Magazine Issue: October 26, 1998

The Rules According to Rupert

Flouting tradition and betting billions, Rupert Murdoch built the Fox network and made News Corp. into a global media giant. But his shareholders are still waiting for their payoff.

Marc Gunther

Investment banker Herbert Allen's famed summer camp for media moguls wasn't the only high-powered gathering last summer in Sun Valley, Idaho. The week after Allen & Co. left town, 300 News Corp. executives convened for four days of corporate meetings, informal talks with business celebrities like Michael Milken and Yahoo's Jerry Yang, and relaxation, including a preview of Fox's summer gross-out movie, There's Something About Mary. The highlight? An uncharacteristically emotional speech by Rupert Murdoch, News Corp.'s 67-year-old chairman and CEO.

Murdoch traced the history of his global media empire, recalling enemies vanquished and lessons learned, alluding even to the pain of his impending divorce. It all began, he recalled, with a provincial Australian newspaper, the Adelaide News, which he inherited from his father. The News wasn't even the top paper in town; its prospects were so bleak that the opposition paper threatened in writing to drive 22-year-old Rupert and his mother out of business unless they sold out at a bargain price.

Recalled Murdoch: "I then did something that I like to think set the tone for the behavior of our company: I broke the rules of the establishment and published our opponent's offer on the front page under a headline that screamed, Bid For Press Monopoly! And I included in the story a photograph of the confidential letter to my mother. That ruined any chance I might ever have had of being invited into the better clubs of Adelaide." But he won the ensuing newspaper war and later gobbled up his rival.

That's Rupert Murdoch for you: breaking the rules, defying convention, waging war by any means necessary--and usually coming out on top. To Murdoch, the business world is a jungle, with no clearly marked trails and danger lurking behind every tree. He intends to become its lion king--take that, Michael Eisner--and his raw hunger for power has served him well: News Corp. is one of the world's great media empires, the most global of the entertainment giants and the only one created, built, and thoroughly dominated by one man. The Times of London, Bart Simpson, Asia's Star TV, Tommy Lasorda, the New York Post, Ally McBeal--all, ultimately, answer to Murdoch. His two most formidable rivals, Time Warner's Gerald Levin and Disney's Eisner, sit atop bigger companies, but they serve at the mercy of sometimes discordant shareholders. Not so Murdoch, whose family controls 30% of the voting stock of News Corp. and who answers only to himself. His drive, daring, and values define News Corp., for better or worse. Though he scorns the British monarchy, Murdoch has anointed his eldest son, 26-year-old Lachlan, his heir apparent, while his second-in-command, Peter Chernin, is an absolute loyalist. Indeed, Chernin told the company brass in Sun Valley: "You know those 'Be like Mike' commercials? We have to be like Rupert--we have to institutionalize the imagination, nerve, and vision he represents."

But what does it really mean to be like Rupert? The question warrants a close examination as Murdoch prepares to sell a substantial piece of News Corp. to the public this fall. With an anticipated value of $3 billion, it could be the biggest initial public offering ever on Wall Street. The offering will consist of as much as 20% of a new entity called Fox Entertainment Group Inc., which includes some of Murdoch's crown jewels: the Fox TV network, the 22 Fox TV stations, the Twentieth Century Fox movie and TV studios, interests in nearly 30 national and regional cable networks, the Los Angeles Dodgers, and minority stakes in the New York Knicks, New York Rangers, Los Angeles Lakers, and Los Angeles Kings. Left out of the IPO are the company's newspapers, magazines, books, supermarket coupon business, and TV and sports properties based outside the U.S. News Corp.'s TV Guide, which is being merged with Tele-Communications Inc.'s Prevue cable channel, also falls outside the offering.

With the IPO, Murdoch hopes to create a clean new vehicle for investors who want to buy into the U.S. entertainment industry. His Fox Inc. properties fit together beautifully--and, unlike the labyrinthine News Corp., they are relatively easy to understand. Fox produces and owns TV shows, movies, and sports events that it distributes over Fox-owned broadcast and cable networks, creating the model that other TV companies want to emulate. The Fox assets are also the centerpiece of Murdoch's global strategy, which is designed to make News Corp. the world's leading television company, a vertically integrated behemoth that owns content and distribution in the U.S., Europe, Asia, Latin America, and Australia. Murdoch isn't deterred by the risks of expanding into volatile emerging markets. If he succeeds, he will look like the smartest media mogul around. He's already shown that he's the most aggressive. "Rupert wants to rule the world," Viacom CEO Sumner Redstone once said, "and he seems to be doing it."

There's something about Rupert, though, that makes people nervous--competitors and investors, certainly, and the rest of us as well. Murdoch has a disconcerting habit of changing the rules of every game he plays. In television, in sports, in newspapers, in nearly everything he does, Murdoch bucks tradition, ignores his critics, and places bets so bold that they rattle the establishment. Sometimes they prove foolish; more often than not, they seem to pay off. And he never seems to stop: Whatever jackpot he wins, he puts right back on the table.

Partly for that reason, News Corp. stock has been a dog. Investors haven't forgotten that Murdoch's penchant for big risks nearly drove the company into bankruptcy in 1991, after he overpaid for TV Guide and incurred huge startup costs at BSkyB, his British satellite venture, which is now profitable. Since then the company's revenues have grown steadily, reaching $12.8 billion in fiscal 1998, which ended June 30. But as Murdoch has continued borrowing heavily and issuing new shares to build his empire, News Corp.'s net income has been relatively flat. News Corp. trades at lower multiples than other media giants, and it missed most of the bull market's run: In the past five years News Corp. ADRs have grown by just 30%, while the S&P 500 has grown by 133%. Media investors would have done better to buy just about any of Murdoch's competitors: Disney, Time Warner, the New York Times Co., even CBS.

It's no wonder that institutional investors such as State Street Research have been prodding News Corp. to do something to boost the stock. Their discontent led to the Fox IPO. The idea is to force the market to place a value on the attractive Fox properties, thereby unlocking the so-called hidden value in the rest of News Corp. There is a problem, though: Fox Inc. doesn't appear to be any more of an earnings powerhouse than News Corp. has been. In fiscal 1998, Fox Inc. generated $7 billion in revenues and $663 million in operating income--but just $176 million in net income, after deducting interest charges, taxes, and losses at cable networks. (Without Titanic, net income would have sunk even lower.) What's more, Murdoch keeps plunging into costly ventures--$1.9 billion for Pat Robertson's cable channel, $1.5 billion for regional and national sports channels, $4.6 billion for NFL broadcast rights. Investors in Fox Inc. will have to foot some of the bills.

Murdoch's past investors have suffered for other reasons too. News Corp. is frightfully complex, vexing analysts with its disparate collection of movie, TV, newspaper, and publishing assets, some stashed in joint ventures, others exposed to foreign markets, and all of them valued under liberal Australian accounting rules that can magically turn losses into profits (see box). More fundamentally, Murdoch's detractors argue that he treats News Corp. as his personal fief and lacks a strong commitment to shareholder value. (Just once, in his 5,000-word Sun Valley speech, did he refer to his investors, and that was only in passing.) He doesn't even seem to care much about his own wealth; the night of the 1987 stock market crash, an associate recalls, he sat down to dinner and quipped, "I hope one of you is picking up the check, because I lost $1.2 billion today." They went on to enjoy their meal as if nothing untoward had happened.

To back up the charge that Murdoch lacks fiscal discipline, critics point to such money-losing assets as the startup Fox News Channel and the New York Post, which News Corp. held on to long after other public companies like Tribune and Times-Mirror fled the city's bloody tabloid wars. That's partly because Murdoch, a newspaperman at heart, made his fortune in print and believes he can turn around the Post, with new color presses coming soon. But it's also because the paper serves as his personal megaphone in the world's media and financial capital, one he's willing to use to reward his friends and attack his enemies.

This is another reason Murdoch has not been given the esteem that should be his due as a visionary and dealmaker. Sure, he's built a great company, but he's shown little regard for the responsibilities that go with his power. It's not just his screaming tabloids that upset people, either. Synergy, for Murdoch, means using the Post to boost his conservative political allies, promoting Fox TV properties in his TV Guide, or ordering HarperCollins not to publish a book by the former governor of Hong Kong for fear of offending the Chinese government and hurting his TV business in China. And while building Fox from scratch into a fourth network is a gutsy achievement, Murdoch and his programmers have done it partly by littering prime time with crude sitcoms like Married With Children and violent reality shows like the World's Wildest Police Videos that would never pass muster with the Big Three. Such is the law of the jungle.

To be sure, News Corp. has no monopoly on bad taste: Time Warner and Viacom show South Park on Comedy Central, GE's NBC broadcasts Jerry Springer's bilious talk show, and CBS brings us the execrable Howard Stern on radio and TV. And Fox today broadcasts classy fare like The X-Files and Party of Five. In an interview with FORTUNE, Murdoch denies that Fox has lowered standards in prime time. "There've been a few stunts, like When Animals Attack, but I don't think that's any different from Shark Week on the Discovery Channel," he says. Married With Children, he says, "embarrassed me at times, but you forgive a lot of things if they're really funny." When it comes to editorial input, Murdoch cheerfully concedes that he's more hands-on than most U.S. owners and publishers, although he denies any impropriety. "I don't get involved, certainly, in the details," he says. "I do get involved in the choice of editors."

Murdoch is less blithe about criticism of News Corp.'s stock price. "I must say I've been very remiss about that," he confesses. "I've always taken the view over the years that the stock price would look after itself if we could earn the profits and make the company sound and grow. But now that we've been in a position to do a couple of takeovers using stock, it's driven home the lesson to me that it's very expensive to have a lowly rated stock." (Notice that even now, he sounds more worried about his next deal than about his long-suffering shareholders.) Murdoch believes the market has penalized News Corp. for its complexity and especially for his long-term approach to building value. "We could have shown higher profits, but we've always put our profits back into starting things--Fox News, or Sky, or Star TV in Asia, or our partnerships in Latin America," Murdoch says. "We don't get credit for those things until they actually turn a profit. Some take a couple of years. Some take six or seven years. We've never been frightened to take a long-term view." Fair enough--certainly at Fox he's built a powerful machine, transforming the TV business in the process. But you can't blame his investors for asking when their payday will come.

Maybe Murdoch has pursued vertical integration with a vengeance because he grew up in newspapers. There the strategy is simple--you own content and distribution, tell compelling stories, and rake in circulation and advertising dollars. In 1985, Murdoch set out to do the same in Hollywood, beginning to assemble the assets of the Fox Entertainment Group that will now go on the block. He bought the Twentieth Century Fox studio from oilman Marvin Davis for $575 million, and soon after acquired six big-city TV stations from John Kluge's Metromedia for $1.9 billion. Even Barry Diller, who was running Fox, thought Kluge got the better deal, but Murdoch and Diller needed the stations to launch a fourth TV network--although they had only a vague notion of how to do so. Almost everyone thought they were crazy, since the Big Three broadcast networks were already in decline.

"The most amazing thing to me, when I first met Diller and Murdoch, was they had done no study whatsoever to see whether or not it was possible to build a fourth network," recalls Jamie Kellner, Fox's first president, now CEO of the WB. "There was no business plan, no model. It was just guts." Is that horrifying or admirable? "It's both," Kellner says. He's right--unnerving as Murdoch's swashbuckling approach to business may be, his willingness to bet big on his instincts gives him an edge over cautious competitors. News Corp. has no strategic planners--that's the job of Murdoch, Peter Chernin, and Fox Television CEO Chase Carey--so decisions get made quickly.

When Diller left in 1992, Murdoch's key man at Fox became Chernin, a well-regarded Hollywood executive who ran the TV network and then became chief of the movie studio. Even Chernin admits it took a while to figure out the Fox formula--the network at first aired utterly conventional shows starring performers like Patty Duke and George C. Scott. Gradually, though, programmers realized that the way to attract young viewers with no allegiance to the Big Three was with shows that broke the mold, like Married With Children, In Living Color, and The Simpsons. "We're in the attention-getting business," says Chernin, 47, a former book publicist who knows the value of buzz. "You have to be distinctive and compelling and unique and a risk taker." Fox eventually built a strong identity and a brand--a breakthrough, since the other broadcast networks, with their mix of mass entertainment, news, and sports programming, hadn't branded themselves.

"Branding has never been more important," says Peter Roth, the network's top programmer. "It says to the viewer, to the community, to the people here--this is who we are. We dare to be different. We create trends, we don't follow them. We are alternative. That message is so powerful and it has such an impact that even if it is, to some degree, hyped up, trumped up, it is still valuable." Hollywood writers and producers like working for Fox, saying the network gives them the freedom they covet. Simpsons executive producer Matt Groening says, "I don't think The Simpsons could have been done on any network other than Fox. Fox takes chances; the others don't."

Curiously, Murdoch was among the last to buy into the idea of a youth-driven, branded network. He pushed to broaden the Fox audience, most dramatically when he outbid CBS for NFL football games in 1994, a move that still rankles rivals, who say Fox ruined the TV sports business by overpaying. Murdoch wanted to make Fox No. 1 not just among the young but with everyone. He hired programmer John Matoian from CBS, of all places, and inked a deal with old-fashioned Hallmark to make TV movies. The brand blurred, and ratings barely grew, even with the NFL.

Now Fox seems to be back on track. Thanks to such hits as The X-Files, Ally McBeal, and King of the Hill, Fox passed ABC during the 1997-98 TV season to become the No. 2 network among viewers 18 to 49, its target audience and the demographic group prized by sponsors. In last spring's upfront sale of prime-time advertising, Fox got 8% to 9% price increases, the highest of the Big Four. "Fox is on a roll," says Merrill Lynch media analyst Jessica Reif Cohen. "They've got tremendous momentum."

Murdoch wants more. "Fox will be the No. 1 network, and it won't be long," he told local affiliates last summer. He'd love to win the Nielsen crown this season, and, as usual, he has put his money where his mouth is. Fox owns the rights to the World Series and the Super Bowl, and Murdoch paid Universal Studios a record-setting $80 million for broadcast rights to Steven Spielberg's The Lost World, ahead of its pay-TV release. The trouble is, Fox's new fall shows are underperforming; a much hyped but crude sitcom, Costello, tanked in its premiere, and an offbeat comedy, That '70s Show, has faded after a bright start. In the TV season's opening week, Fox finished a dismal fourth in its target 18-to-49 demo. Besides, NBC has such a big lead that only the utter collapse of the Peacock would open the door for Fox to lead the ratings this season.

Financially, Fox Inc. still lags well behind both ABC and NBC--though the strength of its TV stations and the growth of the Twentieth Century Fox TV studio should help close the gap. Disney-owned ABC generated $1.3 billion in operating income last year, most from its TV stations and ESPN, while NBC generated about $1 billion. By comparison, Fox Inc. made $663 million, a figure that includes its film studio earnings. Fox's biggest profit center, by far, is its group of 22 owned and operated TV stations, which cover 40% of the country--more than stations owned by ABC, NBC, or CBS. To his credit, Murdoch was among the first to see that owning more TV stations is important. Stations enjoy 50% profit margins even as the networks struggle to break even or make modest profits.

Where Fox really outshines its network rivals is in the TV production business. Unlike ABC, CBS, and NBC, which until recently were hamstrung by legal limits on how much of their programming they could own, Fox as a startup network could produce as many shows as it wanted --once again, playing by its own rules. The result is that, unlike the Big Three, Fox produces and owns most of its hits. The Fox studio is also a major supplier to other networks, producing Dharma & Greg and The Practice for ABC, Chicago Hope for CBS, and Buffy the Vampire Slayer for the WB. Murdoch and Chernin say that Fox has become the top TV studio in Hollywood, although Warner Bros., which owns ER, Friends, and Drew Carey, would strongly disagree.

Fox built its TV studio in true Murdoch style--with a bold idea and an open checkbook. It was Chernin's idea to build up the studio after he saw other media giants marry studio and network assets: Disney merged with ABC, while Warner Bros. and Paramount launched the WB and UPN. With so many channels to feed--not just Fox, but satellite platforms around the world--News Corp. simply could not depend on its competitors for content. "We needed to be extremely aggressive about trying to control as much television creative talent as possible," Chernin says. In particular Fox needed to develop comedies, where the studio had lagged.

Chernin devised a plan that Murdoch approved in a snap. Fox executives drew up a list of ten top comedy writers, then quietly went after them with offers to double or triple their salaries. Writers got $10 million to $15 million contracts to come up with ideas for new shows. Before the other studios could react, Fox snared a half-dozen top writers. "We knew we were going to screw up the business a little," Chernin admits. As usual, Fox's rivals grumbled that Murdoch had overpaid, especially when comedy writers all over town began asking for raises.

But Fox's big deals are starting to pay off. Chuck Lorre, a writer signed in the raids, went on to create Dharma & Greg, last season's top-rated new comedy. Other Fox shows likely to deliver syndication profits downstream include Ally McBeal, Buffy, and The Practice; recently King of the Hill was sold for close to $4 million an episode. The TV studio is only modestly profitable now because it has a slate of 15 prime-time shows that are being produced at a deficit, but analysts say profits from syndication should top $200 million a year by 2000. Chernin promises: "Our studio is going to be the great gold mine inside this company in the years to come."

All this should position Fox to capture profit at each step along the TV value chain. In the best-case scenario, the studio creates hits like The X-Files and The Simpsons and shows them on its broadcast network, in syndication at its TV stations, on cable's FX entertainment channel, on satellite channels worldwide, and, in the case of The X-Files, even as a theatrical movie. At a minimum, having these vertically integrated assets provides good defense: Fox wants to avoid the pain that NBC now feels after being forced to pay $13 million per episode to Warner Bros. to renew top-rated ER. Since it's hard to predict where profits will be made in the future, the Fox strategy is to be everywhere. "If you look at the entire chain of entities--studios, networks, stations, cable channels, cable operations, international distribution--you want to be strong in as many of those as you can," Chernin explains. "That way, regardless of where the profits move to, you're in a position to gain." Of course, you're also in position to lose if you make Bulworth, launch a TV talk show with Magic Johnson, or overpay for the NFL.

Still, it's this desire to be everywhere as audiences fragment that explains why Fox has expanded so aggressively into cable programming, at such expense. Since 1993, Fox has built or bought cable channels in every major content category: FX in entertainment, Fox Sports Net in sports, Fox Family Channel in children's and family shows, and Fox News Channel in news. These cable channels don't measure up to industry leaders like Viacom's MTV Network or Time Warner's HBO, TNT, and CNN, but Fox has the potential to become a major cable programmer. Again, Murdoch's daring and deep pockets have made the difference--although investors, as usual, won't see an immediate payoff.

Take sports, where Fox's growth has been explosive. Fox Sports didn't exist five years ago. This fall Fox broadcast Mark McGwire's 62nd home run, and looks forward to the World Series, NFL playoffs, and the Super Bowl. True to form, Murdoch outbid others for big events, a cornerstone of broadcasting. What's more impressive here is the way Fox became the dominant player in local sports, by accumulating stakes in 22 regional sports networks that collectively own the local TV rights to 70 of 76 Major League baseball, NBA, and NHL teams. Remarkably, Murdoch and Chase Carey, Fox's 44-year-old dealmaker, accomplished what cable guys like TCI's John Malone and Cablevision's Charles Dolan could not: They stitched together enough regional sports channels to create a national network, built around home-team loyalties. National programming produced by Fox is wrapped around the Yankees games in New York, the Bulls in Chicago, the Bruins in Boston.

This business probably should belong to ESPN, but Murdoch and Carey outmaneuvered Michael Eisner's team. First they joined forces with Malone to form a joint venture known as Fox Liberty Networks, a deal sweetened with about $350 million of Murdoch's cash. Then the Fox guys approached Dolan, looking for a way to incorporate Cablevision's regional channels, including two must-have channels in New York. By this time, Disney was onto Fox's game and made a $1 billion offer to Cablevision. But Carey put together a complex partnership that gave Cablevision a stake in the new venture plus $850 million in cash. Until then, TCI and Cablevision had "two halves of a $100 bill" that they couldn't put together, says Cablevision executive Marc Lustgarden. "Fox had the key ingredients," he says. "They brought money. And they brought programming and the Fox name and its unique place in sports."

The game wasn't quite won yet: Fox still had a big hole to plug in Detroit, where the auto companies spend vast sums on TV sports. The problem there was that the Washington Post Co., which owned the regional sports channel, called PASS, refused to sell. So the Fox team called a trick play--they outbid the Post Co. for the cable rights to the Stanley Cup champion Detroit Red Wings and the NBA's Detroit Pistons, elbowing PASS off the field. The Post still owned its channel, but it had no games to air and little choice but to sell its remaining assets to Fox, at a bargain price.

Such aggressive tactics are expensive in the short run. The Fox Liberty partnership won't generate profits for years, because it borrowed about $1.5 billion to invest in the regionals, acquire sports rights, and launch Fox Sports Net, the national backdrop service. On an operating basis, though, the venture turned cash-positive this year, and prospects for growth are bright. Local teams usually attract higher cable ratings for their games than ESPN does for national events, and sports remains the premier vehicle for advertisers who want to reach men. Says Murdoch: "I think it's got a bigger future than ESPN." That's a stretch, perhaps, but this venture looks like a winner, if not today, very soon.

The TV sports business is so important to Murdoch that he paid $311 million for the Dodgers, who play a sport he barely understands. What he does know is that he wants to control content, and the Dodgers are all but essential for Fox's Southern California sports networks. Through joint ventures, Fox has a voice in deciding where the Lakers, Kings, Knicks, and Rangers are seen too, virtually ensuring that they won't show up on a competitor. What's more, while Major League baseball now sells its foreign TV rights as a package, Murdoch could find a way to put his Dodgers on News Corp.'s Star TV or Sky Latin America before long. Baseball should be very, very good to Fox.

But potential investors in the new Fox Inc. will want to take a close look at Murdoch's news and family channels. Both operate in crowded and difficult programming arenas, where creativity and credibility count for more than deep pockets.

In theory, the Fox Family Channel makes sense. The Fox network built a strong kids' franchise with shows like Mighty Morphin Power Rangers, becoming the top-rated broadcast network for kids almost overnight. To extend into cable, Fox Kids Worldwide, a fifty-fifty partnership with Saban Entertainment, last year bought Pat Robertson's International Family Entertainment for a staggering $1.9 billion, a full $350 million more than Disney's competing bid. What Murdoch and his partner Haim Saban got was a sleepy cable network called the Family Channel, with broad reach into 72 million homes but mediocre programming.

They've given it a makeover and relaunched it as Fox Family Channel. What's it showing? New versions of Captain Kangaroo and The Addams Family. "It's going to take time to get the programming right," Murdoch says. "It took Nickelodeon ten years." The trouble is, Nickelodeon and the Cartoon Network got there first, and the television marketplace for kids and families is saturated. What's more, you can't buy hit shows for kids the way you can buy sports events; you have to develop them, and Fox's broadcast ratings among kids tumbled after its star children's programmer, Margaret Loesch, left last year. Finally, the Fox brand isn't associated with family values--to put it mildly.

Wholly-owned Fox News faces even stiffer challenges. It's competing against well-entrenched broadcasters ABC, CBS, and NBC as well as the cable market leader, CNN, and MSNBC, the NBC-Microsoft joint venture, both of which boast wider distribution, stronger programming, and better-known news personalities. In news, as in family fare, the Fox brand doesn't mean much; despite years of trying, Fox's broadcast network has never developed a successful news program. With no unique programming to offer, Fox had to pay cable operators as much as $10 per subscriber to get them to carry the news channel. The result is that Fox News generated a paltry $72 million in revenue in fiscal 1998 and lost $96 million. But Murdoch loves news, so he's expected to stay the course.

The IPO investors will be buying into the movie business too, and they'll just have to accept the unpredictability that inevitably goes with it. Twentieth Century Fox is coming off a terrific year, thanks to its share of revenues from Titanic. Another Fox film, The Full Monty, did even better by one measure--it cost about $4 million to make and grossed $250 million worldwide, generating one of the best returns on investment in movie history. This summer's hits, Dr. Doolittle and There's Something About Mary, and the release of the Titanic video should boost the current year's results.

Nevertheless, the cost of making and marketing movies is rising, picking hits is largely guesswork, and film studio margins are notoriously thin. In fiscal 1998, Fox generated operating income of $266 million from all of its movie and TV production. That represents more than a third of the cash flow of the Fox Inc. IPO properties--this in the year of Titanic, a movie not likely to spawn a sequel.

Of course, any investor in Fox will have to embrace risk. The offering hasn't been priced yet, and it won't be analyzed by Wall Street until after Murdoch & Co. do their road show in October. The early word, though, is favorable. "Fox Entertainment Group is going to be an exciting IPO," says Larry Petrella of Lehman Bros. "It's a great mix of businesses that are currently operating at a very high level." Citing SEC rules, Murdoch and Fox executives declined to discuss the prospects for the offering.

But Murdoch responds forcefully when asked about one risk that could concern investors: the uncertainty surrounding his own future. "I have no plans to retire," Murdoch declares. "I've never felt better than I feel at the moment." He is, by all accounts, showing no signs of slowing down. Murdoch remains a man in perpetual motion, spending perhaps half his time outside the U.S. and dividing the rest between New York City and Los Angeles. He is seldom out of touch--his aides and editors have learned to expect phone calls at any time, asking about TV ratings, movie grosses, or the latest Clinton gossip. "He's an information junkie," says a top News Corp. exec. He dines out often with business colleagues, especially since Anna Murdoch, his wife of 31 years, filed for divorce in July. She's just left the News Corp. board; aside from that, News Corp. says the divorce won't have any effect on the company. Rupert is worth an estimated $5.6 billion.

The family matter that looms larger over the company is Murdoch's succession plan. Murdoch told FORTUNE that there's room for all his children at News Corp., but he acknowledged that Lachlan, as chairman and CEO of News Ltd., an Australian newspaper holding company, is being groomed to take over. "He runs his own show, and it's a very big show," Murdoch says. "That's superb training and experience, running a far-flung newspaper company in a big country like that, and he's done very well." Lachlan was one of just four News Corp. execs to give a keynote speech in Sun Valley; the others were Rupert, Chernin, and CFO David DeVoe.

Rupert's speech, by the way, was as much about the company's future as his past, and he made clear that he intends to keep building, particularly outside of the English-speaking countries. "There are still worlds out there for us to conquer," he said. With $3 billion or so flowing into the News Corp. coffers after the IPO, along with proceeds from a partial sale of TV Guide, he'll have an ample war chest. While the proceeds may be used to pay down debt, Murdoch also wants to make a big splash on the Internet and expand his TV holdings in Europe. He could even buy a big U.S. newspaper.

Think about that a moment, and you'll see why the succession issue cuts both ways. News Corp and Fox Inc. will be radically different companies once Murdoch leaves, no matter how hard his executives strive to be like Rupert. Whoever succeeds him will probably have less freedom to maneuver, and will certainly be less inclined to gamble. It's easy to envision a scenario in which the post-Murdoch leader of News Corp. and Fox Inc. lowers his or her sights to focus on operations, reduce debt, and drive earnings. That's what Gerald Levin has done at Time Warner and Sumner Redstone has done at Viacom, to the delight of Wall Street and their shareholders. Murdoch probably won't do the same at News Corp., but his successor might have to. Only then will the value of the media colossus Murdoch has spent his life building finally be realized.

FORTUNE

Vol. 138, No. 8