networks generating roughly half of operating income, and parks at under 25%. Parks were 60% in 1990, and capital intensive. The company are targeting double-digit growth in EPS (electronic programme systems) for the next decade. (Disney Press release). Mark Spears, Director, International Labour Standards – Spears appears on social responsibility conference networks as the public face of Disney labour policy. Larry Lynch, Director of Business Development – Lynch is key to Disney’s people management. He is the programme director at the Disney Institute at Lake Buena Vista, Florida. A former policeman. Anonymous – Disney has just advertised for a new International Compliance manager. The Business Model These sketches of Disney businesses and areas of operations and methods of work can be brought together into a business model picture. An old ‘left’ source repeats the received wisdom on Disney: ‘The most spectacular example of multi-media ownership and the leading example of acquiring control of every step in the mass media process, from creation to content to delivery into the home’. Ben Baddikian, The Media Monopoly, Beacon Press 1997. It’s amazing that the author could write this without using the ‘branding’ key word, but his formula is a good definition of what branding means as a commercial dynamic. Maybe, however, the reality is slightly different. Despite lots of overview and general material available about the company, this researcher has found that it is not at all clear how the business model works, where the money is made, and by what methods. The brand and its mythology may obscure as much as it makes transparent. The notes below are intended therefore be an aid to arriving at a more broadly based and real ‘business model’. Capital use for acquisitions: this seems to have been for acquisitions, which are part and parcel of a highly competitive industry. The big expansion of Disney has not been, at least visibly, in growing its own skills beyond the full exploitation of its brands at all market levels, but in buying ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 10 into parallel and associated businesses for economies of scale (entrepreneurial, and managerial and marketing, mainly) and competitive advantage. While there is a lot of talk about high-risk strategies in creative, media businesses, there is not much evidence of this being the dominant doctrine in commissioning and creative innovation. Using other people’s development capital: there are lots of partnerships and co-ownerships, waiting for a commercial position to emerge when ownership can be either extended or capitalised on. The economic development model, from the proven Disney brands, has been used to leverage public money for theme parks in the USA and abroad, and once businesses and brands are established, the doctrine is sell out and take the brand licence fees and royalties. Technology positioning: this has been impressive, most evidently with the 80% purchase of ESPN, and Disney’s own base in sports media contracting and syndication. The Asian market strategy of Eisner uses the branded product tradition – the leisure resort formula – to establish a media foothold and subsequently to fund its expansion. Branding for creative products: this doctrine can be seen clearly at work in the case of the highly successful Desperate Housewives series. The Disney consumer products chief has also announced the possibility of a whole new Disney brand based on Desperate Housewives, for personal care, accessories and apparel (Financial Times, London, 6 March 05). He intends growing Disney’s retail top line from its current $15bn to $25bn turnover. He also mooted using the Disney brand for healthy eating for children. The business model would be franchising, alongside three new top tier brands (with long shelf life) based on animation products Toy Story, Narnia and Pirates of the Caribbean, which has been a blockbuster. The retail products segment of Disney made $543m last year in gross profit. But branding isn’t necessarily applied in media distribution areas. You watch the sport games, not Disney sport games. On the other hand, you do watch ABC news, or a rival. Alliances: alliances are essential, for business credibility (i.e. sharing stock with Hearst and GE), but more than this, themed alliances with other top brands are most important. The key alliance is MacDonalds, with which there is a 10-year cooperation agreement. MacDonalds also have a cooperation agreement, but not a contract, with Coca Cola, who have been the soft drinks supplier to Disney outlets since 1985. In 1998, the huge MacDonalds global staff festival of 18,000 employees descended from 109 countries on Disneyland at Orlando for their biennial convention. Business analysts Booz Allen say themed cooperation is the big dynamic in brand companies: 32,000 themed alliance agreements have been formed in the past three years and 75% are cross border. However, the three top brands say alliances are determined at country/local level, depending on local moods and trends. Corporate partners: Disney ranks 10 leading companies among its partners, including Kodak and IBM, and multitudes of smaller all-family businesses. Compliance partners: on governance and social responsibility, especially on product supply chains overseas, Disney has appeared with Levi Strauss and Mattel. Lobbying for regulatory advantage and leverage: an October 2004 US Centre for Public Integrity report showed TV and radio companies spent, over 6 years, $222m on lobbying the federal government and also gave $226.5m to federal candidates and lawmakers. Disney is the ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 11 3rd biggest lobbyist at $24m since 1998. This is dwarfed by GE’s NBC Universal Studios, who spent $105m, and the National Association of Broadcasters who spent $43m. Murdoch’s News Corporation and Disney both sponsor congressional travel. The Employment Model Gets Complicated If Disney were just a two division business, making film and television programmes alongside its resorts and parks, the employment model would be clear: for the parks, the ‘cast member’ doctrine applies as a distinct, tried and tested, home-grown product. For the creative film and TV sectors, the studio contract system, again, tried and tested, applies with its own stability and character. It can be thought as operating in three separable areas: in technically related creative jobs, in professional creative jobs – script writing, most obviously – and finally in the contractual management segment of producers and directors. But the business has four segments, to use Disney’s own formulation, and considerably more business areas. Some approximate numbers can be drawn from the published Disney Corporation figures. Parks in the USA employ something like 90,000 employees under the ‘cast member’ doctrine. Management grades in a human capital and high-technology industry probably count 20,000 to 30,000 people. Core studio employment must be several thousands. Together this pretty much accounts for the total published official figure of 127,000, but must exclude the substantial contractual workforce. And what about the presumably huge numbers of radio and television channel and programme employees, the sport industry folk, the books and music people, the retail people? And, further, what about ‘employees’ abroad? Paris has over 10,000. Who employs the workers in the 1,000 overseas retail businesses? And the parks in Asia? This raises four issues • a legal question – the definition of employment varies internationally, and Disney Corp is careful in its official texts to set out when a commitment applies beyond its core Walt Disney Company. In its corporate responsibility website overview a footnote states ‘this also refers to the Walt Disney Company’s affiliated businesses’. The key word seems therefore to be ‘affiliated’. a statistical question – Disney does not publish breakdown figures: what does 127,000 really mean? a question about who are all the other media/technical/sales workers dependent on Disney? ESPN is maybe the most prominent example. Where do they fit? • • ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 12 • also a political question: when Disney is being socially responsible, and doing its ‘compliance’ at home and abroad, for which workforces and which relationships is it taking responsibility? These questions can be rolled into one simple, big question: in a global brand leader, 100% dependant on public reputation and social credibility, with huge live and visual audiences, does the employment model follow the brand, or is the employment model fundamentally different to the business model? A guess about the global employment responsibilities of Disney is tempting: it vaunts its own international labour standards and 3,000 active Disney product factories overseas, and 40,000factory database. The “Sites Tell the Story” section above must add several tens of thousands... maybe it’s nearer a quarter of a million than 127,000? And clearly work needs to be done to map the reported 11 collective bargaining contracts under which Disney operates for some of its employees (VAULT Career Information Service, 2000). The Disney promoted employment model – rather than an outside analyst’s version of the overall employment strategy of the corporation – has three reasonably transparent elements. The first is the Disneyland cast member culture. The second element, the contract system, applies in the traditional creative areas of studios and programme making and has developed within the Hollywood studio system. The third is the international labour standards programme adopted after pressure from monitoring groups about labour abuse in Disney’s global supplier factories. This system has come into prominence as the merchandising side of the business has grown, and equally, as global society has become less secretive about the ways in which money is made on the backs of workers employed under terms that appear offensive and unnecessary to the consumers of the rich world. The three models raise their own questions, but are not difficult to understand or evaluate, except in the sense that for this company it is not clear which of its official 127,000 workforce (or maybe nearer to a quarter of a million workforce) are employed under which of the three regimes. Or, indeed, are employed under some other regime. This researcher’s sense is that many thousands of US Disney employees may well fall outside one of the well understood regimes, either working under some other conventional labour system – professional salaried – or maybe under a variant of the contract system. A mapping exercise for employment regimes or settlements suggests itself, especially for the multi-media segments of the business. The models are: THE DISNEYLAND MODEL: This is Disney’s extraordinary home grown, holistic HR philosophy in which leisure service employees are ‘cast members’, recruited and inducted as employment ‘guests’ of the corporation, and selected according to ‘fit’, and encouragement to ‘network’ socially among themselves goes side by side with progressive policies about sexuality, in employment and in client marketing: some Disneylands have gay days, for example. This holistic employment culture runs alongside heavy dependency on part-time and casual working, with up to one third of hours at the Florida Disneyland reportedly provided by temporary employees, in line with a collectively bargained contract. The system is old and paternalist, lacking modern employee involvement facilities, and depending on substantial pay differentials for length of service and management selected career development. ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 13 STUDIO CONTRACT SYSTEM: This well-established and often collectively bargained system has perhaps become the model for knowledge workers in the new technology media sectors, rather than simply for creative professionals and the technical creative workforces. This researcher senses that Disney may be strategically involved in promoting and exploiting this system, which can be very volatile without strong collective organisation. This sector is the most complex in terms of what constitutes an employee legally, and for what purposes. Disney Corp’s studied avoidance of clarity in its legal codes about the definition of affiliated businesses, its careful presentation of financial information on the basis of business segments rather than ownership divisions, its strategic dependency on licensees and royalty revenues all suggest that there may be more to the contemporary employment model than meets the eye. CSR COMPLIANCE: Disney has developed its own brand of international labour code, called the International Labour Standards (ILS) Programme, based on a US government Code of Conduct for Manufacturers. The ILS was set up in 1996, and by 1997 had been put under the inspection auspices of independent auditors, boosted by Disney auditors in 1998. By 2004, the company claims to have carried out more than 40,000 factory audits. Reputable academic work views Disney’s ILS as ‘a responsible approach to monitoring compliance’ (Sethi, S.P. Setting Global Standards, Wiley, 2003). Monitoring covers working conditions, but ‘also a review of compensation (wages) and benefit records and private interviews with factory workers’ (source: Disney Online: International Labour Standards ). What the standards are, in terms of ILO basics and other established ethical codes is not clear, except that they are a combination of what Disney believes is acceptable and a commitment to apply the laws pertaining in the country in question. They do not match any ILO or conventional UN based criteria. The claim about monitoring is a remarkable one. It is backed up by a databank with records on 40,000 factories, more than 6,000 licensees and vendors, and Disney’s own business units across the world. Monitoring is done through a collaborative project involving faith-based and socially responsible institutional investors. The programme is run by Disney’s International Labour Standards Group, who have access to quarterly board of directors meetings. A Feb 17th 2005 CSR conference in Los Angeles on ‘Innovations in Compliance’ focussed on exchanges of experience by Disney, Mattel and Levi Strauss. The Disney global compliance chief is Mark Spears, title Director of International Labour Standards. Three of the four conference sessions dealt with ‘Managing Licensee Relationships’ where the worry is that brand licensees don’t understand, and can’t resource, compliance and therefore threaten brand compliance standards. The second session was on industrial security requirements, i.e. US Customs and Border compliance protection regulations, involving security risk assessments for supply chain partners. The third addressed ‘Benchmarking Approaches to China Compliance’, and reviewed top compliance problems in China, namely excessive overtime, long hours, a weekly rest day, non-payment of social security, and youth worker registration. The US National Labour Committee, a human rights advocacy group, is a regular source of allegations about Disney contractors. Disney has a reputation for cutting and running when labour abuse stories stand up, as happened with the poverty wage scandal of 2,000 women workers in Haiti. Well documented stories have come from China (source: The Hong Kong Christian Industrial Committee), from Burma and Bangladesh, and the USA too. ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 14 Shareholders & Politics While the leadership crisis may be over, and good business prospects will help the new CEO, shareholders have got their teeth into Disney Corp in the past 2 to 3 years. This is frequently associated with Roy Disney, nephew of Walt, and former vice-president Stanley Gold. Shareholder politics has become serious because of the big holdings of public sector employee pension funds, including the giants of the West and East coasts. A 43% vote was registered against Eisner as Chairman. Shareholder issues have been: o a bonanza pay-off of $140m for Creative Artists chief Michael Ovitz after only 14 months as president . o Eisner and others’ massive salaries and share options in the period when profits went negative. o Eisner being chair and CEO, and unaccountable, contrary to Sarbanes-Oxley principles, and also closely associated, non- executive directors not being independent. o shareholder nomination rights for directors, an issue that went to the Securities and Exchange Commission, who first backed shareholders and then backed off. o proxy voting processes. o alleged sweatshop conditions in Chinese contractor factories which Disney claimed to have audited for labour standards compliance. o staggeringly low pay for women making Disney toys in Haiti. o long run failure at ABC studios, turned round recently by Desperate Housewives. The latest Disney politics concern campaigning links between California Governor Arnold Schwarzenegger and Eisner and top bank chief Sandy Weill of Citigroup, aiming to restructure the CALPERS pension fund along Bush individualisation lines. CALPERS and CALSTERS (the teachers’ fund) regularly link with East coast public sector pension funds on governance and compliance and shareholder value issues. Some Sources Forbes, Yahoo Finance, Frontline: Merchants of Cool, Ketupa Media Profiles, The Economist, Financial Times, Disney websites. Columbia Journalism Review 2005. Centre for Public Integrity www.public-i.org/telecm lobbying overview. Booz Allen & Hamilton for Disney and branded company reports, also McKinsey. Sethi, S. Prakash, Setting Global Standards, Wiley, 2003. (says Disney has ‘a progressive approach to monitoring compliance’, see case study). Stewart, James, Disney Wars, Simon Schuster, 2005. ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 15 2. News Corporation Playing Hard, But Still a Mixed Hand of Cards? Rupert Murdoch’s News Corporation (NC) ranks fourth in the global media company hierarchy, with slightly smaller turnover and capitalisation than Disney. It needs to be remembered that Murdoch is linked to Hughes Electronics and its DirecTV, now NC owned and the biggest satellite TV operator in the USA, which was necessary to have reached this sort of scale. Fast moves and rapid growth, often by straightforward acquisition, have been Murdoch’s strength, and sometimes nearly his undoing. Sony and (French) Vivendi – now divesting and in crisis – are the other top names, while German Bertelsmann, more in print and publishing, also ranks for rapid global expansion. Murdoch’s empire spans the USA, Europe, Australasia and the East. His newspapers in the Old World form radical-right opinion, his satellite and cable news sends an overtly rightist political message, and his satellites leap over national and continental boundaries – both geographic and regulatory. While he has significant terrestrial cable interests through Fox, the really big cable players are nevertheless limited by geographical borders, and expensive capital infrastructure investment, and local market penetration rules, mainly in the USA. But the amount of software and programme content and interactive products which cable operators can distribute down fibre optic lines, and more recently traditional telephone lines, has emerged as being far, far greater than satellite has achieved. This is how market and technology competition has evolved, even if there is no intrinsic difference in the technology potentials. So Murdoch’s big league strength and world pioneering role in direct broadcast satellite television is an incomplete hand of cards. He needs to run much faster and further than rival terrestrial cable technology. Cable or nationally supported public broadcast television which dominate many markets, have attracted advanced digitalisation, and most importantly, the expansionary instincts of the vast telecoms and computer software companies, notably in the USA and UK. Microsoft has chosen cable: the USA’s General Electric and Comcast (they bid for Disney) may move sideways. The UK’s British Telecom has announced it will soon offer total BBC programming as video down its phone lines in the heartland of Murdoch’s BSkyB. Pay-per-view TV seems cheaper to run on cable than satellite, whose initial retail product was the monthly subscription on a limited number of tariffs. And cable has a 70% market share in USA, while DBS (direct broadcast satellite) has only 17%. Murdoch’s notable success was the creation in 1985 of Fox Television and its 24-hour news service, beating CNN ratings. This was the first newly created TV network since the 1960s. Its impact is not easily repeatable. Europe isn’t likely to be fertile ground for such a market leader, with so many big, publicly supported TV corporations and strong regulation, at least outside the UK. And the programme content issue for India and China is most likely to be sport and entertainment, not political influence. ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 16 So while he bestrides whole continents in the media world, Murdoch has to fight hard for his national markets, and can offer no certainty of either family dynasty survival or shareholder loyalty unless his chosen strength can yield enough capital returns to keep him in the media card game. His grand strategies and heavily leveraged acquisitions produce uncertain results. Satellite has not been profitable, and almost collapsed at the start. Murdoch is only just re-entering internet markets after a first demarche. Commentators predict a big expansion of pay-per-view by BSkyB, however, when the second slot on the Sky digital box comes into use with a pay card. Without friends – except Berlusconi who copied him, but also has cheated him – Murdoch has continued to be in need of active politics. This he has achieved by mustering politicians through his control of news opinion and persuasion. Acting quite differently to traditional corporate lobbyists (the less is seen to happen, the more is gained), big public political courtships are part of the mogul image. Murdoch’s 38,000 declared employees apparently work miracles, his business model – the much vaunted extreme vertical business integration model – produces good, if varied, profits and low taxes, but the future ‘buts’ remain. And while there is lots of research and comment on News Corp, somehow the way the Murdoch miracle has been constructed remains mysterious. Finally, just from trawling sources, it appears that both Warren Buffet and George Soros have been buying NC shares, as well other media/technology shares. Soros, a liberal global interventionist, may have a secondary motive in seeing Murdoch’s right-wing Fox News unsettled, of course. That’s prospective trouble. Actual trouble has come with John Malone of Liberty Media, the so-called ‘cable cowboy’ of the USA. Murdoch has been forced into creating a poison pill to block off any shareholding above 17%. A few months ago, Malone bought an initial 9% without telling Murdoch, and then repeated the insult a few weeks back, taking his stake to 17%. Now Malone is reported as wanting to sell the shares back direct to Murdoch for hard cash and one of the NC affiliates. So, while Murdoch may have made interesting times for others over his long career rise – painfully so for some trades unionists – sometimes competitors and enemies make interesting times for him. As he nears retirement his latest grand strategies of taking satellite to Eastern Europe and Asia could be looking like too long a haul to investors. Perhaps the miracle is underperforming, or perhaps top financial people sniff different developments. Whatever is going on, the world of Murdoch is not steady, or stable or certain. The Vision Let some NC facts, set in context, speak for themselves. • NC aims soon to reach 2/3rds of the wired world with its direct broadcast satellite systems. The NC business target for 2005 is to sign up 30 million global customers. Longer run, it is Asia and Eastern Europe which are expected to provide growth in an otherwise saturated traditional broadcast media marketplace. ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 17 • BSkyB is the biggest Pay TV broadcaster in Europe, although several TV companies, including the UK BBC are on a bigger scale. But the BSkyB claim rests on popularity in the UK, rather than mainland Europe. Hughes’ DirecTV, bought by NC last year, is the USA’s biggest satellite operator, now settled into NC’s Fox system. The BBC employs around 30,000 people: global Murdoch says he employs under 40,000. According to the BSkyB website, in 2005 Murdoch’s DBS (direct broadcast satellites) will be ‘Spanning five continents, and harnessing satellite, interactive and innovative digital technologies. NC television operations will continue to grow. The Company’s television stations group has enjoyed ten consecutive years of record profits, and FOX Broadcasting Company is America’s most watched network among young adults’. NC is the world’s biggest investor in private satellite broadcasting. In the 1987 financial crash, Murdoch was caught out with total debts of Aus $10bn, syndicated by Australian banks which demanded the cash back. He survived by winning a rescheduling of Aus $7bn. The story gives an impression of the scale of his financing and risk taking. His current strategy is to make a leveraged entry into the worlds largest media markets, India and China, through an Asian subsidiary company, StarTV, run by one of his two sons. Political clout at the top is no myth. Recently sacked UK Daily Mirror editor Piers Morgan is on record recalling that UK Prime Minister Tony Blair admitted courting Murdoch, saying ‘I had better court him. It’s better to be riding on the tiger’s back than let it rip your throat out’. • • • • • Facts & Figures Company results June 2004 Sales Profit Assets Employees (US incorporation in Delaware for 2004/5 after leaving Australia) $20,450bn $1,608bn $53bn 38,000 (1.8% growth on 2003, was $14bn in 2001)) (32% increase on 2003) (was $39bn in 2001) (posted figure, see comment below) ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 18 Profit Sources (gross revenue 2002/3 in Aus $ at approx 1.30 to 1 US) Filmed Entertainment (20th Century Fox) Television (Fox Broadcasting Co, Fox TV Stations, Star Channels) Newspapers (US, UK and Australia) Magazines & Inserts Book publishing (HarperCollins) Cable network programming (Fox News, Fox Cable Networks, including FX and Regional Sports) Direct Broadcast satellite TV (Sky Italia, DirecTV, BSkyB) Others (News Outdoor, Sportnews etc) Business segments (% of sales turnover) June 2002 (reported, The Economist, 24 Feb 2005). The proportions will have changed substantially with the Federal Communications Commission approval of the merger with DirecTV in 2004 into Fox Entertainments. Aus $1,242 Aus $1,346 Aus $876 Aus $381 Aus $221 Aus $978 Aus $-150 Aus $-270 Television (Fox network, Star TV, satellite BSkyB) Filmed entertainment – 20th Century Fox Newspapers (Sun, Times etc) Cable (Fox news, Fox Sports, FX) Books publishing (HarperCollins) Magazines and inserts 28.1% 26.6% 15.9% 12.3% 7.1% 5.7% ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 19 Market Snapshots • • DVD sales of filmed entertainment are now at 55% of film sales revenues, and part of the 20th Century Fox division of the company. network television is widely reported to be a ‘blemish on the horizon’, but may pick up with Superbowl programming. NC is heavily dependent on sport broadcasting deals, like Disney. Peter Chernin, Chief Operating Officer of NC, said in February this year re the second quarter figures for NC, that long-run News Corp is aiming for 20 to 25% returns on capital. cable network programming was up last year, with a record profit return driven by advertising growth at Fox news channel. • • Sectors • Broadcasting Networks USA: Fox Broadcasting, Fox News Channel, Fox Kids Network (sold to Disney’s ABC), Fox Sports (part in some markets), the health network, FX, National Geographic’s cable network (50%), Gold Channel, TV Guide Channel (44%). TV Stations: 22 Fox affiliated stations, 2 each in New York City, Los Angeles, Chicago, Minneapolis, Dallas, Phoenix, Orlando, and Houston. International Networks: British Sky Broadcasting (part-owned), 29 channels in Europe and UK; STAR TV (Asia). Radio: Fox Sports radio network. • • • • • Motion picture production and delivery: 20th Century Fox, Blue Skies Studios, Fox Searchlight Pictures Internet content providers Healtheon/WebMD.Corp (part). (2001): The Street.com (part, with NYTimes), Publishing books: HarperCollins general book group, Regan Books, Amistad Press, William Morrow & Co, Avon Books. HarperCollins UK, HC Canada, HC Australia. Magazines: TV Guide, (part) the Weekly Standard, Maximum Golf. Newspapers: New York Post; The Times, The Sunday Times, The Sun, News of the World (UK); The Australian, The Daily Telegraph, The Herald Sun, The Advertiser (Australia). ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 20 • Sports (2001): Los Angeles Dodgers, New York Knicks, New York Rangers (part) Los Angeles Kings (part), Los Angeles Lakers (part), Dodger Stadium, Staples Centre (part), Madison Square Garden (part). DVD home entertainment: Films product sales of $1.2bn in the last full year. • USA only subsidiaries and affiliates • • • • • • Fox Entertainment Group (fully owned from 21 March 05) The DirectTV Group, Inc. (formerly Hughes Electronics satellite subsidiary) Hughes Network Systems Inc. Fox Broadcasting Company Fox Filmed Entertainment Blue Skies Studios. Global subsidiaries and affiliates (including USA) • • • • • • • • • • • • • • • • • • • • • • • • • Fox Entertainment Group, Inc. (fully owned from 21 March 05) The DIRECTV Group, Inc. Hughes Network Systems, Inc. FOX Broadcasting Company Fox Filmed Entertainment Blue Sky Studios Fox Searchlight Pictures Twentieth Century Fox Film Corporation Twentieth Century Fox Home Entertainment, Inc. FOX News Network, LLC FOX Sports Networks Madison Square Garden, L.P. New York Knickerbockers New York Rangers Twentieth Century Fox Television HarperCollins Publishers, Inc. HarperCollins Publishers Ltd. NDS Group plc Orbis Technology Limited News America Marketing News International Ltd. News Group Newspapers Limited Sky Brazil Serviços Ltda. STAR Group Limited STATS, Inc. ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 21 The Business Model: Positive & Negative? Built originally on newspaper politics, the Murdoch model rests on a core business vision – global satellite broadcasting, unimpeded by terrestrial regulation, and financed by consumers and advertisers. The mainstream version of Murdoch’s successful empire is that it is based on • • • • • ruthless vertical integration, pragmatic foresight, family secrecy, political leverage, regulatory skimming and personal control. These are expressed through conventional, hard-nosed business strategies involving • • • • acquisitions battles, face-offs with competitors, fast-tracking new technology options, global risk taking for new markets. Regulatory pragmatism is basic: Australian media expert Alex Burns cites NC chief executive Peter Chernin investing $17m to hire top writers for a creative content strategy which would allow NC to meet the regulatory standards of local content in the US, and then from this US base (pre the corporate move to the USA) selling Sky programmes to India. It is not a stakeholder regime, or a transparent regime: NC’s corporate website proclaims compliance with the letter of governance rules, no more, no less. It discloses little about employment policy or conventional social responsibility. Results justify and dynamise the methods. This researcher senses that there is also a more complex and sometimes darker, more negative picture. Here are some considerations, which can be judged on their merits. • regime hopping: Murdoch became a US citizen, but then found that despite locating his operational HQs in Los Angles and New York, and being quoted on the New York Stock Exchange, he still had to operate through Fox to raise capital. However, US registration allowed NC shareholdings to increase beyond the limit of US shares in foreign companies, and made US acquisitions easier. In the US, foreign ownership (control) of radio and TV stations is barred, cross-ownership is restricted and TV ownership is restricted in each area to an audience limit. Company law details differ between states: Delaware allows poison pills to stop predatory takeovers, hence NC’s Delaware registration. ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 22 • secrecy through dynastic control: Murdoch is now nearing 75, his family own 29.5% of NC voting shares. But after the manoeuvres of Liberty Media boss (and former friend) John Malone, the poison pill was designed to give a right to other shareholders to buy extra NC voting shares at half price if Malone or anyone else buys more than 17%. Murdoch sons Lachlan and James are safe so far: are they likely to be buyers at half price? partnerships (1): for regulatory access and avoidance. Hence BSkyB minority shareholding, with Vivendi, to mollify European governments, while in reality BSkyB is the big strategic vehicle for the Murdoch satellite vision. partnerships (2): for capital risk protection. partnerships (3): for platform access and technology learning through marketing NC’s own shows – eg: Sky News, Sky Travel and Sky Sports News are available on the UK freeview digital system shared by the BBC and Crown Castle International. Murdoch opposes freeview mechanisms, and wants the BBC to loose protected public operator status, but is happy to go to bed with enemies. partnerships (4): for hands-on control through minority ownership, eg: Hughes and DirecTV. This may also allow NC to offload its costs onto affiliates? high risk ambition: initially BSkyB was a disaster because of the expense of supplying digital boxes. Murdoch’s first internet venture was also pulled back (see below). This pattern means that shareholding has little continuity – so there is very little comment about NC depending on ‘stakeholders’. competitive abuse: the UK House of Lords banned predatory pricing of newspapers in 1998, to punish Murdoch’s UK newspaper retail strategy of undercutting to drive out competitors with inferior capital resources. Murdoch’s pet professor, US economist Irwin Stelzer of the Hudson Institute, has been re-interviewed by the UK House of Lords on media futures. Stelzer wants an end to public media regulation. He has good access to UK PM Blair and Chancellor Brown. sharp practice: when the original Murdoch UK Sky company faced new competition from a terrestrial digital service, the rival’s encryption code was broken and NC was cited in court by French mega corporation Vivendi (subsequently a global rival to Murdoch, but now divesting). Vivendi said NC had made the secret code public. NC made an out of court settlement. Murdoch is a billionaire, and there is widespread speculation about his tax affairs and offshore companies. His US corporation tax level is one fifth of the level paid by Disney, Time Warner and Viacom, thanks to shifting income through ‘an unfathomable web to lowtax and no-tax havens in such places as the Cayman Islands, Fiji and even Cuba’ (source: Murdoch’s Mean Machine, Russbaker.com, via Columbia Journalism Review). • • • • • • • • ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 23 Murdoch and Money Some chapter summaries of Neil Chenoweth’s influential book Virtual Murdoch give a sense of Murdoch’s financial entrepreneurship and powerful manipulation of capital, cash flow and moving feasts of big ideas for shareholders. ‘While, in the US, Murdoch was merely one of the larger players, what emerged from this period (1990s) was how much power he had everywhere else in the world. Outside America, it was arguable that News Corp operated as an entity beyond the power of any one particular country to regulate. ‘As a financial entity, NC existed in several parallel realities. Under the Australian accounting which NC used to report its profits each year, in the 6 years to June 97, NC earned $5.8bn, most of it from the USA and Britain and a little from Australia. But US accounting rules painted a different sort of reality. They said NC earned only $3bn. Was this the ‘real’ profit? You could ask the tax authorities the same question. Based on what NC paid in tax during those years, its taxable income came to only $1bn - and its biggest earnings were made in tax havens. Which reality gave the truest picture of what NC was doing? The financial heart of Murdoch’s empire was somewhere offshore in the tax archipelagos, as an international task force set up to enquire into NC’s cash flows found.’ Murdoch and the Web: Second Time Lucky? Murdoch’s son James tried a grand internet strategy in the late 1990s, launching an entertainment website. It flopped. News Digital Media – the corporate vehicle – was closed down. Web advertising revenue streams collapsed soon after, as part of the dotcom bubble bursting. The web was set aside at NC. Now advertising revenues are rising again, with search engine advertising leading the way, and the recent flotation of Google and dramatic rise in Yahoo shares indicating big money for the right formula. Time Warner has announced that its AOL is attracting $1bn in annual advertising revenue. The New York Times group also recently bought 22 million customer About.com for $410m. McKinsey consultants have been called in to advise about coordination between NC’s TV networks, film and newspaper assets. Australia In homeland Australia, where his father was a wealthy press mogul, Rupert Murdoch owned half a major airline (Ansett), co-owns one of country’s major pay-TV companies, a rugby league, and 60% of the country’s metro, regional and suburban newspapers, from upmarket The Australian, to mass market daily tabloids. ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 24 The pay-TV station Foxtel runs 14 channels, and is co-owned with Kerry Packer and Telstra. The newspaper ownership titles range widely: Daily Telegraph, Fiji Times, Gold Coast Bulletin, Herald Sun, Newsphotos, Newspix, NT News, Post-Courier, Sunday Herald, Sun, Sunday Mail, Sunday Tasmanian, Sunday Territorian, Sunday Times, The Advertiser, The Australian, The Courier-Mail, The Mercury, The Sunday Telegraph, and Weekly Times. NC’s recent move to register in the USA has caused a storm with the Australian Council of Trade Unions, who fear that pension fund values will be undermined once Murdoch no longer falls under Australian auspices. UK Newspapers & Satellite... In the UK NC started out with newspapers. Murdoch had worked in London as a news sub-editor on the famous Daily Mirror. Given a former labour newspaper by the Trades Union Congress, he converted this into The Sun tabloid, which undercut and undermined the Daily Mirror to become a powerful popular influence for right-wing views and mass entertainment. Murdoch also bought the historic Times title, and in 1986, as an overt ally and support to Prime Minister Margaret Thatcher, shocked traditional print unions by opening a new printing press and journalism studio away from the Fleet Street media centre of London. This was done with the collusion of the Electricians Union, ousting the print unions and instituting computer inputting and print setting by journalists. It defeated a massive boycott campaign by the united UK trade union movement (excepting the Electricians, who were briefly suspended by the TUC). This cataclysmic move depended for its success on alternative distribution mechanisms, run by transport and logistics company TNT, originally Australian. Murdoch then created a house brand, buying the News of the World (the sex and crime sensationalist broadsheet), and grew the Sunday Times into the dominant UK sunday paper. Murdoch’s power in the newspaper world meant that even Thatcher could not allow him to buy into terrestrial television. His grand satellite vision dates from these days. Sky is extensive in the UK, the home base of BSkyB and NC’s European centre of operations. BSkyB is Europe’s biggest satellite operation, offering 40 channels and Sky Music Choice for the whole of Europe. Of the 40 channels, 9 are fully programmed by BSkyB, 6 are co-owned, and many more, including historic Granada TV are subject to an ‘economic interest’ by BSkyB, in addition to the broadcasting contract. Murdoch satellite vision started when he bought into a government sponsored satellite company BSB (British Satellite Broadcasting) – originally an offshore, unregulated pirate SATV. After it failed, he eventually set up BSkyB with Vivendi in 1994. Sky Channel was one of the first direct broadcast satellite television services in the world. It was re-named Sky TV following the refusal of the UK licensing authority to allow Murdoch to participate in the UK’s official BSB alliance – which he later achieved, of course. Murdoch was using a Luxembourg based satellite service, and beat BSB by predatory pricing: they had to finance their own satellite. By 1990, BSB was failing, and Murdoch pulled off a merger to form BSkyB. ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 25 News Corp now owns only 38% of BSkyB, but the linked highly protected VideoGuard pay-TV scrambler software programme, called Sky+, is a fully owned NC subsidiary. Though the machinery is licensed out, and some users have added on pay-per-view, the core technology is protected, giving NC virtual software monopoly. Additional subscription fees are payable when digital access to other channels goes via the Sky+ technology. By 2001 BSkyB was in 6 million UK homes, and Murdoch set the same target for the USA. But delivering digital boxes was capital expensive. James Murdoch, who is in charge, faces heavy churn – as much as 50% per annum. ARPU (annualised revenue per user) is targeted at £400 (Sterling UK) but the current figure is around £385. BSkyB is still not a great earner, despite £700m annual turnover. Notwithstanding, for his 70th birthday in 2000 Murdoch launched the final stage of satellite: SkyGlobal. The SkyGlobal project was dependent on buying an Israeli company’s encryption technology, believed to have proved too expensive, in part because it was protected by 90 separate patents. Shares plummeted and SkyGlobal was axed. Hence Murdoch’s current obsession with buying fuller control of DirecTV from Hughes, with its asset of 200 US and overseas channels. Europe Murdoch’s BSkyB has penetrated Europe quite well, alongside small-scale acquisition strategies, but the general view is that no single country can really support two comprehensive pay-TV broadcasters. This is because of subscriber churn rates and experience of price wars undercutting profits. Besides, BSkyB does not make money. France’s Canal Plus – Europe’s first pay-TV operator – has proved very successful in other countries, big media companies like Bertelsmann could always move into advanced digital media, and RTL (the former Luxembourg broadcaster) is the biggest single cross-border group. In Italy, where Berlusconi’s media empire provides a model, Murdoch’s venture into pay-TV – Stream – has not worked, an acquisition move by a Vivendi subsidiary, Telepiu, has stalled, and as a non-European Murdoch was simply not informed about a recent major sport franchise tender. Stream lost $35m last year. But NC claims that SkyItalia – the sole satellite operator in Italy – will soon make a profit. Time will tell, but for the moment Berlusconi remains a virtual television monopolist in Italy. Minor BSkyB and NC interests in Germany and France, and bad experience in Italy can’t be a good base for Eastern Europe, which News Corp says is a current BSkyB target. ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 26 China, India & Asia James Murdoch was put in charge of StarTV in November 2003. It’s target is China, where satellite broadcasting now involves 8 channels under the StarTV brand, including a Disney ESPN sport channel, and one for Japan. The Phoenix brand also broadcasts to China. In India, ISkyB was set up following some regulatory manoeuvres, and there are 4 other channels and a halfowned Siti Cable network. Japan has its own News Broadcasting Japan and SkyPerfect TV. Unusually for NC, StarTV declares its employee numbers as 1,700. It claims 40 distributed services on a variety of platforms in seven languages, able to reach 300 million viewers in52 Asian countries. It has pioneered interactive digital cable TV –Asia’s first – in Taiwan, and has launched the first FM radio service in India. Employee/Hr Strategy NC’s posted employee number of 40,000 is about as much information as anyone on the outside will get about the corporation’s employment structures and policies. The figure is likely to be on the low side, could reflect only US employment, and surely does not include freelancers and contractors. The BSkyB website indicates support for a staff association at the UK Sky call centre, designed to forestall unionisation by the UK’s BECTU trade union. A concern with health and safety policy, disability (new UK legislation has arrived) and gender diversity in employment are recognised. NC has named a new Human Resources Senior Vice President, Ian Moore, who will report direct to Senior Vice President Bill O’Neill. Coming from News America marketing, Moore had been News Corp International Director of Employee Development for worldwide companies. He was previously circulation chief for four UK newspapers in turn. Some Sources Burns, Alex, ‘The Art of Mega-Deals: Rupert Murdoch and Pragmatic Foresight’, www.disinfo.com or alex@disinfo.com. (Australian media commentator and academic). Chenoweth, Neil, London, Secker and Warburg, Sydney: Random House Australia, (2001), Virtual Murdoch: Reality Wars on the Information Superhighway. Goldman Rohm, Wendy, New York: John Wiley and Son, (2002), The Murdoch Mission: the Digital Transformation of a Media Empire. ____________________________________________________________________ Disney & News Corporation; Company Profiles – Page 27