Cheap distribution on Web worries Rupe

News Corp. topper chats about the future of film

News Corp. chief Rupert Murdoch is fretting about the hefty cost of making and marketing movies as the day nears when pics can be put together cheaply and reach wide auds directly on the Internet.

“It’s an expensive game,” he told investors at a media conference in Phoenix. “Especially if filmmakers can bypass studios for broadband.”

As a result, “Our business models have to change and we’re busy preparing ourselves for that,” he said.

Murdoch said News Corp.’s will start offering free video downloads this week. “There will be millions of downloads a day probably,” he said. He was likely referring to musicvideos, but it wasn’t immediately clear.

He said he expects News Corp.’s newly acquired Net assets to hit revenue of $350 million-$400 million by 2007 if current trends continue.

On other business, Murdoch said he’s upbeat on DirecTV despite the fact that distribution is way out of favor on Wall Street. “We did not want to be the captive of the cable industry. We don’t want to be the captive of cable and telcos,” he said, suggesting, “There could be quite a bloodletting between cable and telcos.”

He said DirecTV’s growth will ease this year as the company “puts every customer through the credit control wringer” in an attempt to lower churn — subs who sign up and drop out or get dropped.

Murdoch said DirecTV is working on getting wireless high-speed Internet access to customers and will unveil a strategy in several months — likely including an investment of about a billion dollars. “You’ll be hearing from us within two months on a very clear plan on what will happen,” he said.

He also addressed two of investors’ pressing concerns.

Murdoch won’t bet the house spending on Internet assets beyond the $2 billion or so the company has already earmarked, he said. It’s still got about $700 million left.

And he said talks are ongoing with John Malone over Liberty Media’s 18% voting stake in News Corp. “We discuss things and we’ll be having discussions over the next two to three months,” he said.

News Corp. shares rose 1.64% to close at $16.78.

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