Murdoch, WiMAX and The Two Way Web

Guest post by Robert Young

There has been a lot of speculation about Rupert Murdoch’s desire to buy a search engine company. Will it be Technorati, or Ice Rocket? Who knows? Regardless of which search engine he acquires, an even more significant development to watch for is whether he will ride the WiMax wave to become a player in the two-way broadband enabled world. Maybe he and Paul Otellini, Intel’s CEO should meet.

Rupert Murdoch realized long ago that owning content, in and of itself, yielded limited power. His frustrations when negotiating against cable czar John Malone taught him that owning distribution, in addition to content, was essential for market leverage. This is the reason why he pursued DirecTV for ten long years, finally acquiring control of the satellite TV operator in 2003. With DirecTV in hand, Murdoch gained substantial leverage, which he uses every time he needs to negotiate carriage deals for media properties with competitive media outlets like Time Warner and Comcast. Furthermore, owning distribution makes it a lot easier for him to launch new cable/satellite networks (one of reasons why I believe he will use his acquisition of MySpace to compete against MTV head on, as I speculated in my previous post here ).

By integrating content and distribution, Murdoch has built a media empire that is finely tuned to optimize market control and profits in a one-way broadcast world. But now, as the market reaches a tipping point with high-speed internet access, and with ad dollars rapidly flowing into the broadband web, Murdoch faces the challenge of transforming his conglomerate into one that is optimized for a two-way interactive world. Of course, he already tried once back in the ‘90’s, but now he’s back on the M&A trail with renewed vigor.

Yet there is a critical question Murdoch needs to address during strategic planning sessions, and before he unloads billions of aggregate dollars into more deals: What is his strategic objective for distribution in an interactive world? Does he still want to own distribution, or does he not care?

The answer will dictate his strategic plan. For instance, if he wants to compete head-to-head with Yahoo!, his tried-and-true formula of owning both content and distribution will prove irrelevant, possibly even detrimental. On the other hand, if he wants to maintain his integration of content and distribution, then he should forget about buying search engines and portals, and focus instead on making DirecTV (and his other satellite TV ventures around the world) into bona fide two-way interactive platforms.

Simply put, because satellite TV is essentially a one-way distribution platform, DirecTV is actually a weakness as the center of gravity moves towards a new digital universe. If Murdoch wishes to maintain his integrated leverage into the 21st century, he must plug up this hole. Recent reports indicate that he is looking at WiMax. Good move!

Makes perfect sense. Unlike Bell operating companies he does not need to create a video network. What he needs is an IP pipe. Given the size of the DirecTV antenna, and that there is a cable already running into the home, it is fairly easy to get the WiMAX-based system rolled out. A WiFi access point in the set-top box, can do the trick. Theoretically, the price/performance of such a network can be superior to existing cable nets and the forthcoming telco IPTV nets.

The best ally for Murdoch is Intel, the champion of WiMax. Intel envisions WiMax to be the third high-speed Internet access alternative, and therefore, they are becoming a natural enemy to cable broadband and telco DSL. What’s in it for Intel? Frankly a reason to sell more laptop chips. Just like nearly every laptop is now built-in with an Intel WiFi chips, they are looking forward to a future market where every conceivable computing device is WiMax-capable (including satellite dishes). Moreover, judging from their recent joint venture with actor Morgan Freeman, launching an online movie download service called ClickStar, Intel clearly has Hollywood aspirations (see press release.)

While technical hurdles remain, the widespread deployment of WiMax is hindered largely by political and regulatory issues. Together, “Newstel” (in the spirit of Microsoft and Intel’s duopoly, aka “Wintel”) offers the political muscle and technical prowess to lobby Congress and the FCC. They also have the war chest of cash that’s likely to be needed to acquire low-frequency spectrum when they are reclaimed and auctioned off by the government. In fact, with the recent Supreme Court “Brand X” decision and subsequent FCC “line-sharing” ruling (allowing cable and telcos the ability to shut out competitive access to their networks), WiMax may be his *only* viable choice.

Having said all that, there are many (particularly Wall Street analysts) who believe the benefits of media consolidation are obsolete and the days of media conglomerates over. To the contrary, I believe Murdoch has a clear shot at being counterintuitive and proving them all wrong.

Robert Young is a serial entrepreneur who’s currently focused on Weed (www.weedshare.com), a digital music service and P2P superdistribution pioneer. During Internet 1.0, he orchestrated the sale of Delphi Internet Services to Rupert Murdoch’s News Corp.

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