Raymond Snoddy on media: ITV deal is a Murdoch masterstroke

In retrospect, anyone listening carefully to James Murdoch at last week's Internet Advertising Bureau conference might have realised that something was up.

Amid the general triumphalism that interactive would be a £2bn business in the UK before the year is up, the BSkyB chief executive was asked what he thought of the proposed merger between NTL and ITV.

Young Murdoch initially suggested that keeping his mouth shut was the best plan. But he then went on to question such a merger, arguing: 'I don't understand the benefit to either of them.'

He can't have thought it was that daft, because two days later, the satellite broadcaster rushed off and spent almost £1bn to torpedo a merger that was so ridiculous, and fundamentally incomprehensible, that nobody could detect any advantage to either party in such a scheme going ahead.

Clearly, any notion that BSkyB might have been worried that a merged NTL-ITV could have created a business that might have posed a long-term threat as a potential rival for pay-TV sports rights is ludicrous.

However, Rupert Murdoch rarely spends £1bn on buying 17.9% of a company of which he cannot own more than 20% without good reason.

So what is he up to - apart from ensuring NTL-ITV does not go ahead? One explanation, the official one put in the mouth of James Murdoch, is almost too embarrassing to repeat and leaves you wondering about the declining standards of corporate PR.

BSkyB apparently wants its investment 'to give ITV the room it needs to put the best new management in place and explore the full range of options to create value for all shareholders'.

We can safely ignore philanthropy on behalf of ITV shareholders as a reason for the purchase. In fact, the deal is a stunning masterstroke by BSkyB, and like many Rupert Murdoch deals, it gives him several potentially beneficial outcomes.

The most basic is to kill off the NTL-ITV merger. That has now been virtually guaranteed by the 135p BSkyB paid for the ITV shares.

Sir Richard Branson, the biggest shareholder in NTL, might threaten writs and complaints to the Office of Fair Trading. But as long as BSkyB has a stake of less than 20%, doesn't ask for board representation or throw its weight around, Branson would be wasting his time and money.

The real intrigue surrounds the position of Gerhard Zeiler, chief executive of RTL. If he can persuade his masters at Bertelsmann to pay the price, he now has a clear route to buying ITV, almost certainly with the tacit support of Rupert Murdoch. As a predominantly advertising-funded broadcaster, RTL poses little threat to BSkyB. Just to make life more interesting, BSkyB would then buy Five from Zeiler, as it is legally entitled to do.

This must be the most likely outcome, as there is no shortage of ITV shareholders looking for an exit.

Even if the big plays unravel and BSkyB is left with a passive holding in an independent ITV, the outcome is unlikely to be too bad for Murdoch. A new chief executive, perhaps one from the satellite broadcaster, could turn things around and the Murdochs would be quids in.

There is another even more sparkling medium-term possibility. When the UK switches to digital by 2012, Murdoch could argue that his 20% limit on ITV ownership is an anachronism in a world in which even billionaire media owners are struggling to make ends meet. Bingo. BSkyB gets to buy ITV after all.

The Friday afternoon coup is the clearest case of trebles all round for the Murdochs, whatever happens next - as the howls of anguish from the Branson camp testify to most eloquently.

- BSkyB paid £940m for a 17.9% stake in ITV - the equivalent of 135p a share.

- The investment, which on paper leads to a reduction in the fair value of BSkyB of some £156m, will have a negative impact on net earnings of £10m in 2007 and £13m in 2008.

- Morgan Stanley approached about 15 shareholders, but only a few wanted to sell their stake for 135p a share.

- NTL was considering a £6bn bid for ITV, but would not have been able to buy a 100% stake.

- Sir Richard Branson, who has an 11% share in NTL, is expected to complain to Ofcom and the Office of Fair Trading that the purchase was a potential breach of competition legislation, the Communication Act and the Enterprise Act.

- Branson said the move was a 'blatant attempt to distort competition ... by blocking any attempt to create a strong, meaningful competitor'.


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