By Ryan Cole
News Corp. (NASDAQ:NWS), Rupert Murdoch’s media conglomerate, is facing very difficult times.
Its phone-hacking scandal isn’t going away anytime soon – in fact, it’s spreading.
Thus far, two high-ranking executives have been forced to resign – with one, Rebekah Brooks, also counting amongst the 10 people arrested in connection with the scandal.
London’s Metropolitan Police Commissioner and his Assistant Commissioner also resigned over their hiring of a former News Corp. executive, amid allegations of bribery and a too-cozy relationship between the police and Murdoch’s empire.
Prime Minister David Cameron also accepted the resignation of his Communications Chief, a former News of the World editor. Cameron cut his trip abroad short to deal with the fallout, is the government faces criticism for the hiring.
Meanwhile, the recent sudden death of a chief whistleblower is being investigated, and the FBI is musing its own case – over alleged phone hacking of 911 victims and their families.
Brush Fire or Forest Fire?
While Murdoch, his son James, Brooks and both disgraced policemen are answering questions before MPs, the question isn’t if this scandal will go away – it’s how big it will become. Will this be merely a black eye for Murdoch’s empire – or could this be the beginning of its end?
It’s far too early to make predictions – but, there’s no doubt, News Corp. is already feeling the hurt in its business dealings.
- Bowing to great pressure, News Corp. has withdrawn its bid to buy up all remaining shares of BSkyB. That’s bad news for a number of reasons. BSkyB is one of the most profitable parts of the Murdoch empire – and one of the fastest growing, as well. Revenue was expected to double in five years under News Corp.
- News Corp. would be able to receive tax advantages by receiving a larger share of its earnings from the satellite broadcaster.
- With $12 billion in cash looking for an outlet, BSkyB would be one of the safest bets – and one of the surest moneymakers for News Corp.
Recent purchases were tremendously disappointing. MySpace, originally bought by Murdoch for $580 million, was sold earlier this year for $35 million. Dow Jones, bought for $5.7 billion, only produced a $2.8 billion write-down thus far.
Schadenfreude in the Newsroom
Today, the vultures are circling. Traditional journalists often grumble about the way Murdoch’s News Corp. runs things. Rather than pursue the facts, the conventional wisdom goes, Murdoch’s company comes in with a viewpoint and looks for facts to back talking points.
While anathema to traditional journalists, the presentation of subjective viewpoints is a proven winner in the markets. Fox News redefined cable news through its success. Murdoch’s now-destroyed tabloid, News of the World, was the best-selling paper in England.
However, market success won’t protect the company from the law. If politicians and law enforcement agencies find that phone-hacking and police bribery were a major part of the company’s modus operandi – as numerous whistleblowers have alleged – News Corp. may wind up so deeply buried in the courts that it would cease to be a viable business.
If that can’t be proven, or it turns out that wrongdoing was limited to a few bad apples – as News Corp. executives insist – then this may prove nothing more than a damaging hiccup.
The markets are undecided thus far. While the company’s stock dropped precipitously over the past few weeks, shares are still up on the year.
You should hold your breath, as well. We’re too early into the scandal to know if this will lead to mass arrests and more serious allegations, if a few sacrificial lambs will do, or if this scandal turns out to be completely overblown.
Time will tell. But today – unlike two months ago – the future of News Corp. is suddenly in doubt.
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