Why the Murdochs are furious about BBC settlement

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BBC business editor Robert Peston on the licence fee deal

Here is probably the most revealing part of the speech that Rupert Murdoch gave last night in honour of Margaret Thatcher:

"I am something of a parvenu, but we should welcome the iconoclastic and the unconventional. And we shouldn't curb their enthusiasm or energy. This is what competition is all about. Yet when the upstart is too successful, somehow the old interests surface, and restrictions on growth are proposed or imposed.

"That's an issue for my company. More important, it's an issue for our broader society".

Here's the point: Lord Saatchi introduced Rupert Murdoch by referring to a league table that rated the founder of News Corporation as the most powerful person in the world, more powerful even than the US president (and considerably more powerful than the British prime minister).

Mr Murdoch - who has enormous commercial media interests in the US, the UK, Italy, Australia and Asia - chuckled at the flattery. But he still went on to say that he considers himself an arriviste, an outsider battling against powerful conservative and vested interests.

This is not a pose. He and his son James, who runs News Corp's European and Asian operations, genuinely see themselves as true-hearted crusaders in an economic war - and not as defenders of enormous, dominant market shares in newspapers, television and other forms of communication, which is how they are widely seen by others.

For them, the statistics of British Sky Television's £5.9bn and rising of British revenues, a fifth greater than the BBC's global revenue (whose large domestic element will stagnate by dint of government fiat), or News Corp's control of one-third of the British newspaper market are far less relevant than Sky's and News Corp's record of digital innovation.

They would simply deny that the market shares of their myriad businesses - which allow them to generate buckets of cash for investment in new products and services - might conceivably starve worthy competitors of the cash these competitors could employ in innovation that might be beneficial to consumers.

So, for the Murdochs, the opposition that has arisen in much of the rest of the media to News Corp's plan to acquire the 61% of BSkyB it doesn't already control is simply the wounded yelp of a threatened ancien regime.

And the Murdochs don't sit still when crossed. James Murdoch will have told Lord Rothermere, chairman of DMGT, owner of the Daily Mail, what he thought (and in no uncertain terms) of DMGT's participation in a public campaign to frustrate the Sky takeover.

Also, there is a conspicuous current example for the Murdochs of how they have to battle against prejudice, on a playing field tilted against them - which is the unexpected agreement this week between the BBC and the government that the licence fee will be frozen in cash terms (at £145.50) until the end of 2016/17.

This is infuriating to News Corporation for two reasons: first the Murdochs thought they had another year to make the case for more radical reform of the BBC and public-service broadcasting; second they know only too well how valuable it is for any organisation to have certainty about its future cash flows, which is what the licence-fee settlement has given to the BBC for a lengthy six and a bit years.

The BBC's directors and senior managers, of course, don't see it quite like that. They point out that £340m a year has been added to the BBC's costs, largely through the transfer to the Corporation of financial responsibility for the World Service, which is equivalent to a cumulative 16% real squeeze in the BBC's resources.

And the BBC has two other concerns: first that the convergence of the settlement with the wider public spending cuts creates the potentially damaging impression that the BBC is just another arm of the state; second that licence-fee payers will now be paying for services outside the UK from which they derive no direct benefit, thus weakening licence-fee payers' sense that they only pay for what they get - which could in time undermine public support for the BBC.

But the BBC's discomfort probably provides only mild solace to the Murdochs. You can assume that the Culture Secretary, Jeremy Hunt, who was in the audience for Mr Murdoch's lecture last night (along with the Welfare Secretary, Iain Duncan Smith, and the Home Secretary, Theresa May) will know by now that the Murdochs believe he has been soft on the BBC.‬‪

You can keep up with the latest from business editor Robert Peston by visiting his blog on the BBC News website.

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