Liberty Out Foxes Murdoch

Rupert Murdoch (L) and John Malone (R); Photo Credits: Getty Images

If you watched the machinations between Rupert Murdoch and John Malone over the recent months you may have been puzzled about why the big fuss. In fact, this amazing game of chess continues in spite of the announced settlement. My take is that Murdoch is being schooled by someone a bit smarter playing a long term game with a fist full of Aces. Murdoch is so tired of this game and so focused on the NewsCorp succession that he may have delivered too much NewsCorp value to Malone, even at the stated price tag of $11B.

To review, Malone, via Liberty Media, had accumulated a very nice position in News Corp. stock, almost 20%, or enough to be able to force Murdoch's hand on many issues, including his planned annointment of a son as successor. In Murdoch's self-centered view, the succession was all that mattered and he lost sight of the value of the Digital TV assets he transferred. Good thing for NewsCorp shareholders that Malone was not after access to the amazing News Corp content assets (Fox, Fox Digital, 20th Century Fox, BSkyB, Star, and MySpace). Or at least the announcement makes us think those remain untouched... Speculation is that once the dust settles, we may see that Malone has some very valuable DTV distribution rights to much of the NewsCorp content.

To Murdoch's one track mind, buying Malone's accumulated $11B News Corp stake for DirectTV stock, $550M in cash and three Fox Sports networks that were outside the NewsCorp focus areas seems a small price to pay to be rid of a very real headache in the succession process. For him it is a no-brainer.

So, a fight over the control of NewsCorp's destiny is avoided and an amicable settlement preserves what remains of the relationship between old friends? That's what the NY based media folks (WSJ, Times) are swallowing.

An even swap they say, done for tax reasons! Believe that? Not on your life!

This deal is the worst of several ridiculously incompetent moves made by Murdoch in proving that time has passed him by. From the post acquisition mismanagement of MySpace (particularly the failure to acquire any benefits from helping launch YouTube!) to the Judith Regan fiasco, Murdoch has been bungling.

Why is the Malone deal so bad? Because Murdoch, for the sole purpose of preserving the NewsCorp crown for a group of unworthy princes (James, Lachlan, et.al.) all but removed NewsCorp from its once articulated play of being an operating systems provider to the emerging digital television world.

For the last ten years Malone has been maneuvering for every piece of digital TV IP he can acquire, aggregating it all in subsidiaries of Liberty Media. But this very successful aggregation of IP was stymied by a lack of content and a controlled network that would allow the Liberty DTV software solutions to develop.

By tweaking the unrivalled Murdoch ego with the acquisition of stock that might stop him from annointing one of his sons as the future NewsCorp king and getting the expected ego driven reaction, Malone got what he needed! He rented some NewsCorp stock for a few months, threatened his rival and walked away with the keys to the Digital TV vault!

What did Liberty get in this stock swap? Insiders say that, in addition to the DirectTV stock, local sports networks and cash, Malone got a license to some very valuable IP in the NewsCorp Israeli subsidiary, NDS (News Data Systems) and a captured customer licensee (content and networks) when Liberty is ready to release its DTV software as Operating System for the DirectTV and Fox Regional Sports Networks! We'll see when the docs are filed unless they make the absurd argument that the cross licenses are not material.

With this deal, Malone emerges as the one true competitor to Microsoft in the DTV software space. With the related content license, he will also be able to reverse engineer his way into web solutions, likely through a MySpace DTV portal.

An amazing deal! Let's watch the filings and activities in the Fox world to see just how good it is for Liberty and bad for NewsCorp.