News Corp. takes a major hit

The phone-hacking scandal has actually hurt Rupert Murdoch:

News Corp. dropped its bid to take full control of British Sky Broadcasting Group PLC, as a political firestorm ignited by reporting tactics at one of its U.K. newspaper titles upended the company’s strategic ambitions and delivered a blow to its influence in Britain.

News Corp. pulled the plug on the deal hours before a vote in which U.K. Prime Minister David Cameron’s Conservative Party lined up to support a motion by the opposition Labour Party urging the company to abandon the bid.

That report is from the Wall Street Journal, Murdoch’s respectable paper in the U.S.

Murdoch’s political cronies are running scared, too. Today’s Prime Minister’s Questions hour in Parliament saw something you’d never expect: The Conservatives, whom Rupert essentially put in power, turning against him. Here’s Ed Miliband, the Labour leader, blasting David Cameron and his ties to News Corp.:

So, it turns out Rupert did crap in the food one too many times.

But as we look at the people now standing up to News Corp., let’s not forget that others had been sticking their necks out in criticizing the company and its practices.

Nick Davies at the Guardian has been covering illegal activities at News Corp. for years, and most of the time, no one paid attention to what he was writing.

— The New York Times did the first comprehensive piece on the scandal in the U.S. in its magazine last September.

— Hugh Grant, the actor, wired himself in April and taped a News Corp. investigator who admitted hacking was pervasive in the company and went to the top.

— Even Jon Stewart, of the Daily Show, has been in a battle with Fox News over the dubious practices of that News Corp. unit.

But others are speaking now, who should just do us all a favor and keep their mouths shut:

A number of key members of the family which controlled The Wall Street Journal say they would not have agreed to sell the prestigious daily to Rupert Murdoch if they had been aware of News International’s conduct in the phone-hacking scandal at the time of the deal.

“If I had known what I know now, I would have pushed harder against” the Murdoch bid, said Christopher Bancroft, a member of the family which controlled Dow Jones & Company, publishers of The Wall Street Journal. Bancroft said the breadth of allegations now on the public record “would have been more problematic for me. I probably would have held out.” Bancroft had sole voting control of a trust that represented 13 percent of Dow Jones shares in 2007 and served on the Dow Jones Board.

Now the Bancrofts were a bunch of heirs to the Dow Jones fortune whose only interest in the company was raking in the big dividend checks every year. One of the reasons Dow Jones was vulnerable to a takeover was because of their lack of interest in anything other than their stock holdings and their regular company checks. When they sold to Rupert, they were vilified. But they made a killing. They got $5 billion for a company that News Corp. eventually had to write off a couple of billion for because it was a bad deal. The Bancrofts will parrot the line that had they known what News Corp. was capable of, they never would have sold, but let’s face it. You’re not going to see them make an offer to buy the company back, even at the now discounted price.

They just need to shut up and count their money.

Breaking News of the World

Rupert Murdoch - World Economic Forum Annual M...

Rupert Murdoch strikes again

Obviously, something like this was expected, but it happened pretty fast.

Rupert Murdoch acted with characteristic ruthlessness by closing the News of the World, Britain’s best-selling Sunday newspaper, in a desperate attempt to limit the political and commercial fallout from the phone-hacking affair engulfing his media empire.

Murdoch’s son James, who runs his UK titles, told the paper’s 200 staff that Sunday’s edition of the paper, which sells 2.6m copies a week, would be its last, ending the 168-year history of the title his father bought in 1969, a purchase that introduced him to the British public for the first time. The last News of the World will carry no commercial advertising.

This could be seen as a good thing. A raunchy tabloid that bribed police officers and hired private investigators to hack the phones of celebrities, politicians, child murder victims and the families of people killed in terrorist incidents has been put down, like a rabid dog. This makes the head of the company look like a responsible corporate citizen.

But this is News Corp. and you need to take a step back and wonder, what’s Rupert really after?

Well, there’s this:

Jeremy Hunt, the culture secretary, will take “several weeks” to review the 100,000-plus submissions he has received on the News Corporation/BSkyB takeover – meaning that any final decision on the £8bn Murdoch merger is unlikely to be made until September.

The minister’s aides insisted that a final decision, which was expected next week, had not been delayed, but the long period of consultation gives Hunt breathing space as the storm over News of the World phone-hacking scandal remains intense. Hunt continued to insist, however, that the hacking issue is not relevant to his decision.

That means that News Corp. was fully aware that the longer the News of the World scandal festered, the more reluctant the British government would be to letting this deal take place. After all, BSkyB is a major media entity in the U.K., and giving Murdoch even more control of cable and the airwaves wasn’t going to fly with the Labour Party, especially given the fact that Rupert plays a major role in getting Conservative Brits in major political offices. (Yes, I’m talking about Prime Minister David Cameron.) Giving Murdoch control of BSkyB would at some point lead to a Fox News equivalent in Britain. Labour knows it and would raise all kinds of hell if the News of the World scandal was a long running saga in the British media.

And the money isn’t in newspapers anyway. It’s in television. When you break down News Corp.’s earnings, News of the World…

… provides only about 3% of the parent company’s annual earnings. That’s why News Corp.’s stock barely budged on Thursday, despite the bombshell announcement that the 168-year-old paper will close.

News Corp. doesn’t break out numbers in its earnings reports for specific businesses. But in its most recent quarterly report, it said that publishing accounted for about $6.5 billion in revenue in the first nine months of 2011, around one-fourth of its overall corporate revenue of $24.4 billion. The rest of the company’s sales come from cable programming, satellite television and film.

So saving the BSkyB deal is far more important to the News Corp. empire than saving News of the World.

Another thing to consider: Murdoch owns a number of papers in the U.K. The News of the World is a Sunday paper, but more to the point, News Corp. owns another major British tabloid, the Sun. The Sun is a daily but doesn’t publish a Sunday edition. A little more than a week ago, the Guardian (a U.K. competitor with the News Corp. empire) reported this:

News International has created what it calls a “managing editor structure” at its four newspapers in what appears to be a move towards a form of integration of daily and Sunday titles.

But the real story is indicated by the quotes from Wapping’s chief executive, Rebekah Brooks.

She explains that the new structure “will enable each title to share best practice and to focus more resources on front-line journalism and content creation.”

And her next two sentences offer a clue to what that means:

“We will take a comprehensive look at where there is common ground across our titles and where we should remain unique.

Where there is common ground we will find ways of implementing efficiencies to editorial systems and processes and, where appropriate, we will find ways of introducing seven day working.”

So Richard Caseby, the current managing editor at the Sunday Times, has been appointed group managing editor with responsibility for The Sun and News of the World.

That means News Corp. was already planning to combine the functions of the Sun and News of the World. The company was looking to cut costs, and it was planning a gradual merger. Then the scandal went out of control, so the answer was simply to speed up the process. News of the World dies. Expect an announcement in the not too distant future that the Sun will put out a Sunday edition. Is staffing a Sunday edition a problem? Well, it looks like there are 200 News of the World employees who will be out of a job after this Sunday. News Corp. officials can pick and choose whoever they want for staffing. And since Rebekah Brooks once ran the News of the World (during the time the phone hacks were taking place) and also ran the Sun, let’s say she knows who to pick and choose.

News Corp. makes money by closing the News of the World. And it mutes the scandal by eliminating the offending title. But in reality, nothing really changes. The people in charge are still the people in charge. The newspaper output will likely be the same, just done with fewer people, a cost savings financial houses love. And when things die down, Rupert will get what he really wants anyway: control of the U.K. airwaves.

I get the feeling someone just crapped in the food.