On the top of the list: Microsoft

by Simon Bond

        When Tony Ball takes over as head of satellite television broadcaster BSkyB, the UK's most profitable broadcaster, the former president and chief executive officer of Fox/Liberty Networks will have his hands full and not much time to mull his course of action.
      Ball is picking up the reigns at BSkyB at a crucial time. Its competitors in the cable industry look likely to get their act together following an infusion of cash and zeal from Microsoft, a price war has just broken out with digital broadcaster OnDigital, and BskyB's key premier league soccer rights are up for renegotiation in less than two years.
      The 41-year-old Ball has the reputation of a tough negotiator and his credentials in sports television are impeccable. But what can he learn from the sudden departure of his predecessor, Mark Booth, who resigned last month?
      Booth is leaving BSkyB to head up the new media company, e-partners, which is to be launched by Rupert Murdoch's News Corp.--also a 40 percent shareholder in BSkyB. Booth will arrive at e-partners with a $300 million dowry from New Corp. to invest in Internet, interactive television and wireless start-ups.
      With a rumored personal stake of 10 per cent in the company, Booth is being offered a big incentive stay within the News Corp. family of companies. Booth's move came just after his management team had failed to secure the acquisition of the world's number one soccer club, Manchester United, and weeks before Microsoft consolidated its hold on the UK cable industry by acquiring close to 30 percentof Telewest Communications, one of the big-three UK cable operators.
      Murdoch watchers rarely attribute anything to chance, and prior to accepting the e-partners job it is widely reported that Booth was on the verge of accepting a position at Microsoft for a $25 million sign-on fee.
      It may have been bad luck to lose a chief executive but Murdoch clearly was not careless enough to lose one to Microsoft. At the turn of this year Murdoch had named cable as BSkyB's principal competition, and it seems clear now that he had foresight of Microsoft's interest in the sector. Microsoft now adds Telewest to a European broadband cable asset list that includes a $500 million investment in NTL and $300 million investment in United Pan-Europe Cable.
      The next challenge that Ball faces is the fallout of a digital price war that started under Booth's regime. OnDigital, a rival delivery system to BSkyB, made the first move by announcing that it would give its $320 decoder boxes away for free during May to anyone buying a TV set of the same value.
      BSkyB's response was swift. It announced a ''no strings attached'' give-away of its own digital satellite set-top boxes. Until now digital television was positioned in the UK as a high-cost luxury, but next month the discount war will take it into the mainstream. Of the half-million homes that subscribe to digital television, over 75 percent have signed-up with Sky's satellite service.
      Price warfare is familiar territory for BSkyB. It eradicated its analog competitor, BSB, in the 1980s and has kept the cable industry on a life support machine with its pricing policy over the last 10 years. However, On Digital's chief executive, Stephen Grabiner, is a veteran of Murdoch's price-cutting tactics. As an executive at the Daily and Sunday Telegraph newspapers, Grabiner battled with Murdoch's New Corp. titles, The Times and Sunday Times, in the cover price wars of 1993 and is ready to apply the lessons he learned.
      BSkyB has dominated UK Pay-TV for the last 10 years and is used to having clout in the marketplace. However, the next few years look difficult. There are almost as many customers receiving their BSkyB channels via cable as there are via satellite--3.14 million homes versus 3.45 million. This makes Microsoft effectively the gatekeeper to nearly half of BSkyB's customers.
      The appointment of Ball may not be the end of the BSkyB management saga. In fact it may clear the way for some unfinished business with its French counterpart, Canal Plus. Merger talks between BSkyB and Canal Plus ground to a halt earlier this year when Booth refused to cede control to the French broadcaster's charismatic chairman, Pierre Lescure. With Booth out of the way, a deal could be back on the table that would combine the groups' powerful collection of European sports rights and dilute the shareholding of Murdoch's New Corp. This dilution is increasingly desirable as the Murdoch factor has been blamed for the increasing hostility of UK and European regulators to BSkyB. Ball's position is likely to be secure, but a top slot of perhaps Executive Chairman could already be reserved for Lescure.