http://www.businessweek.com/news/2011-07-08/murdoch-s-riskiest-scrape-may-not-end-with-tabloid-shutdown.html

Bloomberg News

Murdoch’s Riskiest Scrape May Not End With Tabloid Shutdown

July 08, 2011

(Adds closing share prices in eighth, 10th paragraphs.)

July 8 (Bloomberg) -- News Corp.’s Rupert Murdoch has spent years clashing with unions, rivals and governments. Now the scandal at one of his London newspapers is threatening to become the biggest crisis of the 80-year-old’s career.

“He’s been through lots of scrapes and likes to live on the edge, but this must be the most complicated, fast-moving and risky mess he’s been in,” said Charlie Beckett, director of the media institute Polis at the London School of Economics.

News Corp. said yesterday it would close the 168-year-old News of the World tabloid after allegations that its journalists tapped the voice mails of murder victims and paid police officers for stories. Murdoch acquired the paper in 1969 as he expanded into the U.K. from Australia.

The weekly newspaper’s closing may not be enough to end the fallout from the four-year-old phone-hacking scandal, especially with News Corp. trying to win government approval for the acquisition of satellite-TV provider British Sky Broadcasting Group Plc. With the growing public outcry, News Corp. may have to take further steps such as firing Rebekah Brooks, a former editor of the tabloid, said Ken Doctor, a media analyst at Outsell Inc. in Santa Cruz, California.

“I think her position is unsustainable,” Doctor said in an interview. “Given the gravity of what’s involved, she has to take responsibility for that.”

BSkyB Bid

Brooks was editor of the News of the World in 2002 when a private detective working for the newspaper allegedly deleted messages from the voice mail of missing schoolgirl Milly Dowler, later found murdered.

Opposition Labour Party leader Ed Miliband reiterated a call for the resignation of Brooks, who is now chief executive officer of News International, News Corp.’s U.K. publishing unit. Murdoch said this week News International will continue under her leadership.

News Corp., also owner of the Fox TV networks and film studios, the Wall Street Journal newspaper and book publisher HarperCollins, fell 68 cents, or 3.9 percent, to $16.75 in Nasdaq Stock Market trading at 4 p.m. New York time.

Bloomberg LP, the parent of Bloomberg News, competes with News Corp. units in providing financial news and information.

Trinity Mirror

Trinity Mirror Plc, which publishes the rival Sunday and Daily Mirror newspapers, closed up 4.2 percent to 50 pence in London. BSkyB fell 62 pence, or 7.6 percent, to 750 pence. The stock has fallen 12 percent from a record of 850 pence on July 4 before reports of the new allegations.

News Corp.’s 7.8 billion-pound ($12.5 billion) offer for BSkyB has drawn more than 135,000 messages of objection a day before a week-long consultation on additional conditions ends today. U.K. lawmakers have called for the bid to be halted pending a public inquiry. Regulator Ofcom, which monitors broadcasters, can also intervene.

Closing the News of the World is an attempt to put the scandal in the past and smooth the approval process for BSkyB, said Laura Martin, an analyst with Needham & Co. in Los Angeles.

“They’re trying to increase the odds that it gets done before Parliament breaks,” Martin said in an interview. “It helps to shut down the enterprise that is morally questionable. The only reason to do it with such haste is to make sure it doesn’t derail the regulatory process.”

News Group Newspapers Ltd., the unit within News International responsible for the News of the World and The Sun, reported an operating profit of 18.2 million pounds in the year ended June 27, 2010, compared with an operating loss of 15.3 million pounds a year earlier, according to accounts filed at Companies House. News Corp. reported revenue of $32.8 billion for the year ended last June, with net income of $2.54 billion.

Tabloid’s History

“Financially, you wouldn’t even notice it in News Corp.,” said Ed Atorino, an analyst at Benchmark Co. in New York.

The News of the World, founded in 1843, has long been Britain’s biggest-selling Sunday newspaper. It quickly established a reputation in the Victorian era for its coverage of sensational stories involving crime and sex.

That approach to news continued into the 20th century, and in the years after World War II the newspaper sold around 8 million copies a week. Its circulation declined from more than 6 million in the 1960s to 2.66 million in May, according to data from media researcher ABC.

From 2007, when one of its reporters was jailed for phone- hacking, to 2010, News International denied there was any widespread culture of illegality at the newspaper.

Jude Law

The balance tipped in January. With more celebrities such as actor Jude Law and interior designer Kelly Hoppen suing the paper, evidence came to light that led to the suspension of one of the newspaper’s executives. In the following three weeks, Andy Coulson, a former editor, announced he was resigning from his job in Prime Minister David Cameron’s office and News International handed over a file of information to the police, who opened a fresh investigation.

Coulson was arrested today as part of a probe into phone- hacking at the tabloid newspaper, a person familiar with the matter said.

“Putting it right for the prime minister means starting by the appalling error of judgment he made in hiring Andy Coulson,” Miliband said in a speech in London today. “Apologizing for bringing him in to the center of the government machine. Coming clean about what conversations he had with Andy Coulson before and after his appointment about phone- hacking.”

General Motors, Lloyds

In the wake of this week’s phone-hacking allegations, companies including General Motors Co., Lloyds Banking Group Plc, RWE AG and Mitsubishi Motors Corp. have halted advertising.

Murdoch may seek to replace the revenue lost in the News of the World shutdown by adding a Sunday edition of the Sun, said Marc Mendoza, CEO of Media Planning Group, the media buying and planning arm of Havas SA.

“They can’t just close News of the World and forgo all of the advertising revenue that is now suddenly in limbo like it’s not needed anymore,” Mendoza in an interview. “I think that they will actually just sort of shove it across to an alternative, similarly editorially focused title that’s not sullied with the News of the World name. And The Sun hasn’t done anything wrong ostensibly.”

A website titled thesunonsunday.com was registered July 5, according to allwhois.com, a domain-name database search engine.

Public Outcry

Murdoch is no stranger to public outcry. In the 1980s, Murdoch shifted production of News of the World and other newspapers from Fleet Street in central London to Wapping in the capital’s still underdeveloped Docklands. In doing so, he broke the power of labor unions opposed to introducing new technology. Police fought strikers nightly outside the Wapping plant as the papers were printed.

Murdoch’s 2007 bid for Dow Jones & Co., publisher of The Wall Street Journal, sparked a public debate over journalistic values and standards. Some members of the Bancroft family that had owned the paper sought other buyers. Eventually, Murdoch’s offer was approved.

The allegations of phone-hacking and bribery will raise further questions about the power of the media and the dangers of media concentration, said Outsell’s Doctor.

“Abstract concern about the concentration of media power is now fully formed,” he said. “You have a media power that has engaged in alleged bribery and wiretapping. Then the question of Murdoch’s tapping more power with the ascendant media of the day, BSkyB, is no longer abstract.”

--With assistance from Robert Hutton and Eddie Buckle in London, Anthony Palazzo in Los Angeles. Editors: Peter Elstrom, Kenneth Wong, Eddie Buckle

To contact the reporters on this story: Devin Banerjee in New York at dbanerjee2@bloomberg.net; Jonathan Browning in London at jbrowning9@bloomberg.net; Amy Thomson in London at athomson6@bloomberg.net

To contact the editors responsible for this story: Peter Elstrom at pelstrom@bloomberg.net; Kenneth Wong at kwong11@bloomberg.net


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