(FORTUNE Magazine) – Seventy-one-year-old Rupert Murdoch permits himself a smile as he contemplates his future. The prize he has coveted for two decades, a satellite-TV platform in the U.S., finally appears to be within his grasp. His Fox TV network has emerged from a slump to rock the broadcasting industry with smash hits American Idol and Joe Millionaire. And his long-shot bets on the Fox News Channel and the Star TV pay-television platform in Asia have begun to pay off.

Half a century ago Murdoch was an Oxford undergraduate who inherited an ailing, provincial newspaper in Australia from his father. Today, as the chairman and CEO of News Corp., he is worth about $7 billion, and he wields more power than any other media titan. He built his global empire of TV networks, newspapers, magazines, books, and movies by defying convention and taking risks. He gained a reputation as a gambler whose next move could never be anticipated, a pirate who played by his own rules, and an owner who cared little about short-term results. But now Murdoch says he is mellowing. "We're running a very conservative ship at the moment," he says. "We're keeping our heads down, managing the businesses." He takes pleasure in something no one expected a few years ago: News Corp. has become the most stable and predictable of the media giants, if not the most admired.

In part, that's because the others are verging on dysfunctional. At Viacom, chief executive Sumner Redstone and president Mel Karmazin barely speak. Disney's Michael Eisner has to soothe discontented investors and fix ABC. Vivendi Universal's entertainment assets may be up for sale yet again. AOL Time Warner, parent of FORTUNE's publisher, has seen a parade of top executives walk out the door and recently posted the largest annual loss in corporate history.

News Corp., by contrast, will generate about $18 billion in revenue and $2 billion in operating income in the current fiscal year, both records for the company. Murdoch rules unchallenged, and he has vested considerable responsibility in his sons, Lachlan, 31, and James, 30, in the hope that they will take over someday. In the meantime Rupert has complete trust in his well-regarded chief operating officer, Peter Chernin, who for his part will not say an unkind word about the boss. "We don't have battles over turf," Chernin says. "None of that Mel Sumner stuff." Their investors have also done well lately. The Fox Entertainment Group, which tracks News Corp.'s U.S. TV and movie assets, was the top-performing major media stock in 2002. News Corp., which includes the company's newspapers and global properties as well, was third, just behind Viacom.

Murdoch has another reason to smile as we talk in a private dining room at News Corp.'s New York City headquarters. He confirms that his third wife, 35-year-old Wendi, is expecting a child, their second and his sixth, this summer. "I'm very, very happy," he says. "I'm lucky in my profession, and I'm lucky at home." His prostate cancer is in remission. He's careful about what he eats--a waiter serves us beet salad, grilled sturgeon with vegetables, and fresh fruit--and he works out nearly every day with his personal trainer.

The story of how the most powerful man in media flexes his muscles is not always a pretty one, though. There is no question that Murdoch has enlivened American television, but he has cheapened it too. He has run circles around Washington regulators. He has used his media outlets, particularly the New York Post, to reward friends and punish foes. Nothing, it seems, is sacred. He compromised even his bedrock conservative principles by pandering to China's repressive regime to get his programming into that vast market.

"This is a guy who has to keep moving," says Neil Chenoweth, an Australian financial journalist whose investigative biography, Rupert Murdoch, has just been published in the U.S. "In half a century of building News Corp., he has left everyone and everything behind. That applies to ideas. That applies to friends.... He'll do whatever he has to do to get the next deal done."

SKY KING

Murdoch has craved a U.S. satellite platform since 1983, when he unveiled plans for a venture called Skyband that never got off the ground. He was prescient about the business. Today one in five U.S. homes buys its pay television from satellite providers DirecTV or EchoStar. That's a big shift, but it's nothing like what's likely to happen when Murdoch gets into the game. If he has his way, he will buy either DirecTV or EchoStar and add the U.S. market to a worldwide network of satellite distribution that includes BSkyB in Britain, Star TV in Asia, Foxtel in Australia, SkyTel in Latin America, and Stream in Italy.

His entry is likely to intensify two major battles underway in the $72 billion U.S. pay-television industry. One is a straightforward competition between cable operators and satellite providers for subscribers. The other is a behind-the-scenes game of leverage between providers of programming and distributors--and in this fight, cable and satellite are on the same team. They are determined to hold down the fees they pay for such networks as ESPN, MTV, and CNN.

Murdoch, like other programmers, doesn't want to get squeezed. "I feel at risk," he explains. "One can look forward several years with a very high degree of confidence and say there are going to be only three big cable providers." That portends a shift in the balance of power away from programmers and toward the big gatekeepers like Comcast and AOL Time Warner. That's why Murdoch is so intent on becoming a gatekeeper himself. Buying DirecTV would give him 11 million subscribers; EchoStar, eight million.

With a satellite platform, Murdoch would have a weapon to protect his prized array of fast-growing cable networks, which include Fox News, Fox Sports, National Geographic, and the Speed Channel, which carries motor sports. (Their combined operating income tripled last quarter.) The way the game is played, big cable operators won't give News Corp. too tough a time about carrying its networks if they know that Murdoch controls distribution they want for their own programming services.

News Corp. also expects to find synergies between a U.S. satellite business and its global operations. They can share best practices or technology, like security software developed by a controversial News Corp. unit called News Digital Services (see box) or the electronic program guides licensed by Gemstar--TV Guide, a company Murdoch now controls. (He forced out then-CEO Henry Yuen last year after an accounting scandal.) With satellites beaming programs down to every continent but Africa and Antarctica, News Corp. could bid for the global rights to sports like World Cup soccer or the Olympics.

Murdoch came within a whisker of acquiring DirecTV in 2001, but the prize was snatched away at the last minute by Charlie Ergen, CEO of EchoStar, who outbid him. Murdoch placed a congratulatory call to Ergen, a longtime rival, and then did all he could to scuttle the EchoStar-DirecTV merger. News Corp. helped opponents of the deal, including state attorneys general, activists led by the Rev. Al Sharpton, and religious broadcasters who feared that programming they favored could be kept off the air. The merger was blocked on antitrust grounds, creating a clear path for News Corp.

Murdoch is more likely to wind up with DirecTV than with EchoStar. The DirecTV deal would admittedly be complex--it involves General Motors, GM's Hughes Electronics unit, a tracking stock, and tax considerations. But it is not as complicated as it was last time around when News Corp., with allies Microsoft and Liberty Media, wanted to merge DirecTV into a new entity, Sky Global, to hold all his global satellite assets. This time Murdoch and Liberty are willing to pay cash, perhaps $6 billion, for Hughes's 30% stake in DirecTV. GM needs the money. And people who know Ergen don't believe that EchoStar is truly for sale.

Cable operators are following the developments closely. They are worried about that first battle we described, the one that pits cable against satellite for market share. They fear that Murdoch will put popular Fox offerings, like regional sports networks, exclusively on the satellite to lure away their subscribers. Murdoch says he won't do that, pledging to sell programming to everyone. But it's not so simple.

"Look at the U.K. experience," says one U.S. cable operator, who's not ready to speak publicly yet. "BSkyB, which was controlled by News Corp., had very tight control over movies and sports, and the cost of programming to cable operators was higher than anywhere else in the world." Told that Murdoch promises to sell his content to cable and satellite on the same terms, the cable guy replies, "It's easy to overprice programming when you're paying yourself."

Washington regulators will scrutinize any satellite deal. But Murdoch is adept at regulatory battles. As long ago as 1985, he became an American citizen to skirt the prohibition on foreigners owning U.S. TV stations. He told the FCC that Fox's stations were owned by a company called 20th Holdings Corp., which he and Barry Diller controlled. But SEC filings say that News Corp., an Australian company, controls 20th Holdings. When the FCC investigated News Corp. in the mid-1990s, its staff found that Murdoch had violated the foreign-ownership rules. But FCC commissioners, under pressure from Republicans in Congress, overruled the staff and concluded that no laws had been broken.

Murdoch has used both his personal charm and his media clout to cultivate powerful politicians. "He hungered for the kind of influence in the United States that he had in England and Australia," a former News Corp. executive says. "Part of our political strategy here was the New York Post and the creation of Fox News and the Weekly Standard." The Post, for example, fawned over New York Mayor Rudolph Giuliani in its editorial and news pages, and Giuliani helped Fox News get cable carriage in the city when Murdoch was battling with Time Warner Cable. The paper also went after Murdoch rival Ted Turner. (The Post once ran the banner headline IS TED NUTS? YOU DECIDE. Murdoch has taken great pleasure in watching his Fox News blow past Turner's CNN in the ratings.) In a lengthy 1998 article in the Columbia Journalism Review, media critic Russ Baker wrote that Murdoch "wields his media as instruments of influence with politicians who can aid him, and savages his competitors in his news columns."

Murdoch dismisses such charges by averring that he does not tell any of his media properties what to say. He can point to movie and TV reviews in the Post and TV Guide that were tough on Fox, and his editors have said he gives them lots of latitude. But some who have left his employ say Murdoch finds ways to make his people aware of his opinions and expectations. "He is not a miniaturist," wrote Harry Evans, whom Murdoch fired as editor of the Times of London. "He creates an aura."

MAN VS. BEAST

Have you ever wondered who could pull a DC-10 faster--an elephant or four-dozen midgets? Someone at Fox did, and so, evidently, did the 9.2 million viewers who tuned in last month to a prime-time special called Man vs. Beast. The program also featured a hot-dog-eating contest between a Kodiak bear and an immense Japanese man who had previously appeared on Fox's The Glutton Bowl. Olympic gold medalist Carl Lewis showed up to provide commentary for a 100-meter race between a sprinter and a zebra, informing viewers that in order to win, the zebra would have to "realize that it's a race." Victory, in fact, went to the zebra, elephant, and bear.

The beasts seem to be holding their own inside Fox, which is riding the reality-TV craze as hard as it can. Peter Chernin--who began his post-Berkeley career in book publishing--makes no apologies for Fox's attention-grabbing shows, as long as they are well produced and original. He is thrilled by Joe Millionaire and American Idol, which have blossomed into cultural phenomena. On Joe Millionaire, comely women compete for the love of a "millionaire" who, unbeknownst to them, made a mere $19,000 working construction last year. On American Idol, young singers, some long on hope and short on talent, compete for a record contract that will be awarded by an audience vote. "These shows have a tremendous--in the best sense of the word--voyeuristic appeal," Chernin says. "You are seeing raw, naked emotion." Traditional Hollywood is afraid that reality shows will drive scripted shows off the air. That's unlikely, but the new hits are forcing the producers of dramas and sitcoms to deliver more compelling fare.

What we are witnessing in a sense is Murdoch's takeover of prime time. To be sure, reality shows have been around since Candid Camera. And the current boom was ignited by ABC's Who Wants to Be a Millionaire. But Fox pushed the genre to extremes, with such specials as When Animals Attack, World's Scariest Police Chases, and Celebrity Boxing. Predictably, Fox was also the first network to eroticize the form with Temptation Island, a program that tested the fidelity of couples by having them mingle with sexy singles. Had Fox not pushed the envelope, GE-owned NBC would not now be inviting contestants on Fear Factor to eat horse rectums. Nor would Disney's ABC be preparing to air Are You Hot? The Search for America's Sexiest People.

Murdoch himself has no special affinity for such titillating fare, although he does like to tweak the British establishment by featuring bare-breasted women on Page Three of the Sun, his mass-circulation daily. News Corp.'s output is diverse. It publishes sensationalistic tabloids as well as elite papers in London and Sydney. Its Zondervan unit, a Christian communications firm, is the world's No. 1 publisher of Bibles; HarperCollins publishes The Bartender's Bible. "Rupert is not looking to impose his tastes on the creative output of this company," Chernin says. "He is not that actively involved." What kinds of shows does Murdoch like? "News and hits," Chernin says.

Still, Murdoch has put his stamp on Fox by hiring bold, creative people and encouraging them to try anything. That's how Fox has come up with such groundbreaking shows as 24, a suspenseful serial that's one of television's best dramas, and The Simpsons, which Chernin justifiably calls a "work of genius." The Fox network continues to lose money, but its hits provide the buzz and the brand for the company's 35 owned TV stations, which brought in $599 million in operating income last year. It's easy to forget the derision Murdoch endured when he launched the fourth network 16 years ago.

There's no sign, by the way, that the reality craze is fading. Fox has just ordered a dating show called Spellbound, to be produced by Elizabeth Murdoch, Rupert's daughter. In the pilot episode three gorgeous women compete for the attention of a man who is their perfect match except that he is unattractive. The women do not know that because they have been hypnotized into believing he's a sex idol. The denouement comes when the man breaks the spell. Elizabeth Murdoch described the program to the trade paper Electronic Media as "cringe-worthy television, but fantastic, so you can't help but watch it." The apple does not fall far from the tree.

ONE IN A TRILLION

Ten years before Enron's collapse, News Corp. cooked its books--or at least lightly sauteed them. It began in 1987, when News Corp. reported profit before extraordinary items of A$364.364 million, writes Murdoch biographer Chenoweth. Note that the three numbers on either side of the decimal point are the same; the odds of that happening are one in 1,000. In 1988 profit before extraordinary items was said to be A$464.464 million. It was A$496.496 in 1989, and A$282.282 in 1990. The chance that such a pattern would repeat itself four years in a row is one in a trillion.

Talk about making the numbers! Murdoch laughs heartily when I ask him about it. It's the first he's heard of it, he says. "Talk to Dave Devoe," he tells me, referring to News Corp.'s longtime chief financial officer. "We pride ourselves on having a very principled company." The next day a News Corp. spokesman says he won't investigate further because the figures are old and "immaterial."

It may have been a gag, but there's no question that the company's financials were regarded with skepticism during the 1980s and 1990s. News Corp.'s assets are diverse, far-flung, and hard to value. The company has numerous associated entities, joint ventures, and subsidiaries scattered across Caribbean tax havens. And News Corp. uses Australian accounting rules, which are more liberal than U.S. GAAP. Because Murdoch never paid much attention to Wall Street, the company didn't go out of its way to explain itself either.

Post-Enron, News Corp. has taken steps to clarify its reporting and improve its relations with investors, analysts say. More important, Murdoch promises that outside the satellite division, he has no more appetite for major acquisitions (even in the newspaper business, his first love). He's lost some big bets lately, overpaying for Gemstar--TV Guide and bigtime sports rights. But News Corp. has avoided the "transforming" deals that other, bigger media conglomerates have done, sometimes to their regret. With a market capitalization of $35.2 billion, News Corp. is worth less than AOL Time Warner, Viacom, or Disney.

The family partnership, Cruden Investments, holds about 20% of News Corp.'s equity and 30% of the voting stock. Murdoch used to say with blithe assurance that his oldest son, Lachlan, would succeed him, in the manner of the British royalty he disdains. But in the new era of attention to corporate governance, he's more circumspect, saying that he expects that the board will want to consult with him and his sons about a successor. Investors expect that if Murdoch were to leave anytime soon--something he has no intention of doing--Chernin would be the board's choice to take over. A Fox insider tells FORTUNE, "The kids are nowhere near ready."

The board's makeup remains a concern, though. Seven of the 15 directors work at News Corp., two others spent years in Murdoch's employ, and nonexecutive director Stanley Shuman of Allen & Co. is a longtime News Corp. advisor. James Murdoch got his board seat on his 28th birthday--a thoughtful gift for the young man who has everything.

Murdoch is a proud father, and his sons, by all accounts, get along well. When asked about succession, Rupert says, "Peter Chernin is a great chief operating officer. My son Lachlan is coming on very strong. So is my son James." Lachlan is deputy chief operating officer of News Corp., a notch below Chernin on the organization chart; he is publisher of the Post, he's involved with the Fox TV stations, and he has long been presumed to be the likely successor.

James has been chairman and CEO of Hong Kong--based StarTV since 2000. Murdoch has made noises recently about the sons' sharing power. A family acquaintance and News Corp. investor says, "James reminds me of his dad. Lachlan is a little buttoned-down. I think of Lachlan more as a lieutenant than as a general."

Certainly James has been given responsibility for an asset of staggering potential. The pan-Asian TV service Star distributes 38 channels in eight languages to about 300 million viewers, a fraction of the available audience. It has made impressive progress lately. In India the Star Plus channel is the dominant cable channel, thanks in part to the Hindi version of Who Wants to Be a Millionaire. Subscription fees, never easy to collect in the developing world, have begun to trickle in. In China, Star's entertainment channel Xing Kong Wei Shi last year was granted carriage over a state-controlled cable system in the prosperous Guangdong province. This was a breakthrough because most foreign channels in China can be viewed only in offices and hotels; the new Xing Kong channel is a Chinese version of Fox, targeting young audiences with such shows as Woman in Control, the first male beauty contest seen on Chinese TV, and Wanted!, in which viewers work with the police to crack unsolved crimes. In the spring of 2002, Star reported its first operating profits.

The story of Star's rise is vintage Rupert. Shortly after buying Star in 1993, he declared in a speech that satellite television would prove "an unambiguous threat to totalitarian regimes." The Chinese government promptly prohibited citizens from buying satellite dishes. Ever since, Murdoch has done his best to curry favor with the authorities. He took the BBC World Service off the Star platform because it was highly critical of the government. His HarperCollins unit published a flattering biography of the late Chinese leader Deng Xiaoping, written by Deng's daughter, and sponsored her tour of the U.S. Then HarperCollins ditched plans to publish a book critical of the Chinese by Christopher Patten, the former governor of Hong Kong. Murdoch's people say other media companies, including AOL Time Warner and Viacom, have done just as much to cultivate the Chinese. But Murdoch is the only CEO to have dismissed the Dalai Lama, the exiled Tibetan leader, as "a very political old monk shuffling around in Gucci shoes."

Then again, Murdoch has always been able to say and do pretty much whatever he wants at News Corp. No other big media company is as much a reflection of one man's vision and desires. None of the other media moguls has had his impact. Ted Turner came closest, until he sold his company to Time Warner, and now he has left the stage.

If the media giants grow ever bigger--an unlikely prospect, given the difficulties of operating at their current size--power is certain to be dispersed, and executives are likely to feel more accountable to boards and shareholders and even the public than Murdoch has. Murdoch will be worth watching, as always, in the years ahead, if only because he's the last of his kind.