Image: News Corporation CEO Rupert Murdoch attends the eG8 forum in Paris
Stephane Mahe  /  Reuters
Risk-taking and line-skirting have always been just one more cost of doing business for Rupert Murdoch. But the voice-mail hacking scandal could stain the firm’s image.
By
updated 7/7/2011 11:30:20 AM ET 2011-07-07T15:30:20

Risk-taking and line-skirting have always been just one more cost of doing business for Rupert Murdoch.

But the widening voice-mail hacking scandal at the British tabloid News of the World threatens to stain the company’s image in a way that other embarrassing incidents at News Corporation’s far-flung media properties — which also include the Fox networks and The New York Post — have not.

In the past, Mr. Murdoch has either outlasted his critics or acted swiftly to limit the fallout. And on Wednesday he was in damage-control mode again. The company moved quickly to denounce the hacking and announce its intention to cooperate with the police, but the damage was proving difficult to contain.

There is a growing consensus within the company that Rebekah Brooks, the chief executive of News International and onetime editor who has become the focus of much of the outrage over the hacking, will be forced out of her job, according to people with knowledge of discussions inside News Corporation.

The possibility of firing Ms. Brooks is one that several people close to Mr. Murdoch said he was fiercely resisting because he was loyal to her and viewed the campaign against her as a vendetta by the company’s political enemies.

Story: Advertisers face pressure over scandal at tabloid

One of these people, who did not want to be identified discussing internal matters, said there was also a belief within the company that Andy Coulson, the former News of the World editor who was forced to quit as communications director to the British prime minister, will also come under increasing scrutiny.

So far the harm has been limited to the company’s reputation. The News Corporation does not yet face heavy financial losses, even as the advertiser boycott of The News of the World grows. Still, the company’s shares dropped 3.6 percent on Wednesday to $17.47, after rising for most of the year. The episode could threaten the biggest deal on the News Corporation’s plate: British approval of its complete takeover of BSkyB, the satellite television company.

David Bank, a media analyst for RBC Capital Markets, said the hacking scandal had so far been a blip in the company’s vast business holdings.

“It feels like a lot more noise than substance,” he said, noting how little the newspapers contributed to the company’s bottom line. The News of the World is just a piece of News International’s large footprint in Britain. The company also publishes The Times of London and The Sun.

Over all, revenue from the publishing division of News Corporation accounted for only 17 percent of its revenue in the last nine months. In that time, cable network programming accounted for 61 percent, and film, which includes the 20th Century Fox studio, was 20 percent.

Still, Mr. Murdoch was evidently worried enough about the fallout from the hacking scandal that he convened what someone close to him described as a “war council” in Sun Valley, Idaho, where he was attending a media conference. Mr. Murdoch was there on Wednesday with his wife, Wendi, and his son Lachlan. Ms. Murdoch was seen by a reporter at the conference, but Mr. Murdoch was not.

Mr. Murdoch, weighing into the controversy for the first time since some of Britain’s leading politicians called for an investigation into the News Corporation’s news-gathering practices, called the accusations of hacking “deplorable and unacceptable” and vowed to cooperate with any police inquiries.

But with damaging revelations about the extent of the hacking emerging each day — the latest were reports that The News of the World had accessed voice mails belonging to family members of dead soldiers — Mr. Murdoch’s regretful expressions of disapproval could go only so far.

“Depending on where the investigation goes, how widespread it goes and who knew what when, this is something that could tarnish him seriously,” said Rem Rieder, the editor and a senior vice president for the American Journalism Review. “This seems institutional.”

The News Corporation is no stranger to scandal. Fines for indecency, lawsuits charging anticompetitive business practices and libel claims are a fact of life for the company, which has been able to easily absorb the financial inconvenience.

In 2009, advertisers boycotted Glenn Beck’s Fox News program after the host said President Obama was racist. Taking the action in stride, Fox said the advertising dollars merely shifted to other time slots. And in January the company paid a $500 million settlement to Valassis Communications, which had accused a News Corporation subsidiary of trying to obtain a monopoly in the in-store coupon business.

The most recent prominent incident with the Federal Communications Commission came last year after the network showed an episode of “American Dad” in which a horse appeared to ejaculate on a character’s face. The commission proposed a $25,000 fine. This week, The New York Post was sued for libel by the hotel maid who has accused Dominique Strauss-Kahn, the former International Monetary Fund chief, of sexual assault. In its coverage of the case, The Post has called the maid a prostitute.

In Britain, advertisers have begun to shun The News of the World, removing ads from the tabloid. Some of these companies included Ford, Mitsubishi, the Lloyds Banking Group and Virgin Holidays. But any losses seem likely to remain contained as long as the scandal stays in Britain. “I think it’s contained,” Mr. Bank said.

The biggest risk would be to the proposed purchase of BSkyB. The News Corporation already owns about 39 percent of the company and has been trying for a year to acquire the rest. The acquisition would tighten the company’s grip on British broadcasting, but it has faced scrutiny from critics who say that one company should not have so much control of the television market there.

The review of the deal was expected to end on Friday, and all indications have been that the News Corporation will win approval.

Ofcom, the British regulator, said in a statement Wednesday that it was not responsible for investigating the hacking “which properly lie in the hands of the police and the courts,” but that it was “closely monitoring the situation and in particular the investigations by the relevant authorities into the alleged unlawful activities.”

“I think people are asking themselves, ‘does this become an issue for the BSkyB transaction?’ ” Mr. Bank said. “I can’t imagine that it does in any material way.” But, he said, “it’s a pretty inconvenient time.”

This story, “The Murdoch Style, Under Pressure,” originally appeared in The New York Times.

Tim Arango and Evelyn M. Rusli contributed reporting.

Discuss:

Discussion comments

,

Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 4.32%
$30K home equity loan FICO 5.05%
$75K home equity loan FICO 4.50%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 10.98%
10.98%
Cash Back Cards 16.43%
16.43%
Rewards Cards 16.00%
16.00%
Source: Bankrate.com