Seas would rise when I gave the word
Now in the morning I sleep alone
Sweep the streets I used to own
[With apologies due to Coldplay.] For a long time now, I've grudgingly admired Rupert Murdoch's business acumen if not necessarily the fruits of his media empire [1, 2, 3, 4, 5, 6, 7]. Starting from Australia, he has literally made the world his oyster. Such is his influence that the rise of New Labour is said to not have been possible without him backing away from Tory support. Murdoch's UK titles are well-known: the Times of London, the Sunday Times, the Sun, and until a few hours ago, the News of the World. The latter two tabloids set the template for other lowbrow publications around the world owned by Murdoch alike the New York Post.
However, time moves on and the big money to be had in media has long since gone to more interactive forms such as cable services. Not that Murdoch has always struck gold; witness the ill-fated News Corporation purchase and subsequent fire sale of MySpace. Still, these occasional lapses have been more than offset by successes such as the Fox Channel and Fox News stateside. The success of the latter alongside other right-leaning publications and programmes has always made Murdoch an arch-conservative in the eyes of some, but a keener understanding is that he shifts with the political winds when it suits. Instead, more conservative governments have traditionally allowed him more leeway to operate his media empire when antitrust questions came up. Witness Fox News' much-parodied broadcasting style.
I used to roll the dice
Feel the fear in my enemy's eyes
Listen as the crowd would sing
"Now the old king is dead! Long live the king!"
It is certainly an open question if Murdoch is a kingmaker insofar as his media outlet's outsize influence is concerned. Forbes ranks him as the 13th most powerful person in the world ahead of several dozens of world leaders. Not only did Tony Blair fear offending Murdoch at all costs, but the current Tory-led coalition also values good relations with the media titan. Aping Blair's tactic of hiring Alastair Campbell--a former tabloid journalist from the Daily Mirror--as his director of communications, Cameron infamously appointed Andy Coulson from the News of the World to the same post when he became PM. Coulson subsequently being sacked over phone hacking allegations is well-known.
Yet having made strong inroads into Britain's political-economic elite over the decades, Murdoch is now in imminent danger of overplaying his hand. It's been a slow-burning story over the years of how the News of the World has been associated with phone hacking. (See a summary and timeline here.) Whereas previous controversies have surrounded the usual suspects of the rich and famous of typical tabloid fare--actors, celebrities, sports stars, politicians, and other public figures--in recent days things have become far more dramatic and constitute a tabloid story onto itself. In its hunger for the sensational story, it appears the News of the World phone hacking also targeted families of servicemen, crime victims, and those affected by the 7/7 attacks.
To be certain, not all right-leaning voices back Murdoch. Still, for a long time, it could count on those who mattered overall. Aside from Coulson, David Cameron is also chummy with Rebekah Brooks, CEO on News International--publisher of Murdoch's various UK publications. However, the recent news of phone hacking extending to regular folks who find themselves in difficult situations made News Corporation universally vilified in Westminster's halls even among Cameron's people as such odiousness is difficult to dispel.
One minute I held the key
Next the walls were closed on me
And I discovered that my castles stand
Upon pillars of salt and pillars of sand
Today, the seemingly unthinkable has happened: Rupert's son James Murdoch announced the closure of the News of the World, with its last edition to be published this Sunday--without advertising--after 168 years in operation. Prior to this announcement, it was the widest circulation newspaper (tabloid) in the UK.
In no small, part, this action is due to several previously loyal sponsors abandoning ship: Boots, O2, Halifax, Virgin Holidays, The Co-op, Butlins, Ford and Vauxhall all ditched it for fear of offending common decency. With many others potentially following suit, the writing on the wall became clear: NoW was no longer a commercially viable title for as long as these accusations were being contested in legal proceedings.
For my head on a silver plate
Just a puppet on a lonely string
Oh who would ever want to be king?
Aside from putting News Corporation stock under heavy pressure, the NoW endgame is also calling into question its other activities. As mentioned above, the rapid demise of print publications has shifted the battleground for this firm and many others. For many months, it was expected that News Corporation would acquire the remaining 61% stake in British Sky Broadcasting, the largest cable service in the UK with 10 million subscribers. It was once assumed that the Murdoch-friendly Tories would let this deal pass, but things have changed. Telecommunications regulator Ofcom has put out a statement on media concerns having to be "fit and proper" to broadcast with the target being rather obvious:
In the light of the current public debate about phone hacking and other allegations, Ofcom confirms that it has a duty to be satisfied on an ongoing basis that the holder of a broadcasting licence is ‘fit and proper’.The general consensus is that NoW had become, due to the various phone hacking controversies, a sacrificial lamb. The possibility of creating a Sunday Sun or similar weekend tabloid removed of such blemishes exists. More importantly, while print media may be influential--especially in shaping politicians' perceptions of News Corporation--the real money at stake is with the pending bid for British Sky Broadcasting. Chris Hughes over at Reuters has more to say on what's really at stake:
It is clearly not for Ofcom to investigate matters which properly lie in the hands of the police and the courts, however we are closely monitoring the situation and in particular the investigations by the relevant authorities into the alleged unlawful activities.
But News Corp’s total UK newspaper operations contribute only about 4 percent of group sales and barely break even. London-based Enders Analysis puts the annual pre-tax profit contribution of the News of the World and its weekday sister paper The Sun at just 86 million pounds. News Corp could clearly cope with a loss of readers and ad revenue. The group will also have to swallow the expense of settling with victims of alleged phone hacking. The actress Sienna Miller was recently awarded 100,000 pounds ($160,000). Two hundred more settlements at the same rate would cost 20 million pounds.Slumping stock price aside, also consider the controversy discount on the value of News Corporation stock which may grow even larger if the NoW-killing gambit fails:
But bigger potential costs come with News Corp’s ambitions to take full ownership of BSkyB. The price may now rise if the hacking row stiffens the resolve of the satellite broadcaster’s independent directors. A deal was previously expected at 900 pence to 950 pence a share. If Murdoch now has to pay 10 pounds a share, the extra cost would be 795 million pounds over the midpoint of the lower range.
Then there is a small risk that the UK regulator revokes BSkyB’s broadcasting license. It could if the outcome of the investigations now underway makes it believe that News Corp isn’t a “fit and proper” owner or part-owner. That in turn would lead to forced divestiture of BSkyB. But this looks unlikely given the regulator’s criteria are designed to exclude certain categories of owner — for example political groups — and focus on existing breaches of UK broadcasting law rather than criminality per se.
That leaves the costs of poor governance. News Corp stock already labours with a “Murdoch discount” of about 30 percent compared to peers on an enterprise value to EBITDA basis. This is a $10 billion burden which, in theory at least, reflects concern that Murdoch isn’t shareholder-friendly.Lastly, I am particularly critical of the lousy tabloid NoW gating its content, as if its flotsam and jetsam were worth paying a premium price for. It isn't the WSJ or even the Times of London--two other Murdoch titles. Good riddance, you gated monstrosity. Now, if only something similar could bring down Fox News--perhaps the second most repugnant Murdoch property. It was not so long ago that Murdoch was regarded as invincible here in the UK, so things may change in Australia and the States as well . As matters unfold, it seems the mightiest of old school media barons is not as invincible as he thought to simple outrage.
In cash terms the UK newspapers — which also include The Times and The Sunday Times — are little more than a rounding error for News Corp. Greater economic value may have come because they gave Murdoch power and influence in Britain, and that may have helped him establish his broadcasting operations. But if Murdoch overpays for BSkyB or loses the deal because he addresses the problems in UK print with weakness or sentimentality, the discount deserves to widen.
UPDATE 1: As expected, Andy Coulson has just been arrested in connection with the latest phone hacking allegations.
UPDATE 2: The notion that print media was a political battering ram for News Corporation's more profitable interests is echoed by the FT:
For years, shareholders have indulged Mr Murdoch’s love of print “because the political clout was worth the marginal loss”, says someone close to the family. That could change “if these playthings cost us our reputation and our commercial relationships”.UPDATE 3 (11/7): Instead of rubber-stamping the deal as expected prior to this debacle, News Corporation's bid for the remaining stake in BSkyB has now been sent by the government to the competition regulator.