Seventy tax investigators, one famous Israeli law office (Herzog, Fuchs and Neeman), an arrest warrant for Rupert Murdoch, an investigation of his head of operations in Israel Dr. Abe Peled and head of the computer center at the Weizmann Institute Prof. Adi Shamir, NIS 500,000 in unpaid taxes - all these players were part of the drama which unfolded Sunday at the Jerusalem district court. At that time, the Knesset tax division applied for an arrest warrant for the purposes of questioning international media mogul Rupert Murdoch on suspicion of tax evasion.
Murdoch is well known to all who follow the business world. He began as a newspaper owner in Australia, and went on to enter Britain's communications world. Today he owns The Times, The Sunday Times, The Sun and The News of the World. When Murdoch "invaded" the US market, he bought the Fox TV network for $1.9 billion, Fox studios for $2.3 billion, publisher Harper-Collins for $1.2 billion, various magazines for $1.5 billion and The New York Post.
In recent years, however, Murdoch has focused on the business of television. He owns the B Sky B satellite network (40%) in the UK, the Star TV network in Asia (64%), Germany's WOX television network (49.9%) and is a partner in a Latin American network. The aggregate value of all Murdoch's television businesses is some $4 billion.
Murdoch understood that payment was a serious problem in the TV business. In order to truly levy payment per TV viewer and in order to maintain agreements with the big film studios, he needed to encode broadcasts in an uncrackable code.
This is where cryptology specialist Prof. Adi Shamir of the Weizmann Institute enters the picture. In 1987, an Australian entrepreneur named Bruce Handmark contacted Shamir and made the connection between the Weizmann Institute computer department and Murdoch's NewsCorp. A company named News Datacom Research (NDR)was established, owned 60% by Murdoch, 20% by the IDG group made up of Handmark, Michael Klinger of the US and Israeli Uzi Sharon. The Weizmann Institute and Shamir own the remaining 20%.
The company signed a contract with the B Sky B network and developed an encryption system including a set-top box and smart card whose chip was based on a advanced algorithm. A set-top box may be dismantled and decoded, but smart cards can be changed every six months in order to prevent unlicensed decoding. The first products were supplied in 1990.
The agreement stipulated that after five years the company would either go public or that Murdoch would acquire his partners' shares. NewsCorp preferred to go with full ownership and purchased the company for $13.5 million. The Weizmann Institute and Shamir are still entitled to royalties on set-top boxes and smart cards made by the company.
The company's developments over the years exceeded ordinary encryption technologies. In essence, the microprocessor found on the smart card may be adapted to any client and need, including such applications as interactive TV and more, as the type of card determines the behavior of the television set. The card can also determine which type of transmission signal may be received directly by the set or even the home computer. This is News Datacom's field of expertise: developing new kinds of service - multimedia, interactive and Internet accessible - for NewsCorp and MCI's new network which is set to begin operation in two years time.
News Datacom tested its smart cards for digital satellite broadcast on its future competitor, Direct TV, owned by Hughes in partnership with AT&T. The company oversaw Direct TV's founding, services development and its transmissions, which commenced in 1994. Direct TV's encryption system, developed by News Datacom as its first digital system product, was very successful and serves as the basis for new developments for MCI-NewCorp's network.
A number of months ago, a critical article was published in Britain's Financial Times, hinting at tax concealment as part of company activity. It is not known whether the Tax Authority began its investigation at that time in the wake of the article's publication, or according to information from the same sources.
Dr. Abe Peled, a former senior executive at IBM international and former VP for Market Development at Elron, was nominated only this year to the position of CEO of News Digital Systems of the UK and its subsidiaries NDR of Israel and DMV of the UK. In response to a question put to him by "Globes," Peled said he was surprised by the appearance of the tax investigators and had no prior knowledge of the investigation or of tax concealment. Evidently, he was not the only one to be surprised.