Business, Economics and Jobs

Rupert Murdoch's British comeuppance?

Updated:

LONDON, United Kingdom — The titans of industry and their political servants gathered in Davos this week are missing one major figure: media tycoon Rupert Murdoch. The almost-80-year-old owner of the Wall Street Journal, Fox News, The Times of London, 20th Century Fox and dozens of other properties across the planet is stuck in London putting out a major fire.

The phone-hacking scandal at his News of the World, which has smoldered for almost four years, burst into a full-fledged wildfire in the last two weeks. Yesterday the police announced they were re-opening an investigation into how reporters for the paper, a Sunday tabloid with about 3 million copies sold each week, making it Britain's largest-circulation newspaper, hacked into telephone voicemail systems of hundreds, some claim thousands, of people.

Former Conservative and Labour cabinet members are now demanding parliament investigate as well. At best, Murdoch and his lawyers are expected to have to pay out millions in compensation to those whose phones were hacked. At worst, senior figures in the company may face jail. News of the World's former royal correspondent, Clive Goodman, has already spent four months in prison for hacking into the phone messages of members of the royal family.

And the investigations might not stop at Murdoch’s gates.

“Undoubtedly, phone-hacking was a very widespread practice in British newspapers," said Mark Lewis, a lawyer representing more than half a dozen people whose phones were hacked. "Not just phone-hacking but bank records and medical records were routinely obtained by illegal means."

From Murdoch's perspective, the timing couldn't be worse. He is trying to get the British government to allow him to buy all of pay cable and satellite broadcaster BSkyB, the country's most profitable television network. His News Corp already owns 39.1 percent.

To add to the mix, the editor of the News of the World at the time the phone hacking scandal came to light, Andy Coulson, resigned last week as Prime Minister David Cameron's chief of communications. Cameron hired Coulson following the editor's resignation from the paper over the scandal in 2007. At the time, Cameron explained the controversial hire by saying, "I think in life sometimes it's right to give someone a second chance."

The confluence of big business, low gossip and high politics perfectly encapsulates the Murdoch empire's operations in Britain.

Of immediate concern for the media baron is the phone-hacking story. Dozens of well-known figures here from the worlds of sport and entertainment are in the process of suing News of the World for invasion of privacy. Given that several cases have been settled out of court for sums in excess of a million dollars, the paper could be on the hook for millions more, if all those who are alleging their phones were hacked obtain legal redress.

A much more worrying problem for the Murdoch empire is the number of politicians who are asking the police to investigate whether their voicemail systems were hacked, among them former Prime Minister Gordon Brown. There are now bi-partisan calls by senior politicians for more aggressive police investigations.

The ultimate reach of the police investigation is now probably beyond anyone's control, even the cops. Close observers claim that the scale of hacking could not have gone on without the help of corrupt policemen. It is alleged that a reason the initial police investigation was not pursued further was fear of uncovering corrupt cops — some of them quite senior.

Meanwhile Murdoch must keep his eyes on the prize: BSkyB. His son James is chairman of the company, so de facto control would seem to be with News Corp. News Corp has offered 8 billion pounds ($12.75 billion) to buy the whole company. A look at half-yearly profit figures released Thursday may explain why the Murdochs are willing to pay for the whole pie. BSkyB saw a 26 percent jump in its pre-tax profits to 467 million pounds on revenues of 3.2 billion pounds. A hundred percent of those profits on News Corp's balance sheet will make up for an awful lot of money lost on the New York Post and servicing the debt on Murdoch's 2007 purchase of Dow Jones, publisher of The Wall Street Journal, for $5 billion.

But Britain’s competition laws might hold up the purchase. News Corp already has a dominant position in the media business. Its newspapers account for 37 percent of newspaper circulation and BSkyb has 10 million subscribers. Murdoch's rival newspaper owners say that gives his businesses unfair competitive advantage.

Ofcom, the official regulator of media businesses here, has recommended to the British government that the purchase be scrutinized by the Competition Commission (a statutory monopoly watchdog). Murdoch is trying to avoid that and has been lobbying the British government to allow the sale to go through. Until two weeks ago, odds were on Murdoch, with observers noting that Andy Coulson had become one of the prime minister’s most trusted advisers and because James Murdoch is part of his social set. Even as his government was in the process of making a decision on whether to refer the BSkyB bid to the Competition Commission, Cameron and the younger Murdoch had dinner during the Christmas holidays.

But with the phone-hacking scandal blazing, that coziness may prove harmful to the Murdochs as the government tries to show its independence from their influence.

Murdoch's discomfort has brought a smile to his competitors. The tycoon inspires fear and loathing in Britain.

In America, there is the "Good Rupert-Bad Rupert" meme among media watchers. The good one is the fellow whose 20th Century Fox makes interesting films like "Slumdog Millionaire," "Black Swan" and "127 Days," and started Fox Television, home to programs such as The Simpsons, The Shield and 24. The bad Rupert is the man who has permanently wrecked political discourse in America by unleashing Fox News on an unsuspecting nation. The implication of the meme is that Murdoch is a complicated man and a brilliant businessman (except for his former ownership of the LA Dodgers).

There's a very different view of Murdoch in Britain. Here the view is all bad Rupert. Even those whose politics tend toward the right regard him as a predatory monopolist who must be reigned in. He is not forgiven for purchasing The Times, the most establishment of newspapers, and changing its tone to something more, ahem, demotic.

Some of the dislike of Murdoch comes down to old tensions between Australians and Brits. The tycoon may be an American citizen now, but the testiness between him and his British commercial rivals has much to do with old rivalries between the former colony and the mother country. The British regard Australians as brash outsiders with no manners.

Murdoch plays his Australian outsider card to the hilt here with an American lack of irony, because he is about as insider as it gets in this country. His father, Sir Keith (yes, he was knighted) was the foremost Australian journalist of his time. Rupert attended Oxford and when he was finished his father called an old friend, Lord Beaverbrook, owner of the Daily Express — then the largest circulation newspaper in the world — and asked him to give his son a job. Beaverbrook obliged. According to one biography, he lived at the Savoy hotel while earning a small salary as copy editor. He then inherited his first newspaper — and inheritance, as the royal family and various dukes and viscounts will tell you, is a traditional way of getting ahead in Britain.

What happens next in the phone-hacking scandal is in the hands of the police and the civil courts. Before Murdoch's commercial rivals overindulge in schadenfreude they should remember that the new police investigation will look everywhere for invasions of privacy, a practice that is at the heart of British tabloid journalism. This story has a long way to go — and it may not always be Murdoch's papers that are in the headlines.

Related Stories