Like Father, Like Son?

By Mark Halper/ London

Maybe the kid's all right after all. In the fall of 2003 investors were screaming nepotism when media mogul Rupert Murdoch installed his son James as chief executive of BSkyB, the British pay-TV powerhouse that is 36% owned by Murdoch Sr.'s New York City--based News Corp. But earlier this month James, 32, wowed them by reversing a two-year skid in Sky's year-to-year quarterly subscriber growth. "Murdoch Jr. is doing fairly well, to be honest," says John Hayes of London-based F & C Asset Management. That's high praise from a fund that voiced big concerns when James took over.

But subscribers, like lunch, don't come free. Murdoch began spending heavily in October on marketing and advertising, jacking up the cost of acquiring each customer to $430 from $387. "The marketing costs were higher than people expected," says analyst Kingsley Wilson of Investec. Subscriber-acquisition cost, says James, is "not particularly a measurement that we are concerned with."

Some analysts agree. "Revenues are growing faster than costs," notes Morgan Stanley's Sarah Simon. (After-tax profits for the past six months were up 18%.) Still, Murdoch faces increasing competition. A multichannel provider called Freeview has won 5 million customers in Britain in little more than two years, while cable operators NTL and Telewest recently launched video-on-demand services that challenge Sky's movie business. F & C's Hayes notes that a share buyback launched by Sky in November could lead to "creeping control" of Sky by News Corp. That's just the sort of worry that rankled investors in the early days of James' reign. Of course, if he can continue to add subscribers--and keep profits moving up--maybe that won't matter. It may even help him leap ahead of brother and New York Post boss Lachlan, 33, for Pop's ultimate gift: succession to the News Corp. throne. --By Mark Halper/ London