Murdochs fight to stay afloat as sharks circle
Pundits were chatting in a television studio during a commercial break early this week on Fox News Watch, dedicated to hot topics in the media world. Believing themselves off-air, the three guests, conservative commentators James Pinkerton and Cal Thomas and former New York Times reporter Judy Miller, laughed and joked among themselves.
“Anybody want to bring up the subject we’re not talking about today?” Thomas asked.
“Sure, go ahead, Cal!” said Pinkerton.
“No, go ahead, Jim,” Thomas replied.
The joke, of course, was that no one wanted to be the first to bring up the crisis afflicting Rupert Murdoch on his own TV channel. Fox is owned by News Corp, the giant US-based media company which, inexorably—terrifyingly for its shareholders—is being drawn into the phone-hacking scandal that has dominated the headlines in Britain for a fortnight.
Such reticence on the part of the Fox pundits was perhaps born out of a desire and expectation that the troubles assailing Murdoch’s News International would remain firmly on the British side of the Atlantic and not infect its giant American parent company.
Many News Corp managers and investors saw what was happening in London as an outbreak of disease in a far-flung offshoot of the empire. The key thing for them was to insulate the rest of the body corporate from contagion. That was especially important in the US, where its lucrative TV, film and publishing properties bring in billions of dollars of profit and give it immense political influence.
But by the end of the week that mission was in tatters. Allegations and fears that phone hacking might have occurred in the US led to a series of calls from politicians for investigations into News Corp. The department of justice and the Securities and Exchange Commission have been asked to examine the company’s work and the FBI has now started an investigation.
The scandal has also revealed a battle at the heart of News Corp, which is listed on the New York Stock Exchange, for the future of the US empire. That has exposed a corporate structure where the Murdoch family squabble among themselves but are also pitted against other factions. It is a fight that puts highly profitable TV interests against those of a declining print industry.
Rebel shareholders despair of family control of the company and a coterie of top corporate managers are fearful that one of 80-year-old Rupert Murdoch’s children may take over the firm and not be up to the job. The scandal has also opened up an unexpected opportunity for Murdoch’s US critics—especially those on the left who hate Fox News—to question the company’s suitability to own a good chunk of the US media.
The damage has already begun in the US. Within hours of Rebekah Brooks’s departure on Friday morning, any hope that the tide of outrage would ebb quickly faded. The US operation saw its first big casualty when Les Hinton resigned. Hinton, who was intimately involved with running News International when much of the phone hacking went on, dramatically quit on Friday afternoon, New York time, as head of the gleaming jewel of Murdoch’s US media empire: Dow Jones, which owns the Wall Street Journal.
The pain of Hinton’s loss to Murdoch cannot be overestimated. The two had worked together for more than half a century and, in his farewell email, Hinton spoke of his “sorrow”. Murdoch too said it was a matter of “much sadness”. Breaking the bond between two men who defined News Corp could not have been easy. Yet it showed the size of the stakes being played for. The crisis had crossed the Atlantic spectacularly.
All bets off
There could be more drama to come. Possibly next in the line of fire is James Murdoch, son and heir presumptive to the News Corp crown. His fall would be shocking. But it may not even end there. If the FBI probe finds anything, all bets will be off. This crisis could perhaps even assail Murdoch himself. “If anything gets uncovered here in the US there will be a very, very high price to pay,” said Jack Lule, journalism professor at Lehigh University, Pennsylvania.
The American empire is vast. In print it runs the Journal and the feisty tabloid the New York Post. As well as Fox, it owns publishers HarperCollins and the DowJones financial newswire, and the 20th Century Fox film studio. But those are just the big names. It owns scores of other properties from the Fox Soccer Channel to the Daily iPad newspaper to a big stake in the TV website Hulu to a small group of New York community newspapers and many, many more.
Yet News Corp is not run like many normal companies. Instead it has a dual share structure whereby its stock is split into two classes: “A” shares that carry with them voting powers and “B” shares that do not. This structure, with Murdoch and his family owning the biggest stakes in the “A” shares, allows Murdoch to run the firm tightly without actually owning the majority of it. To increasingly unnerved shareholders—who have seen the value of their investments lose hundreds of millions of dollars over the week—that no longer looks like a good idea. “This is a new climate. The largest shareholders of this company are not happy any more at how it is being run,” said Michael Wolff, a media expert who wrote a biography of Murdoch.
With Brooks and Hinton gone, many shareholders are concerned that they will not be the last senior figures to fall—or be pushed. The focus is now on James Murdoch. His position as deputy chief operating officer means the crisis has now reached the giddiest heights of News Corp and threatens the grip of the family itself. James, who has admitted misleading Parliament over phone hacking and said he had not been given all the information he needed, has suffered a catastrophic loss of his reputation. The man who was once clearly next-in-line now faces an uncertain future. “One can safely rule out James taking over at this point. That’s not going to happen. Everybody in the company recognises that,” Wolff said.
But if not James, then who? Among other Murdoch children Elisabeth—whose TV production company Shine was recently bought by News Corp—might perhaps move up. But she is unknown at such a high corporate level. Or, perhaps, Lachlan Murdoch might return to the fold after years of seeing James favoured. But increasingly there is a belief that the Murdoch name is no longer the force within News Corp that it was. In order to placate restless shareholders Murdoch has poured billions of dollars into a share buyback scheme aimed at stabilising the plunging stock and sparing investors further pain. Some financial experts see that as a way of saving the current set-up. “A lot of it depends on the stock price. If it stabilises then the current management might survive,” said Rebecca Arbogast, a managing director at Stifel Financial.
But even if the buyback does halt the share slide the influence and power of non-family figures will still have been greatly strengthened. One man to watch is Chase Carey, the chief operating officer who was brought back into the company fold only in 2009 from satellite TV company DirectTv. Some have Carey acting as a sort of “prince regent”, running News Corp until a Murdoch is able to take over. Others go further and believe he will become the heir. This week Jason Subotky, a portfolio manager at News Corp’s eighth largest investor, The Yacktman Funds, broke cover and said he would be thrilled if Carey took over. Another non-family person to emerge strengthened is Roger Ailes, the liberal bete noire behind Fox News. While Murdoch’s UK newspapers have lost their political power amid allegations of illegal skulduggery, Ailes’s Fox News has won huge influence solely by the power of its opinions and the controversial style of its broadcasting. Ailes, Fox insiders say, is upset at the crisis in the UK and the potential blowback to Fox. Which could unnerve some of the Murdoch children. Ailes and the children have had their differences, especially after Matthew Freud—the husband of Elisabeth Murdoch—publicly said he was “ashamed” of Ailes’s journalistic standards.
‘Family candy jar’
Now a lawsuit has been filed against senior News Corp management by upset shareholders. It was placed on behalf of a group of investors, led by Amalgamated Bank, who were furious at Murdoch’s purchase of Elisabeth’s business for $675-million. That suit alleged nepotism on behalf of News Corp. “Murdoch has treated News Corp like a family candy jar,” the lawyers said. It has now been updated to include outrage at the fallout from the phone-hacking scandal and an argument that News Corp’s handling of the crisis has been catastrophic for investors. “[It shows] a culture run amok within News Corp, and a board that provides no effective review or oversight,” the suit now reads. Experts expect more such cases to be filed as shareholders circle the floundering corporation.
“This is now fertile ground for shareholder lawsuits,” said Jeffrey Silva, a communications industry expert at Medley Global Advisers.
But the greatest legal threat to News Corp in America is likely not to come from courts where lawsuits are filed on behalf of investors. It is from the threat of investigation by top US law enforcement officials. In a sign of how quickly and dangerously things had spun out of control, a single report in the Daily Mirror about an alleged attempt to obtain the phone records of victims of the 9/11 terror attacks sparked a political firestorm in the US.
The report, which used an anonymous source and admitted no phone records had been passed on, provided the cover for a wave of politicians to demand investigations into News Corp. Democratic senators Jay Rockefeller and Barbara Boxer sent a joint letter to the justice department and the SEC calling for an investigation into whether News Corp had violated the Foreign Corrupt Practices Act which bans US firms from engaging in corruption abroad.
Some experts think payments made by News International to policemen and others in the UK could fit that bill. Two more Democratic senators, Frank Lautenberg and Robert Menendez, then joined the hunt and wrote to the SEC. Then, to the shock of many, a Republican stepped up too. New Yorker Peter King fired off a missive to FBI director Robert Mueller demanding a probe into the 9/11 allegations. “Any person guilty of this purported conduct should receive the harshest sanctions available under the law,” King said. That seemed to be enough for the FBI, which promptly began a preliminary investigation.
Two FBI units have been assigned to the task, one that specialises in white collar crime and corruption, and a cybercrimes unit. Though the public evidence of wrongdoing in the US—in the form of that Mirror report—is scant, experts believe that may not be the point. “This allows a fishing expedition for the FBI. They are able to probe and find out what else might be going on,” said Lule. If that expedition finds criminal evidence in the US then many believe that News Corp’s suitability to run TV stations in the US could be called into question. “If it turns out they did things here, then that would up the risk,” said Arbogast.
Some, however, think huge damage has already been done to News Corp’s reputation: enough to cost many millions of dollars in the future. Even if the crisis in the US stops and the FBI investigation finds no evidence of illegality, the aftermath of the last two weeks has left a scar across the empire in the US. With the deal to buy the rest of the satellite broadcaster BSkyB off the table, News Corp suddenly has billions of dollars to spend and a desire to expand. But with its tainted brand, News Corp may not find its path to growth as easy as it has done in the past. There will be no special treatment from regulators in the future. Indeed, it is likely to be the reverse. “Murdoch is going to have to apply for permits and permissions and licences and this company has been tainted. It is going to be a problem. Their ability to expand has been hurt,” said Lule. - guardian.co.uk