Murdoch learns to love the Net

Just six months ago, media mogul, Rupert Murdoch said the Internet will "destroy more companies than it will create" and claimed he was in no hurry to rush online. But last week, Murdoch's News Corporation launched a major new media investment fund along with Japanese high-tech conglomerate, Softbank. So why the apparent change of heart?

The coming together of old and new media companies is nothing new - Disney, for example, has bought into Infoseek while Bertelsmann partners with America Online. However, the News Corp/Softbank deal is truly notable, not least because of Murdoch's previous reluctance to acknowledge the power of the Net.

The deal was part of a two-pronged European strategy for Softbank. It has also partnered with Vivendi, the giant French utilities company which has stakes in telcos and cable companies such as Canal+ and even BSkyB.

However, the News Corporation deal - which aims to bring US Internet companies to the UK, Australia and other countries - heralds the second stage of Murdoch's empire embracing the Internet. In April, shortly after speculation that BSkyB boss Mark Booth was about to be lured to Microsoft, the company established ePartners, a new media investment fund with $300m to spend and Booth at the helm.

The News Corp/Softbank joint venture will be called eVentures, and brings together ePartners and Softbank's considerable investment expertise. Although the Japanese company's software and publishing holdings have at times disappointed, Softbank founder, Masayoshi Son has made no secret of the company's ambitions to be an Internet 'zaibatsu', meaning it will have fingers in many corporate pies.

It has launched the Japanese arms of Broadcast.com, GeoCities and E*Trade, and its 28 per cent stake in Yahoo!, which cost $100m, is now worth $11bn.

Chad Wollen, media specialist at The Henley Centre, said: "The current Net stock bonanza means older media companies can't just cherry-pick [Internet companies] anymore. But this move will make a lot of people take News Corporation seriously in this business. You'd be surprised just how many people in the UK still think the Internet is a fad."

Indeed, Murdoch last week once again spoke of overvalued Internet companies, but admitted: "Big will not beat small anymore. It will be the fast beating the slow."

John Maroney, principal consultant for new media at Ovum, called eVentures something he'd "expect any sensible media company to do". But echoing Murdoch's earlier position, he added: "Stock prices for some of these Internet companies are high, and I'm sure the market will burst some time in the future."

However, Maroney said companies such as News Corporation and Microsoft, whose success has come from publishing and software respectively, "have to look at this dynamic new industry" because - apart from anything else - they "have to invest their money in something".