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No NFL? No ESPN Rival

2/06/2005 7:00 PM Eastern

Rupert Murdoch said his expanding TV empire is open to buying back a portion of the voting shares in News Corp. owned by Liberty Media Corp. — but he wouldn’t break the bank to get those shares back.

With the Liberty negotiations in flux, Murdoch offered some more insight into News Corp.’s plans for additional channels, shedding additional light on the planned launch of its Fox Reality Channel and a business channel later this year — and essentially scrapping any plans to create a national sports network that would rival ESPN.

NO REAL TALKS YET

In a Feb. 2 conference call to discuss News’s fiscal second-quarter results, Murdoch said he would be willing to sit down with Liberty chairman John Malone and hash out a deal.

“I’m very confident that we can come to a friendly and fair resolution where we may be able to take back and cancel some of their shares in return for some cash and maybe some assets they would value more than we would value,” Murdoch said. “We’re certainly not going to be giving up any assets which we have really big plans for, nor are we going to have our cupboards cleaned out of all of or cash. I think there is plenty of room to talk.”

Murdoch said no substantial talks between the companies have taken place.

Liberty blindsided News Corp. late last year with a transaction that nearly doubled its voting stake in News, to 17% from 9% .

Murdoch initially shrugged off the Liberty move, but News quickly instituted a poison pill to make it difficult for an outside investor to buy more than 15% of its voting stock.

Last year, Murdoch sent some tongues wagging when he said at an industry conference that he would love to launch an ESPN competitor, but couched that desire with the need to acquire more sports programming — particularly National Football League games — to make any such launch viable.

On the call, Murdoch all but said launching a ESPN competitor is not going to happen.

“Will we be taking on ESPN? We would not do that without a pretty full NFL franchise,” Murdoch said.

News chief operating officer Peter Chernin chimed in that ESPN has exclusive negotiating rights with the NFL until October. “We don’t even have the right to bid against them until they end the formal negotiating period. So, there’s really nothing to say about a sports channel.”

Chernin said plans to launch the Fox Reality Channel and business channel are moving ahead, though, and it’s unlikely either would require a substantial investment.

Fox Reality Channel has been expected to launch toward the end of the fiscal year (on June 30), followed by the business channel later in 2005.

Chernin said he expects the launches of those two channels to have the widest distribution of any new channel News Corp. has ever launched, mainly because of News’s relationship with DirecTV Group Inc. (it owns a 34% controlling interest) and the strength of its existing cable channels.

“The new launches will be at higher sub rate certainly than we’ve ever launched anything, thankfully, to DirecTV, and we are using whatever influence we can bring among our friends the cable operators to get as wide a launch as possible,” Chernin said.

Murdoch said securing carriage in the major big-city television markets would be essential, especially for the business channel.

“That is going to take a little time to negotiate,” he added.

NO DISCOUNTS

Murdoch said News would not sacrifice the potential upside in affiliate fees received from cable and satellite operators for its existing networks to secure carriage for the new channels.

He also warned any operator threatening to drop an existing Fox network in retaliation for those higher affiliate rates.

“Take the Fox News Channel,” Murdoch said. “It would be a very, very brave cable operator who would drop it today, almost at whatever price. It’s got a devoted following of at least 10% of the population and most of them would march on these people.”

Results for the fiscal second quarter were strong, with revenue up 18% to $6.6 billion and earnings up 79.5% to $386 million or 13 cents per share, from $215 million, or 8 cents per share in the prior year.

Growth at the cable operations helped lead the way: revenue rose 10.4% to $624 million and operating income at the cable channels was up 46% to $227 million.

March