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Murdoch prepares to face City after year at BSkyB helm
A year ago James Murdoch watched in admiration, and with some trepidation, as his father Rupert slapped down investors who disapproved of James's appointment as BSkyB chief executive. Telling one errant shareholder, "if you don't like it, sell your shares", Murdoch Senior displayed the full repertoire of charm and belligerence that has served him so well over the years.
Tomorrow's BSkyB annual general meeting is likely to be far less turbulent but, if anything, the challenges that now face the 31-year-old chief executive are even more pressing.
Tomorrow morning the company is expected to announce that new subscriber additions, the measure of growth by which the City holds most stock, have dipped to their lowest level since the company began giving away free digital set-top boxes.
Analysts expect BSkyB to say it added fewer than 50,000 subscribers in the first quarter of the financial year - 70% down on the same period last year. There will be no shareholder rebellion on a par with last year's, when a third of all shareholders voted against the re-election to the board of Lord St John of Fawsley.
And despite Mr Murdoch's aggressive stance, the company has taken the criticism on board. It launched a wholesale corporate governance review, which altered the balance of the board so that independent non-executive directors are now in the majority, and convened a new remuneration committee. The City institutions are now far more comfortable with the corporate governance side of things.
While there have been some murmurings of discontent over a share buyback plan that would, in theory, allow News Corporation to up its stake to 37%, even this resolution is expected to be passed fairly overwhelmingly. For example, the National Association of Pension Funds, one of the more vociferous critics last year, has vowed to support all the resolutions put forward.
But corporate governance aside, it has been a markedly mixed first year for Mr Murdoch. He has managed to keep in place the senior executives he inherited and most speak in glowing terms of his collegiate style of management. But the problems he inherited from predecessor, Tony Ball, have not gone away. In fact they have got worse.
The City took Mr Murdoch by surprise in August by giving a unanimous thumbs down to his strategic vision for the company. Acknowledging that subscriber growth was slowing, he laid out plans for £450m of capital investment in marketing, customer relations and new offices. The share price tumbled by a fifth in the space of a single day, sparking much speculation about where Sky goes from here.
Tomorrow Mr Murdoch is likely to reiterate the central themes of his August presentation, if not at quite such laborious length. He will argue that the huge marketing investment, targeting families and those who want to watch classic movies and the National Geographic Channel rather than football and films, has not yet had time to work.
He will point to continued growth among Sky Plus subscribers and increased interactive revenues as further evidence that the company can wring more cash from existing subscribers. He may even echo the implicit criticism of the former management team - something he hinted at during August's full-year results presentation.
A couple of months later, his father was more forthcoming at a Goldman Sachs conference in New York. The chairman of BSkyB said the previous management team was wrong to press ahead with plans to "push for profits" at the expense of growing the subscriber base. "They turned down promotional efforts and turned up the price too much," he said.
But all that, and even continued growth in profits, will mean little to investors unless he can show that subscriber additions are starting to turn the corner. The Sky marketing machine is already moving into top gear around the country, targeting potential customers and attempting to woo back old ones.
But looking at the pattern of subscriber growth over the past year, most analysts believe Sky could now be struggling to hit the target of 8 million subscribers by the end of 2005, bequeathed by Mr Ball. If Mr Murdoch has one goal for the next year, it will be to ensure that target is hit - which will mean more than doubling the rate of subscriber growth.
A banner hastily tacked to the front of the reception desk at Sky's Isleworth offices currently proclaims: "From digital television business to number one entertainment company." Investors and analysts will be looking to Mr Murdoch tomorrow for signs that vision is more than wishful thinking.
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