But the project of welding the hulk of the 20th Century Fox movie studio onto a national TV network needed lots of political afterglow, as it contradicted a regulatory system designed to limit concentrations of power. Networks could swell their audience by distributing programming to affiliates, but couldn’t have direct financial interest in the material produced. The Murdoch scheme reversed that principle. It was about concentrating production profitably in the old movie facilities.
His route around the impasse was characteristic. The first few Fox stations (acquired from Metromedia) would start as a “mini-network,” doing no more than fifteen weekly hours of network broadcasting—at which level financial-interest regulations didn’t apply. Later the FCC would find it difficult to stop network hours expanding—that is, if it desired to. Ronald Reagan appointed Mark Fowler as FCC chairman in 1981, and Fowler thought Murdoch a man of “enormous vision.” Republican doctrine was that a Fox network would be new competition. Its production system would, compared with existing ones, be controlled by very few hands; indeed, essentially by two, Rupert Murdoch’s.
Other barriers had to be razed. To get its licence a network had to show itself as (a) controlled by U.S. citizens and (b) financially stable. The democratic rationale is simple: news media should be controlled within the constituencies they act on, and should need no favors from corporate or official power.
To get around this, Murdoch the man could readily become American. (The broadcasting officials in Sydney to whom he had sworn he was unalterably Australian would simply have to get over it.) But just then News Corp. the company could not afford to be American.
Debt towered over equity even before the company began borrowing to pay for the Twentieth Century-Fox assets. So to qualify as a properly capitalized network operator, News Corp. had to put forward Australian propositions about the nature of capital. As a start, its balance-sheet, and borrowing capacity, were improved by revaluing the “goodwill” of News Corp. newspaper titles. Starting in 1985, $1.5 billion was added. American law prohibits such acts of value-creation by decree.
That was useful, but insufficient. The further step was to raise $1.5 billion via Michael Milken, the California junk-bond maven, then close to his financial zenith. “Junk bonds” had a certain glamor at the time, but even so their product could never be called stable financing. Therefore, the Milken operation was put into News Corp.’s accounts as an issue of “preference shares.” It was by any reasonable account a loan, but News Corp.’s lawyers asserted that Australian law permitted it to be called “shareholders’ funds”: thus, as Neil Chenoweth puts it, by increasing its debt, the company acquired the ability to increase it further still. News Corp. was swimming in leverage. But financially it was very un-American.
Nonetheless, Fox would have to show American control. So the network business was put into a company with 99% of its capital held by News Corp.—as non-voting shares. The remaining sliver of voting paper was held by Rupert Murdoch and Barry Diller (Murdoch’s ally at the time), both Americans by then. News Corporation of Adelaide, South Australia was then described as an Australian-controlled company. Of course in the actual world—not the world of virtual entities—the American Rupert Murdoch was in command.
Rule bending of this kind could hardly have succeeded had the Republican administration not seen an enormous vision impending—that of a partisan right-wing network, which of course has been since realized. But Reagan’s people had no more to do than be complaisant. Of the British, something more vigorous was required.
The Fox project created huge interest bills, but News Corp. calculated that it could meet them by pulling another $150 million annual profit out of its London papers. And the basic means for doing so had been in discussion for several years—a move from their decrepit plant into a state-of-the-art facility at Wapping, in London’s East End. Planning had begun early in the 1980s but discussions with the unions stalled.
Each side claims, in retrospect, that the other dawdled years away. However that may be, Murdoch’s interest late in 1985 became visibly galvanic.