Asiaweek.com | In Search of the 'Target Wallet'

OCTOBER 27, 2000 VOL. 26 NO. 42 | SEARCH ASIAWEEK

Lucas Oleniuk for Asiaweek.
STAR is focusing on local-language content to pull viewers.

In Search of the 'Target Wallet'
Young Murdoch expects you'll pay to let STAR TV entertain you

ALSO:
• A Tale of Two Sons: STAR's James Murdoch wants to rule Asia's Internet. He has a head start on Richard Li. But can he hold it?

Muzzled for weeks by U.S. securities regulations that have prohibited him from speaking publicly about the future of his company, James Murdoch has been hard to pin down for a formal interview. The STAR TV chief executive and son of News Corp. chairman Rupert Murdoch moved to Hong Kong permanently with his wife, Kathryn, after their wedding in June. Last week during an arranged interview between STAR's president, Bruce Churchill, and Asiaweek's Alexandra A. Seno and Tim Healy at the company's headquarters in Hong Kong, Murdoch dropped by to sit in and listen. It didn't take long before he became engaged on a wide range of subjects in an interview that lasted more than 40 minutes. He talked about STAR's recent deal with Taiwan's GigaMedia, a broadband content and delivery company that ended a partnership with Pacific Century CyberWorks just weeks earlier. He also talked about PCCW's response to STAR's announcement, about the future of his business and about his new life in Hong Kong. Here are excerpts:

Could your deal with GigaMedia to develop broadband content and improve infrastructure become an Asiawide partnership, or is it a Taiwan-only combination? In other words, will you be looking for a GigaMedia in every market?
Our deal with Giga is limited to Taiwan, but as we get into it, there is nothing to say there won't be opportunities to expand the partnership. We have a big challenge in Taiwan and we've got to get it up and running. Do you need a partner in every market you operate in? You might. There's no rule.

So you may need a specific partner to fill a particular hole?
But it might be a different partner [with different strengths] in each place. In Taiwan, Giga is really well-positioned [because of its] cable partnerships. [Taiwan is] a unique situation. It's a fully-penetrated cable market. So, you want a cable-oriented partner. In other markets you might want to look at other things.

Do you see Taiwan experiencing a South Korean-style broadband revolution?
It could. Basic cable penetration is so high in Taiwan that people have never been offered new services and never been asked to pay for them. All there is is basic cable. We think there is a real market for new kinds of premium services, both television and interactive. Will it be just like the Korean broadband revolution? I don't know.

PCCW was dismissive that your GigaMedia deal would amount to anything. What do you make of the reaction?
I honestly don't know.

Have you thought about it?
I try not to. We're pretty busy, right? So we focus on our operating businesses, on getting done the key things that need to get done. To the extent that we're going to think about any other company, [it will be one] I'm competing with directly or I'm doing a deal with or something like that. I try not to think about what might be motivating other companies. I didn't understand [the PCCW reaction].

Do you think of PCCW as a competitor?
To be honest, I'd really rather not focus on PCCW at all. We don't really see them in our markets. We deal with cable operators. We deal with audiences. We deal with advertisers and stuff like that. At this point, when I look at India, I'm looking at STAR PLUS, I'm looking at Zee, I'm looking at Sony. It's not like [PCCW's Network of the World] is taking ad dollars from us. So, no. I don't understand their motives. It's weird.

Among your most recent deals, you've established a stake in Hathway in India to build up a broadband network in six key Indian cities. And you've got the GigaMedia deal. What has been the toughest thing about setting up these and other partnerships? For example, do the partners ask for too much money?
No. We've found the same dynamics are driving a lot of the service operators in all these markets. There is a limit to the amount people are spending on basic cable and entertainment services. In some cases, that limit is regulatory, in others it is historical. It's hard to get people to pay more for just more channels. What you have to do is put together something that is really much different. Get customers into new tiers. Clearly, they'll pay for things like Internet access. They'll pay for mobile connectivity.

That means you see broadband as just a new service, a way to encourage consumers to spend more, right?
That is exactly what it's about. You're trying to get more money out of every household and increase the return on investment in your network.

You don't like to refer to any of this as a "revolution."
We call it the target wallet. The target wallet is going to get bigger as these markets grow. The share that we can capture gets bigger because the services have more breadth. Today, you pay x dollars for basic cable. Tomorrow, you will pay y dollars for basic cable plus a premium tier with new channels and interactive services through an adjustable box right in your house. That box is a relationship with the service operator. As the relationship gets tighter, it starts to do other things. It starts to be a buy station in the home. So the share of wallet [spent this way] grows into a wider share of overall household spending. We believe it is a natural evolution for media in this connected environment. It's not reinventing the whole notion of content. I have all these conversations with people and they say: "So-and-so has this broadband network. It has undersea cables. It has DSL [digital subscriber line, a type of fast Internet connection]." And you think: I don't care how many undersea cables you have. Just talk to me about the thing that helps me show a cricket match in someone's house.

When you look ahead, is high-speed Internet access revolutionary?
"Revolutionary" is a funny way to put it. In 10 years, you'll look back and think we're living in a really different world. It is fascinating to think about from the standpoint of marketing, direct-selling, peer-to-peer communications, media. There are tons of things that we have not thought about. But I don't think you are going to wake up and think it's a revolution. It's not like hundreds of thousands of people outside the gate in Belgrade. It's an evolution with technology gaining consumer acceptance. Nobody thought the elevator was a revolution. You don't get into one today and think about "the elevator revolution." But it fundamentally changed people's lives.

How did you decide to move to Hong Kong?
My boss told me to move to Hong Kong and work at STAR TV. We're like any normal company, you know. That's what they say.

They didn't ask you what you wanted to do?
No. But it's a great opportunity. It's an exciting place.

Who is your boss?
[Former News Corp. co-chief operating officer] Chase Carey [recently named chief executive of Sky Global Network].

Not your dad?
Well, the buck stops up there, I guess [laughing], but I have to go through Chase first.

Does your dad give you advice about running STAR TV?
As much as I can get, yeah. As much as I can get.

There's been a lot written about competition between you and your brother [Lachlan] to succeed your dad at the top of News Corp. Do you read that?
Yeah. I think anybody would.

Does it bother you?
They're gonna write what they're gonna write. The important thing is that you try to stay focused. It is what politicians call "staying on message." If you do that, you've done your job.

Stories sometimes refer to you as the "techie" in the family. Is that true?
I don't know. I don't know what a "techie" is. I'm certainly not an engineer. I don't know that much about it. I've been involved in some of the new businesses but I'm not a technologist. If I am, we've got big problems.

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