Earlier this month, sales executives from the fX cable channel, which is owned by News Corp., had appointments with one of their top clients, Marcus Cable in Dallas. They hoped to persuade Marcus, the nation's ninth-largest cable operator, to carry fX on more of its systems.
Their timing was unfortunate. Days before, News Corp. Chairman Rupert Murdoch had vowed to "take over North America" with an elaborate satellite broadcasting service that one of his top lieutenants predicted would send cable competitors crawling to Dr. Kevorkian.
As cable stocks tumbled on Wall Street with the news, Marcus slammed the door shut, refusing to meet with fX or News Corp.'s fledgling Fox News Channel.
"If someone is threatening to burn your house down, you don't invite them in for lunch first," said Jeff Marcus, chairman of Marcus Cable, which serves 1.2 million customers in 18 states. "We are not going to give them money so they can build a competing satellite business."
Such is the complicated world of media today, as conglomerates expand into every facet of entertainment and increasingly do business with companies that are also their rivals. News Corp.'s agreement last month to purchase half of struggling satellite TV provider EchoStar Communications Corp. underscores what some sources call a schizophrenic strategy that puts Murdoch in direct competition with the cable operators that helped him build channels today worth nearly $2 billion. Some sources say the dizzying array of 500 channels that the Sky satellite service could offer next year could even quicken the erosion of broadcasters' viewership, hurting News Corp.'s own Fox TV network.
With several cable operators threatening to retaliate against News Corp., the situation is also the latest evidence of the distrust building against Murdoch. No media giant, not even the much larger Time Warner Inc. or Walt Disney Co., stirs as much dread among its rivals as News Corp., in part because of Murdoch's history of strong-arm tactics, of riding roughshod over regulations and of using his various newspapers to do his bidding.
Cable operators were particularly troubled recently about Murdoch's bully tactics when News Corp. filed antitrust lawsuits against Time Warner and Disney for allegedly trying to block the growth of his channels.
News Corp. would not comment about the conflicts. But Chase Carey, chairman of the Fox Television group and in charge of the cable channels, said the company's mission is to exploit a multitude of avenues into consumers' homes, whether by cable or phone lines, broadcast signals or satellites.
"Companies today compete on some levels and do business on others," he said. "If we continue to put on good programming, we will succeed at getting them distributed, despite the rhetoric and gossip. I'm sure there are cable operators that wish competition didn't exist, but as time goes on, consumers will ultimately drive the market."
It is unclear what cable operators can do, since many of them are bound by contracts with News Corp. and could face heat from customers if they don't carry popular services, such as sports channels, that Fox controls. But the industry will take a leading role in opposing the $1-billion merger with EchoStar in Washington, where the Federal Communications Commission sees Sky as a means to break the long-standing cable monopoly.
Among the rules the industry will challenge are those that prevent TV station owners from controlling cable systems in the same markets but not satellite services that reach those local viewers. News Corp. owns TV stations that reach 35% of the nation's households, whereas the Sky service will be able to beam across the entire U.S.
Cable operators say Murdoch's satellite plans could drastically slow his cable expansion in the U.S. Marcus said cable operators would bid on regional sports rights to keep them out of the hands of Fox Sports, which is trying to build a challenger to ESPN by linking together regional networks. Marcus worries that Murdoch could eventually take his eight regional channels off cable systems to use them exclusively on Sky to drive subscriptions.
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Many cable operators say they may also refuse to raise rates and expand existing services or carry new channels like Fox News and a proposed children's network. That could widen the lead in the cable news wars of upstart MSNBC, the partnership between Microsoft and NBC that has about 28 million subscribers to Fox News' 20 million, despite Fox's unprecedented payments to operators of $10 a subscriber for carriage.
"You never make statements about destroying your customer," said Ajit Dalvi, senior vice president of programming and strategy for Cox Communications Inc., a leading cable operator. Dalvi said his systems are carrying MSNBC and had considered testing Fox News. "I'm less inclined to do so now."
Several News Corp. sources say Roger Ailes, the head of Fox News, is complaining that his job is suddenly tougher. Ailes would not comment.
