NewsCorp’s Phone-Hacking Scandal: Live by the Sword – and perish by it?


Note: This is a huge moving story that has evolved significantly since I wrote this July 7th — and I’m not going to keep on updating every twist. Thousands of journalists worldwide, with massive resources are doing that really well. The basic story of Murdoch’s “triage operation” continues to gather pace with the news that:

  • Rebekah Brooks arrested.
  • London’s senior policeman Sir Paul Stevenson resigns
  • WSJ’s Les Hinton resigns
  • Rupert Murdoch issues (almost) grovelling apologies, meets family of hacking “victim.”
  • Parliamentary Inquiry summons Murdoch pere et fils, Rebekah Brooks to testify.
  • US Justice Department initiates  inquiry into foreign corrupt practices by NewsCorp
  • NewsCorp withdraws assurances made to the UK government about editorial independence of  a merged BSkyB — forcing a formal inquiry which won’t conclude until after the public furore has died down.
  • Murdoch’s belief is that Britain’s business-friendly government  will be so scared of jinxing other would-be mergers that it will eventually nod through  the Sky deal once the public has forgotten about it. He’s reportedly even willing to dump his entire UK newspaper portfolio (including The Times, The Sunday Times, The Sun) to satisfy regulators there is no monopoly interest — all to get hold of the UK£ 1 billion annual cashflow from Sky.
  • Murdoch’s increasingly desperate behaviour is not just about securing the 61% of BSkyB he doesn’t already own. It’s about escaping an inquiry that rules  he’s not fit to own the 39% he already has, and that News International forced by regulators to divest its stake in the cashcow. In this doomsday scenario News International, and behind it NewsCorp, stands to lose the entire holding in Sky.
  • Litigious investors in the US  smell blood. Investors were already disputing the  £415 million fee Murdoch paid to his daughter Elizabeth to buy her business. Now a trio of institutional investors allege disfunctional management at NewsCorp in a fresh billion dollar suit, adding fuel to the crisis  that represents the biggest threat to the company since  its near-bankruptcy in the early 1990s.
  • The phone hacking scandals keep piling up — and spreading right across the  Murdoch UK print portfolio. Snooping on the Queen, her royal household, former Labour Prime Minister Gordon Brown. The Sun and the Sunday Times are also involved. Who’s next?

Below is my original July 7th posting. Looks like I was right about Murdoch calling for the battlefield surgeon with his saw, just as I was right about the spreading infection….

Before antibiotics, the only way for doctors to prevent gangrene spreading through a diseased patient’s body was to saw off a limb.

That’s what Rupert Murdoch has done to his infected News Corporation empire, by announcing the shock closure  the News of the World (#NOTW), the newspaper on which his entire fortune was founded following its purchase in 1969.

By winding up the profitable weekly which is the UK’s largest-selling newspaper and sacking its newsroom staff, Murdoch hopes to prevent the infection spreading to the crown jewels of his media empire across the Atlantic.

By applying the brutal triage logic of battlefield surgeons of former years, Murdoch  hopes that by losing a limb he will save a life. His aim was to rescue not just embattled Rebekah Brooks, chief executive of UK subsidiary News International, but NewsCorp itself. Expert advice is that a liquidated newspaper won’t have any ongoing legal liabilities, and all its records can be safely destroyed. His commercial interest will be protected by transforming his other tabloid newspaper, The Sun, into a seven-day a week operation to take #NOTW’s place.

But infection in the form of significantly damaged reputation has already spread within the world’s  most powerful media organisation. From New York to Sydney, from Asia and back to London, a significant crack has appeared in the vertical edifice of the global empire controlled by this latter-day Citizen Kane.

What’s being uncovered in a growing scandal, is exactly how Murdoch does his business. And it’s not pretty. Governments and politicians worldwide bend over backwards to appease NewsCorp’s boundless commercial ambitions and questionable operating practices, in exchange for the positive news coverage that wins them elections.

The perfect “revolving door” of commercial power and political influence has been exposed for all to see. So a reputational threat now looms for brands as powerful as the Wall Street Journal, Fox Broadcasting Company, and satellite broadcaster Sky.

What began as a minor  upset in a distant and little-regarded “old media” corner of Murdoch’s operation, is delivering a body-blow to the aged entrepreneur and his family. Some advertisers are already shunning Murdoch’s tainted UK titles within News International, the subsidiary controlled by NewsCorp.  Investors have already taken fright, reports the Financial Times. The BBC reports that suddenly, “everything has changed” for Murdoch and his minions. Killing #NOTW won’t be enough, UK politicians are already saying.

Glee, The Simpsons, Family Guy, Hell’s Kitchen, 20th Century Fox, The WSJ’s Washington Wire, Wall Street’s finest market watchers, the Fox News political attack dogs, Sky’s glitzy army of sports commentators – you name it, everything’s up for a hostile poke once the seething bacteria of reputational damage start to proliferate inside an organisation of this size.

This tightly-held, verticalised operation built around the Australian-turned-Briton-turned-American’s modus operandi has no reputational or financial firewalls. Murdoch’s muckraking has made him legions of enemies – and they’re coming out to celebrate.

The steady drip of revelations concerning misconduct by reporters at its British anchor paper, the sensationalist News of the World weekly tabloid, has now become a torrent. And it’s now serious enough to jeopardise the reputation of the Murdoch companies worldwide as it becomes clearer by the day that very senior executives were “in on the game.”

Murdoch’s primary media enemies, the New York Times and the Guardian, have drawn blood after a lengthy campaign. Even Vanity Fair is enjoying a gloat from the Hollywood sidelines. The Economist weighed in with a “Street of Shame” cover story

For over a decade, reports that the #NOTW’s stellar record of exclusive newsbreaks was achieved by illegal newsgathering, had been dismissed by Murdoch’s executives.

It appeared that the celebrities, sportsmen and politicians whose serial misconduct was exposed weekly through impeccably-sourced gossip and scandal in the populist “News of the Screws”, were fair game to a paper with a weekly circulation of  2.6 million.

But when Murdoch reporters broke stories about Britain’s royal princes Harry and William by commissioning investigators to illegally hack into the voicemail functions of their personal mobile phones, the hunt was on.

It became clear Murdoch’s men had used the same technique to snoop in on the private lives of:

  • A deputy prime minister  (Lord Prescott)
  • Britain’s finance minister (George Osborne)
  • Hundreds of celebrities like Hugh Grant, Siena Miller, and even Sky’s own sports presenters
  • Victims of  London’s 7/7 terrorist bombings
  • Families of missing and later murdered children (Holly Wells and Jessica Chapman)
  • A missing and later murdered teenager (Milly Dowler)
  • Families of soldiers killed on active service in Afghanistan

#NOTW’s hyper-active covert operations squad put the CIA and NSA to shame. Murdoch lawyers  reached for the corporate checkbook to pay off  hundreds of angry celebrities.

It’s also now emerging that #NOTW executives had for years made repeated – and illegal – payments to British police for similar tidbits of information. That partly explains why for over a decade the London Metropolitan police have stubbornly resisted  any enquiry into  the affair.

As The Guardian reported, any proof that  executives in the UK subsidiary News International had knowledge of corrupt payments to  public officials (UK police) could trigger an automatic investigation into the US-domiciled parent NewsCorp under the US Foreign Corrupt  Practices Act. Seizure of assets, fines and jail terms are some of the sanctions available to US courts upon conviction under this law.

In the UK, one #NOTW reporter has already gone to jail.  Former editor Andy Coulson, who left to become Prime Minister David Cameron’s head of communications, was forced to resign. Coulson has been arrested and faces a possible trial for perjury.  The drums are now beating for the resignation of Rebekah Brooks, Murdoch’s flame-haired temptress-in-chief in the UK and herself a former #NOTW editor right at the time when the worst excesses were committed. Whatever dangerous family secrets this latterday Lady Macbeth knows about, they must be of spectacular value to force Murdoch to torch an entire property instead of letting her go.

The ‘Tweetosphere’ certainly thinks so: one post joked that Murdoch has “closed down the wrong red-top” (a reference to the coloured mast-heads on his tabloids and the Brooks hair-tint). Another compared Murdoch to a greengrocer who finds a few rotten apples — and sells his shop to keep the apples. Many think the CEO of News International knows where the bodies are buried.

If Rebakah – herself a Cameron chum who enjoys explicit backing  of both Murdochs (Rupert and son James)  – is forced to quit, this one has global ramifications for NewsCorp. Already,  across the Atlantic at the WSJ headwuarters, Murdoch’s most trusted adviser  Les Hinton is feeling the heat. If Brooks knew all about it, then Hinton also knew – and so did Murdoch.

#NOTW closure won’t stop the drum-rolls. The sight of a harassed and humiliated Murdoch, hounded by papparazzi and TV reporters in his own hallowed turf in Sun Valley Idaho, brought a cheer to newsrooms worldwide. The biter bit.

The sad thing about all this is that when one media organisation takes a reputational hit, all others seem to settle  more deeply into the mud. The New York Times  has never really recovered from the 2003 scandal of the  false stories concocted by Jayson Blair that provoked the ouster of  Executive Editor Howell Raines. At the same time the  furore over NYT reporter Judith Miller’s sourcing by highly unconventional means of dubious intelligence on Saddam Hussein’s fictional weapons of mass destruction, helped create a false case for the Iraq war and further besmirch the once-great newspaper, now sustained by a Mexican telephone tycoon.

Ever since then, news executives have been moaning around the conference circuit complaining that untrained bloggers with unknown standards have stolen their editorial lunch and doomed the commercial future of their newspapers. With every passing scandal it’s becoming clear that some bloggers have higher journalistic and ethical standards than some of the once-great news titles. Painful to say it, but Murdoch’s titles have brought journalism into such disrepute editors can no longer  look down disdainfully upon the Drudge Report, TMZ and others.

And in the UK, the #NOTW scandal  has unleashed the third great crisis of public trust. First came the collapse of faith in banks and the ethics of bankers following their economic collapse and rescue with government funds. Then came the scandal of financial corruption by parliamentarians cheating on their expenses. Now comes the third crisis in Britain’s press and media (known here as the “fourth estate”). The other great “estates” survived and so will the press — but with permanently diminished public trust.

Worst of all for Murdoch, his corporate financiers are just days away from a monster UK £7.5 billion (US$12 billion) deal to finally seize full control of the 61% of Britain’s largest  satellite broadcaster that NewsCorp doesn’t already own.  Although it’s branded as Sky, in fact Murdoch’s UK operations  are a joint-venture called British Sky Broadcasting. The other party is the rump operation that Murdoch drove out of the market in 1990.

The Sky/BSkyB deal has unveiled the Murdoch modus operandi in chilling detail. When Vince Cable, the minister in charge of approving media mergers in David Cameron’s cabinet spoke out against the deal, he was simply turned out of his chair and changed for the more compliant Jeremy Hunt, a young minister who duly approved the deal to Murdoch’s liking.

Despite a chorus of media industry complaint, Cameron’s government seemed ready to ink a deal that would concentrate media ownership and influence to a degree not seen since the Soviet era’s Pravda.

Murdoch cannily offered British competition regulators the same argument he has always used to “guarantee” editorial independence: he promised separate news operations and an independent board at Sky.

He did exactly this when he acquired the London Times in 1981. To no avail. The Times looks and reads like any other of the Murdoch tabloid titles.

He did exactly this when he acquired the Wall Street Journal  and its parent Dow Jones Company in 2007. So far, the fig-leaf of independence demanded by the departing Bancroft family still covers the WSJ’s more sensitive editorial parts.

But Murdoch’s Sky deal is still not yet signed. Everything  now hinges on whether NewsCorp is deemed “fit and proper” to be the outright owner. And the #NOTW scandal could upset this. Overnight, Murdoch has become political poison in the UK.  Cameron can’t now approve the Sky deal – but he dares not defy NewsCorp. Despite the blood-letting  of the #NOTW closure,  a face-saving solution may cost Murdoch Rebekah Brooks’ job and extra £2 billion to get his deal through, news reports say.

After all, it was NewsCorp that made Cameron, just as Murdoch made former British prime minister Tony Blair – and several UK leaders before him. When in 2009 Murdoch’s UK media stable pulled the plug on previous prime minister Gordon Brown, the way was opened for Cameron.

Will Cameron have the courage to use an Independent Inquiry to finally confront Murdoch, block his Sky deal and purge Britain’s press of corrupt practices and influence trafficking?

Whatever the outcome – and after well over half a century of outfoxing politicians and business rivals – it’s unlikely Murdoch will lose out to an inexperienced first-timer like Cameron.

And so it has proved. At a Downing Street press conference July 8th, Cameron was full of mea culpa about how politicans and the media were “all in this together” — but he kicked the  BSkyB issue into the long grass and did nothing to  confront the Murdochs directly — except for stating that if he was in Murdoch’s place, he would certainly accept  Rebekah Brooks’ resignation.

Instead, Cameron offered public inquiries to get to the bottom of the media maelstrom in general  (rather than the Murdoch tribe’s “fit and proper” status in particular.) Cameron also  signified that Britain’s toothless media self-regulator, the PCC (which he called “ineffective and lacking in rigour”) would be replaced.

Cameron said he was anxious to be seen following the takeover rules, rather than making industrial policy on the hoof. That means Murdoch could weather the storm and still take his BSkyB prize after the summer vacation cools Britain’s now-feverish spirits.

Nevertheless NewsCorp’s reputation has been significantly damaged by the #NOTW
scandal. Muckraking is not a sustainable business activity. After all, those who live by the sword will eventually perish by it too.

NewsCorp may yet have more reasons to call for the sawbones in his blood-spattered apron if the gangrene keeps on spreading.

Richard House

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