by Bruce Page
The administration was dying from poll-tax complications, not just from the derelict measure itself – but from the blustering method it exemplified and the consequent Conservative resistance which for some three years it had seemed sagacious and practicable to conceal. These illusions were sustained (until they became incurable) by the Murdoch papers centrally the Sun, providing from the Falklands to Hillsborough facilities for splashing insults over any target apt to inconvenience the regime. It had all been constitutionally frivolous, and also reckless: the Cabinet’s collective legitimacy had been shattered with the Sun’s aid in 1986, and pretending that no wound existed had naturally made it worse.
Reality’s recrudescence the government’s loyalists attributed to bias showing that the long Thatcher-Murdoch alliance had given a new, absurd meaning to the word. For the offending news – though picked up elsewhere – came primarily from the Independent, whose editor Andreas Whittam Smith and political editor Anthony Bevins were as remote from real bias as practical journalists have ever been.
Whittam Smith had founded the paper in exact antithesis of Murdoch principles, promising readers that its content represented ‘the editorial team’s own agenda and nobody else’s; neither the advertising department’s, nor the owner’s, nor any particular political party’s, nor any business interests’. Bevins hated reporting that was slanted in any partisan direction, and had left the Murdoch Times because he was asked to favour the government. He received an award as Political Reporter of the Year for 1990 – because he revealed there would be a challenge to the Tory leadership. That the story should be a scoop, and require his talent to uncover it, shows how distorted political circumstances were.
The BBC news department rarely seeks to outdo the most adventurous newspaper work, and did not then. But it strives to be thorough, and to report disclosures in other media once checked out by its own experienced staff. Thatcher loyalists saw this as publicising dissidents far better ignored; Independent Television News offended too. And since 1989 there had been a benchmark to set their sins against: Sky News, which Downing Street thought splendidly impartial. Broadcast news can begin by retailing national and international wire-service copy unchecked, and some channels aspire no further. Sky News today has an editorial framework and presentational pizzazz – its competitors take it seriously. In 1990 it was a scratch team exercised more by its own likely collapse than by the government’s collapse. Thus it grappled scarcely at all with the story of the year – and what could show lack of bias better? For Margaret Thatcher, still hopeful of retaining power, Sky was a sturdy addition to the nation’s media.
Negotiations to create British Sky Broadcasting (BSkyB) paralleled the political crisis, and on 29 October Murdoch went to Downing Street to explain things to the Prime Minister. As he recalled it to Matthew Horsman in The Story of Sky, she was showing out a foreign visitor, and said to him, ‘Here is Mr Murdoch, who gives us Sky News, the only unbiased news in the UK.’ Murdoch said, ‘Well you know it is costing us a lot, and we are going to have to do a merger.’ The Prime Minister nodded. And as with the airline and telecom deals in Australia, it was basically that simple.
Still, the hand-stitching was neat. Just then the government was putting the Independent Television Commission (ITC) in place of the Independent Broadcasting Authority (IBA). That was to dilute the public-service tradition, but sufficient remained for both the IBA and its successor to say that the deal might need modifying. The Office of Fair Trading also planned to investigate monopoly implications. But none of them knew – as the Cabinet did – that a five-day ‘window’ would exist before the ITC got control of satellite licences via the Television Act 1990. And within this window the BSB licence passed to BSkyB, with executive control and half the equity in Newscorp. That might have been hard to accomplish with the new law in place. It was one more fait accompli from a friendly government.
To begin with, all Murdoch got was a chance to save his skin (and BSkyB still lost £646 million in 1991). But; more important, he got something he would be able to defend as a monopoly should it become profitable (£271 million in 1998, before the plunge into digital losses). Murdoch would be able to control the access of rivals to the satellite platform – diversity and competition, as ever, kept at bay. It was a remarkable dispensation, based on Margaret Thatcher’s even more remarkable idea of ‘impartial’ news. Newscorp’s media scale and media clout tempt it into expansive gambles – and then help it to escape the consequences. Roughly parallel with the satellite crisis, another such drama occurred in the Australian base territory. Murdoch’s acquisition of the Melbourne Herald group imposed costs which were a dangerous element in the ‘debt crisis’ of 1990-1 – again providing the dispensation which helped Newscorp find a way out.
Murdoch’s problem originated in the interlocked Herald group structure which had once allowed his father to exert personal control over a widely held public company. The Melbourne company’s Adelaide and Brisbane subsidiaries were also its own biggest (though not majority) shareholders. Murdoch’s 1987 purchase of the Herald and Weekly Times Ltd was for A$1.8 billion, a price elevated so far above market values that the existing directors had to recommend it to their shareholders. Two-thirds of the offer was in Newscorp shares – advantageously damping down the share price, and thus the payouts due to Michael Milken’s punters (see Chapter 11 above). But a third was in cash, which drove Newscorp debt to the edge of banking tolerance.
It was a deal in the spirit of a high-rolling period, and abruptly one of the high aces joined in: Robert Holmes à Court offered for the 56 per cent publicly held shares in Queensland Press – the Brisbane company. Having paid a vast price for the Herald group, Murdoch might have to share control with a notoriously free spirit. He continued a steamroller approach, countering Holmes à Court with an offer again so far above market price that the Queensland directors had to agree. But this added A$600 million to the cost of the deal for Newscorp, exceeding even the Commonwealth Bank’s risk-appetite.
The problem was circumvented by making the Queensland buyout through Cruden Investments, Murdoch’s personal vehicle inherited from Keith. It did not have A$600 million, but it got bank credit against the A$1.5 billion value of its controlling share in Newscorp. Then, in the October 1987 stock-market crash, the Commonwealth Bank demanded repayment. The cash was provided by Queensland Press, which bought in secret – a sufficient tranche of Cruden’s Newscorp shares, at roughly 40 per cent above the existing market price. To do so it raised an expensive, long-term loan. For one company to provide clandestinely the finance for its takeover by another would be illegal under American or British law. In this respect the Australian company code was then hazy, though it was actually undergoing the reforms which now make it consistent with US—British practice.
The debt crisis was caused by a huge expansion-and-acquisition spree by Newscorp between 1986 and 1989, the Herald and Sky being just two of the more dramatic examples. Once it was realised that Newscorp could survive only by drastic rescheduling of its debts, there were significant differences in market perception as between Australia, Britain and the US. Everyone knew that the essence of the cure was a debt-override agreement signed in February 1991, forgiving all existing debt in exchange for a new three-year repayment schedule – highly profitable to the syndicate of creditor banks, led by Citicorp in the US and Commonwealth in Australia. Outside Australia not many bankers, let alone lesser souls, realised that debt relief was required for Murdoch personal companies – and especially for Cruden – as well as for the Newscorp business. The aim was not just to revive the prostrate empire, but to resecure simultaneously the system of personal governance which had enabled Murdoch to plunge it into debt.
The paradox of debt-default clearly fills an essential social need, and orderly provision for it may well be capitalism’s greatest achievement. But it is less clear that society is well served by leaving the authors of default in control of assets they have accumulated by recklessly embra
cing it. Bankers’ lectures on ‘moral hazard’ are usually delivered when such a course of events is made obvious. In this case it was adroitly concealed. Even so, the debt-override agreement encountered reluctance, because some American bankers did not like what they heard about the element of Murdoch personal debt contained within it. They would have liked the state of affairs even less had they been aware that an extra A$600 million properly belonged to that part of the tally.
During 1990 the Australian Securities Commission (ASC) was established, as an approximate, much overdue equivalent to the SEC – a response to the lunatic doings of the 1980s. One of its earliest actions was to examine the Queensland Press purchase of Newscorp shares, and in March 1991 the Commission’s lawyers concluded that Murdoch had taken over Queensland by making use of Queensland’s own financial resources. In any sensible way, so it had. Under the reformed corporate code, powers now existed for ordering the deal to be unravelled – making Cruden repay A$600 million – and the Commission began to consider the case for doing so.
Had the facts of the matter become public – and the prospect of ASC action been reported – then the debt-override agreement, a touch-and-go exercise anyway, would have been likely to blow up. And most of the details were reported to the magazine Australian Business, through its Brisbane correspondent Neil Chenoweth. A two-page spread was prepared for the March issue, but was pulled on the decision of the editor, Trevor Sykes, one of Australia’s best-known financial journalists, and something of a mentor to Chenoweth.
Australian Business was not owned by News, but it operated in a market under Murdoch’s monopoly influence. (Most definitions of monopoly use a market share well below Newscorp’s 70 per cent control of Australian newspapers.) Chenoweth had no doubt that the likely consequence, had his editor chosen to go ahead, would have been to unravel Murdoch’s control of Newscorp – putting the override into default and making Murdoch sell News shares in a hostile market. But he also knew what the certain result would be in any lesser outcome. As he put it to me, ‘I saw myself becoming an ex-journalist called Neil Chenoweth.’ He accepted Sykes’ decision, and made no effort to take the story elsewhere – either to Fairfax or to any overseas publication. Chenoweth has since written a valuable book, Virtual Murdoch, containing a history of the Queensland Press affair, but nowhere mentioning that the secrecy critical to the affair could and should have been dispelled in 1991, when it constituted vital disclosure. It is scarcely possible to imagine the suppression taking place in an American context. (Enron attempted diligently to stop Bethany McLean of Fortune from pricking its bubble, but did not succeed.)
Murdoch’s lawyers fought a savage, unpublicised battle with the ASC lawyers until the mid-1990s, their aim being to have Queensland certified as a routine investment decision. They only half succeeded, but their campaign inhibited all action until ASC’s overworked staff let the matter drop. The Newscorp case was that Keith McDonald, the News retainer in charge of Queensland, was a coolly independent figure who simply made an independent investment decision in the best interests of his company. But there are no coolly independent figures in the Murdoch empire. His real attitude – and his desire to shield his boss from piddling restraints – was expressed in a claim that ‘men of integrity’ like Murdoch would always make ‘decent, wholesome newspapers’ unless held back by ‘fool laws’ specifying that ‘you can’t own more than this or that’.
The debt crisis appears in News folklore as something akin to a small boatbuilder fighting off hard-hearted bankers: they were asking us to put our company into liquidation, Murdoch said indignantly. This was hyperbole. What was saved by the bizarre supra-national immunities of Newscorp was not the ‘wholesome’ businesses within it, but Murdoch’s dominion over them.
Chapter 11 showed that Murdoch’s operation of the Fox network rested on his becoming personally an American, while retaining an Australian corporate identity. Deformities in the legal skeleton started to show through Fox’s corporate pelt in 1993, but by the time they became conspicuous in 1995 Murdoch’s Washington power was massive enough to have them patched over without any lasting ill effect.
A lawyer for the National Association for the Advancement of Coloured People first spotted an SEC filing in which Newscorp listed Fox – supposedly an independent US company – as one of its subsidiaries. Argument on the issue aborted a TV-licence application in Philadelphia, and subsequently Fox asked the Federal Communications Commission to ‘clarify’ matters, repeating that 76 per cent of Fox voting stock was held by Murdoch and other US citizens. Newscorp admittedly owned some equity. However, ‘[its] precise dollar value … at any given time would appear to be immaterial’. But the FCC staff, having been asked, persisted –and found that it was altogether material. News owned 99 per cent of the real capital, and all real voting control. This, after pressure from the NBC network and other sources, led Reed Hundt, the Clinton-appointed FCC chairman, to launch an investigation in 1995 which might – legally – have revoked Fox’s licence.
The counter-attack by Murdoch’s Republican allies was judged by observers to be a classic of Washington lobbying (or ‘degradation of the legislative process by money’, as Hundt put it). The conclusion of the Commission’s Republican majority was as remarkable as Margaret Thatcher’s thoughts about unbiased news.
It was agreed that News Corporation, a foreign company, had indeed owned Fox ever since 1985. And Fox had not revealed until 1994 that ‘alien ownership’ was in ‘far excess’ of the statutory benchmark. But the Commissioners decided that Fox had not ‘intentionally lacked candor’, had ‘reasonably relied on the opinion of its legal counsel’, and did not know of any ‘duty to disclose the amount of equity capital contributed by aliens’. Staggeringly, they could not imagine ‘any motive for [Fox] to conceal the facts of ownership in 1985’. They were satisfied that Rupert Murdoch, an American, controlled Fox. Naturally the circumstance that he controlled it via a highly idiosyncratic, supra-national structure enabling him to borrow more money and pay less tax than American competitors – was, similarly, beyond their imagining.
Murdoch’s successes, observes Andrew Schwartzman of the Washington-based Media Access Project, ‘are due to political and regulatory help as much as they are to smart investment decisions’. In this context, that is surely a mild assessment. It underlines the point that special market conditions are not an occasional luxury, but a basic necessity for Newscorp.
The next year in Britain was the lead-in to a general election, which it would clearly be difficult for John Major and the Tories to win. The delicate question for Murdoch was to decide if and when to switch his impartial newspapers over to the Labour Party. The stages are recorded in volume three of the Wyatt diaries, and are poignant because the author – a man of loyalties if nothing else – felt confident through 1993-4 that Murdoch would stick to Tory principles and see Major through to a hard-fought victory.
Thursday 15 September 1994 . Spoke to Rupert at about twenty past eight in the morning.
I said ‘I think Major’s doing very well.’ Rupert wasn’t quite so sure. Anyway he’s not going to withdraw his backing.
Doubts, however, occur from time to time (in fact there are too many fluctuations to quote conveniently): 24 November 1994 . I know you’ve been flirting with [Tony] Blair … Are you not going to back Major any more? I will if I can [a complaint here about Major’s ‘weakness’].
There are bad moments in 1995 over the administration’s plan for cross-media restrictions. But they are less than swingeing, and by the autumn Murdoch is relaxed:
23 September 1995. Rupert didn’t exactly promise to back Major but as good as on the whole …
Then some personal alarm as Blair seems to make serious progress with Murdoch: 1 December 1995 . He [Murdoch] doesn’t seem to value what I did for him. I had all the rules bent for him over the Sunday Times and the Times when he bought them … Rupert’s almost coming out for Blair …
[Wyatt thinks Blair has agreed
to protect BSkyB from monopoly investigations, and fears his own columns are being cut back because he criticises Blair.]
All is not lost, however, for Murdoch wants to discuss the Broadcasting Bill with the Prime Minister:
14 February 1996. I think he was impressed by Major in a way he hadn’t been before.
But there is no happy ending: Monday 17 March 1997 . Rupert has behaved like a swine and a pig. He doesn’t like backing losers and he thinks Major will lose. Tonight the great announcement has come out that the Sun is backing Blair and there’ll be huge headlines across the front page tomorrow …
Irwin [Stelzer] says, of course, that he’s not the Rupert we used to know. It’s striking that Wyatt – like Harry Evans, like others – was blind to a record which made the outcome obvious. It is blindness of a type that Machiavelli notices. A prince should not break faith, but need not worry about a perfidious track-record preventing reuse of the tactic. Present necessities’ in matters like politics ensure that ‘he who seeks to deceive’ can always find an individual ‘who will allow himself to be deceived’.
Murdoch’s first significant campaign under the Blair regime was the trashing of the Davies Report on digital television. At its core the Davies case was that creation of a universal and diverse digital system – popular enough to achieve the desired analogue switch-off – would be frustrated by assigning the commercial sector a decisive role. Though Davies put it a great deal more diplomatically, the report was coloured by a suspicion that the skills of Britain’s commercial-TV sector have withered considerably after years of ideologically driven wheezes calculated to accommodate talents no greater – even less sometimes – than Murdoch’s.