The unsolicited $80-billion (U.S.) takeover bid by 21st Century Fox Inc. for Time Warner Inc. shows that, at 83, Fox proprietor Rupert Murdoch has lost none of his taste for wheeling, dealing and risk-taking on a grandiose scale. But there is more method than madness at work here.
Fox, Time Warner and other traditional media powerhouses are facing a growing threat from the Netflixes, Amazons and newer digital players streaming original content directly for modest fees to whatever devices people choose to view it on. The old cable and satellite-TV subscriber model that ensured a steady flow of monthly income is in the midst of a long decline, and broadcasters face the same challenges as newspapers in retaining advertisers willing to pay premium rates.
But content matters more than ever, and the companies that produce and control more of the most sought-after programs will remain in the driver's seat, no matter how people receive it. Which is why Mr. Murdoch has his sights trained on certain valuable Time Warner properties that are most likely to thrive in the new universe – specialty cable channel HBO, which has developed an effective streaming strategy to counter Netflix, and a slew of live sports programming delivered through subsidiary Turner Sports. This includes National Basketball Association and Major League Baseball games, a chunk of the hugely profitable annual NCAA basketball tournament known far and wide as March Madness, and most of the PGA golf championship.
Mr. Murdoch already controls a strong global portfolio of sports properties. The additional assets would put him in a better position to go toe-to-toe in the U.S. market with Walt Disney Co.'s industry leader ESPN.
As for HBO, analysts view it an an underexploited asset whose best-known series such as Game of Thrones can reach bigger international audiences and help Fox establish a strong beachhead in online video.
"It's really now HBO that's the driver [of the attempted acquisition], and I think that's the Holy Grail that Rupert had his eye on," long-time industry analyst Porter Bibb said in a Bloomberg radio interview. "It's a huge money maker with a huge potential. And probably the only Netflix killer that's in the world right now."
After considering the Fox offer for several weeks, Time Warner flatly rejected the overture, at least partly because 60 per cent of the amount would have been paid in non-voting stock. That would effectively consign existing shareholders to second-tier status in 21st Century Fox (along with most other investors in a Murdoch company).
"There is significant risk and uncertainty as to the valuation of 21st Century Fox's non-voting stock," Time Warner said in a statement, which pointedly questioned Fox's ability "to govern and manage a combination of the size and scale" of the two media and entertainment giants.
But Mr. Murdoch is famous for getting what he wants – and he really wants HBO and those precious sports assets – so he can be expected to sweeten the pot. This not merely a matter of an ancient gazillionaire searching for one last spectacular deal before sailing off into the sunset. It's about a savvy media baron looking for ways to safeguard what he has already built from coming apart in the revolution sweeping through all parts of his far-flung empire.