Murdoch May Abandon Satellite TV Ambitions

Rupert Murdoch, the chairman of News Corp., may be ready to throw in the towel on his ambitious plans to launch a satellite service that he vowed only three months ago would bury the cable industry, according to sources close to the company.

News Corp.’s top satellite executive abruptly resigned Thursday amid signs of a startling about-face in the strategy one of the world’s most powerful entertainment moguls. Sources say Murdoch is alarmed that an explosive dispute with the cable industry is hurting his company--while its entry into satellite is more expensive and challenging than expected.

Sources also say that after months of trading insults with archrival Ted Turner, Murdoch called the vice chairman of Time Warner Inc. on Tuesday asking for a truce. On Wednesday, sources say, Murdoch met in New York with Time Warner Chairman Gerald Levin in an effort to end long-brewing conflicts that may have cost News Corp. billions of dollars in lost cable contracts for Fox News and other channels.

Even after Wednesday’s meeting, however, Time Warner continued to block News Corp.’s efforts to join forces with PrimeStar Partners, the satellite television venture owned by a group of cable companies led by industry leaders Tele-Communications Inc. and Time Warner respectively.

Murdoch is interested in partnering with PrimeStar because the deal he announced in February--to invest $1 billion in EchoStar Communications Corp., a fledgling satellite television provider--is unraveling. Sources say Murdoch did not anticipate the regulatory hurdles, costs that may exceed $4 billion or disputes over control with EchoStar chief Charles Ergen.

Many cable operators have united to resist Fox News and other News Corp. cable channels since the EchoStar announcement, when Preston Padden, the head of Murdoch’s satellite efforts, threatened to send the cable industry “crawling to Dr. Kervorkian.”

Padden, the chairman of News Corp.’s American Sky Broadcasting, resigned Thursday, apparently the result of a falling out with Murdoch. Sources said Murdoch had not accepted Padden’s resignation and is refusing to pay him severance on the years left on his contract.

News Corp. had no comment on the statement released by Padden, which said: “I have tendered my resignation from News Corp., and I will spend a period of time considering career alternatives.”

Sources said Padden has met with Walt Disney chief Michael Eisner--who was eager to hire Padden two years ago as head of Disney’s Americast joint venture with the telephone companies--possibly to join ABC as a Washington lobbyist.

During six years with News Corp., Padden is credited with helping to line up affiliates that allowed the network to grow. He also led lobbying battles in Washington enabling News Corp., an Australian company, to skirt restrictions on foreign ownership of broadcast properties.

Sources say Padden’s role had diminished since News Corp. announced plans to merge ASkyB into EchoStar. Padden found himself reporting to Chase Carey, the chairman of Fox Television who helped Murdoch negotiate the EchoStar deal.

Under the deal, Padden had no role in operating EchoStar, whose chairman was to be Murdoch and its president, Charles Ergen.

One analyst said Padden “sold Murdoch a bill of goods” in shaping his satellite strategy. Murdoch was a late entrant into an emerging business dominated by DirecTV and PrimeStar, which together have most of the more than 4.5 million satellite subscribers.

The central element of Murdoch’s strategy--and the one issue that most disturbed cable operators--was satellite service with the ability to carry local broadcast channels. Sources say Padden convinced Murdoch that cable could be easily overtaken, that regulatory hurdles could be readily overcome and that broadcasters would ally with Sky. All three assumptions were proven wrong.

Wall Street reacted by driving News Corp.’s stock to 52-week lows.

On Monday, EchoStar announced that News Corp. was backing out of its deal if News Corp. encryption technology was not used to keep customers from pirating the service. Sources said TCI Chairman John Malone had already met with Murdoch to discuss ASkyB’s joining together with PrimeStar.

Although Levin had said he would block such a deal, sources say Malone encouraged Murdoch to make peace with Levin and Turner. The public sparring between Turner and Murdoch has become a media spectacle.

Sources say Murdoch is so disheartened by his satellite efforts that he is willing to consider giving up control of ASkyB assets, which include uplink facilities and orbital spots worth $682 million owned in a 50-50 partnership with MCI. In exchange, he wants PrimeStar’s owners to carry cable channels including fX, Fox News and Fox Sports, all of which are partly owned with TCI.

Murdoch has several bargaining chips to play with Time Warner. News Corp. could drop its antitrust lawsuit against Time Warner in which News Corp. charges Time Warner with protecting its CNN news channel by preventing access in New York for Fox News. Murdoch also controls satellite services worldwide that are important outlets for Time Warner’s movie and television studios.