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A chip off the Murdoch block

James allays nepotism fears as BSkyB soars

LONDON — As a rule of thumb, fathers find it virtually impossible to take a cool, detached view of their offspring’s abilities. But Rupert Murdoch is no ordinary dad.

In 2003, when Murdoch senior faced down protests from London’s financial community to appoint his younger son, James, then barely 30, chief executive of Europe’s leading pay TV player, British Sky Broadcasting, critics complained that paternal pride had clouded the mogul’s business judgment.

Many, who perhaps should have known better, accused Murdoch of nepotism by elevating his son, who formerly ran Star TV in Asia, to such a key job at such a difficult time.

Three years later, the skeptics who doubted that James Murdoch could guide BSkyB safely through a converging media landscape are beginning to eat their words.

“James has won over a lot of people,” reckons Paul Richards, media analyst at investment bank Numis Securities. “They see him as a chip off the old block, no mean achievement considering the esteem his dad is held in.”

Richards notes that BSkyB is performing very well at a challenging time for U.K. media companies in TV and radio.

“Sky is regarded as a technological leader in what is a very difficult space to be in right now,” he says, adding, “BSkyB is not only a very big company in terms of how it adapts to technological change it’s also one of the fastest.”

Proof that James Murdoch has answered his critics came in London on Nov. 3 at BSkyB’s annual meeting.

Of late, these meetings have been noisy affairs as dissident stockholders voiced their concern over corporate governance issues and expressed worries about News Corp.’s “creeping control” of BSkyB. Rupert Murdoch is BSkyB’s chairman and News Corp. is the majority owner, holding 39% of the stock.

A year ago, Murdoch nearly lost a vote when 46% of investors voted against News Corp. increasing its stake in the satcaster.

This year’s meeting was a quiet, sedate affair, the protest votes a thing of the past. And no wonder — James Murdoch announced a revenue rise of 11% to £1,071 million ($2,040 million) at the satcaster, which now has 8.26 million subscribers.

“Shareholders realize that James is doing all the right things,” says Theresa Wise, media partner at Accenture. “He is very unusual for a TV executive in that he is very much at home in the new media and telecom space as well as the TV space.”

Or put another way, Rupert Murdoch knew precisely what he was doing when he hired his techno geek son to run BSkyB at a time when subscribers are being offered their pay TV packages bundled alongside broadband and telephone services.

At the meeting, BSkyB announced the first fruits of the move into broadband as James Murdoch revealed that 74,000 customers had signed up since the service bowed in the summer.

Rupert Murdoch, speaking at the AGM, said BSkyB had repositioned itself in the past year to become a major challenger in U.K. broadband and telephony, a sector he predicted would be worth $47.6 billion in four years.

It is too early to tell if BSkyB is doing enough to defeat multimedia competition from British Telecom, soon to roll out broadband video-on-demand service BT Vision, or cabler NTL Telewest, due to relaunch as Virgin Media next year with a quadruple play of TV, Internet, cell phone and fixed phone offerings.

“James has a lot on his plate,” opines Accenture’s Wise. “He is looking to create very strong online content with the Sky brand, but given the brand’s strong resonance, there are more things he could be doing.

“In the next five years, the biggest threat will come from Google TV and that is a threat to all pay TV operators.”

By then it is possible James Murdoch will have moved on from BSkyB.

There is, of course, speculation that Murdoch senior is grooming him for the top job at News Corp. following the resignation of older sibling, Lachlan Murdoch, from the conglom last year.

“It’s not too farfetched to suggest that James could one day run News Corp.,” reckons Wise. “He’s certainly got the capability.”

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