3:12 pm Jul. 13, 2011
We don't know yet what the future holds for Rupert Murdoch and his media empire. What we do know, though, is that he's acting a lot less worried than the non-Murdoch media world thinks he ought to be.
Yes, he's just absorbed another setback, ducking out of a bid to take over the remaining shares in British satellite broadcaster BSkyB, of which he presently owns a minority stake.
Murdoch's withdrawal came just hours before lawmakers in all three major British parties were to deliver him a sharp rebuke for his company's aggressively cancerous phone-hacking scandal (a shorthand that hardly does justice to the wide-ranging illegal activities of which police have said they suspect Murdoch's British newspaper group to be guilty).
There was no coyness from Murdoch about why he was backing out.
"We believed that the proposed acquisition of BSkyB by News Corporation would benefit both companies but it has become clear that it is too difficult to progress in this climate," said News Corp. president and COO Chase Carey, in a statement that was posted on the website of the London Stock Exchange.
The New York Times called it a "retreat" in its headline, and the word is apt.
Think of the context, and of the mounting reasons Murdoch might want to pull back to a safe place just now:
He closed The News of the World this week in a vain attempt to isolate the larger corporation from the scandal. Just yesterday, the company announced a $5 billion stock buyback that was presumably meant to appease investors who have long clamored for News Corp. to grow its television business and cut off its newspaper business. That hasn't worked, either.
And if Murdoch hoped to avoid an investigation by Ofcom into whether News Corp. is a "fit and proper" owner for the television network by withdrawing the bid, he may turn out to have failed in that, too.
(It would be a stretch for any News Corp. entity to fail the "fit and proper" test: The only business that has failed it before was Bang Media, an adult chat site that was judged to have breached laws protecting children from offensive material. But the test could be applied to News Corp.'s existing stake in BSkyB—theoretically, News Corp. could lose the stake it has. In normal circumstances these would seem to be remote possibilities. But right now, Westminster is very motivated, and so the preposterousness of some of these possibilities has to be weighed against the prevailing public sentiment about Murdoch.)
But I think Columbia Journalism's Emily Bell, herself a former editor of the Guardian website, is closer to the mark in assessing what Murdoch is up to: this is, in his eyes, a tactical retreat. Six months from now, the bid can be taken up again, if the "climate" is different.
"I would still put money on Murdoch owning all of Sky in 2 years time," Bell tweeted, "but would not be surprised if uk papers are gone by then."
Certainly, the BSkyB bid is too important to Murdoch for him to let it go forever. The Financial Times reported on June 30, just before the phone-hacking allegations went viral everywhere:
Analysts say that the addition of BSkyB’s profits to the consolidated accounts of News Corp—its contribution is currently accounted for as a dividend—would boost the media group’s $32bn annual revenues by 25 per cent and operating profits by 30 per cent.
Before the phone-hacking scandal went crazy, Murdoch was actually hanging tough on the BSkyB bid. His son James Murdoch "led a proposal to pay 700p a share for the 60.9 per cent of BSkyB that News Corp did not already own. That valued the company at £12.3bn," the F.T. reported on June 30. But the satellite network's independent directors rejected the bid, holding out for 800p. At the time, the Murdochs faced criticism for their position:
Large shareholders in BSkyB have previously told the FT that they are determined that Mr Murdoch should pay a full price to gain [the 30 percent increase in operating profits the deal could bring]. While acknowledging that it was his risk and endeavour that built up the company, they said the broadcaster was now reaching a period where the fruits of 20 years of capital expenditure using shareholders’ money would fall into the lap of BSkyB’s owners.
In retrospect, this was a disaster: The Murdochs blew their chance to seal the deal on BSkyB before the scandal erupted. Instead, they effectively suspended negotiation, citing regulatory hurdles that would move the conversation about purchase price further along the calendar anyway.
THE NEWS THAT SEN. JAY ROCKEFELLER WANTS U.S. AGENCIES to launch inquiries into whether journalists at British newspapers violated any U.S. laws, in the wake of reports that News of the World requested phone-message pins from Sept. 11 victims and their families, has been taken by some American watchers of the phone-hacking scandal to mean that Murdoch's American news operations might be implicated in the mess. It means no such thing.
But that's not to say the American properties are insulated from by what's going on in Britain.
For one thing, News Corp. is an American company, traded on the New York Stock Exchange, and many of its investors are Americans. The American media industry has long been wondering when the "Murdoch discount"—the favorable negotiating position the Murdochs are able to win for themselves because investors trust that their enterprise will continue to grow if they continue to let Murdoch spend their money—will finally be a thing of the past. In short, when does News Corp. grow up?
One of the important elements of that case has always been whether Murdoch will finally rid himself of his sentimental attachment to print media. The fact that this scandal is growing past the edges of News of the World and into other papers—most recently the Sun and The Sunday Times—but does not yet seem to be touching his television operation will only add fuel to the fire.
The internal conversation may already be underway. The Australian, a broadsheet owned by News Corp., reports: "News Corporation has informally explored whether there are any potential buyers for its British newspaper unit, News International, according to sources."
According to the report, they didn't find any buyers; and the project was scuttled because Murdoch scuttled it, for now.
"It was basically one of those things where it was talked about for maybe two to five minutes and Rupert would say, 'No way'," a source told The Australian.
But there's another way this could wreak havoc in News Corp.'s Sixth Avenue headquarters. Lawrence Jacobs, the company's General Counsel, announced in the second week of June that he was leaving the company to "pursue other opportunities." In the Times, the story was summed up thusly:
Mr. Jacobs’s resignation comes at a time when News Corporation is still dealing with the repercussions of a far-reaching phone hacking operation at one of its London newspapers, The News of the World. While Mr. Jacobs is not known to have had any involvement in the matter, he was the highest ranking legal officer in the media conglomerate during a period when the subsidiary that owns The News of the World, News International, was forced to apologize and pay out settlements to celebrities and others who had their phone voice mail systems hacked.
Those payouts have themselves now become controversial, and mounting evidence suggests that News Corp. may have paid or deceived police and misrepresented facts to government agencies and parliamentary committees in the long-running investigations into the phone-hacking scandal.
That is, in addition to the investigations into what happened in specific newsrooms, there are investigations into the company's investigations. And those could establish a pattern of News Corp. leadership engaging in criminal activity to protect itself from their investigations' results. These inquiries are what threaten to devastate the leadership of the company.
So: On one side of the Atlantic, Murdoch is the target of a political and popular revolution, led by "respectable" media, and celebrities like Hugh Grant and Steve Coogan, and, however cynically, the prime minister. On the other side, he faces a restive and potentially mutinous group of investors whose trust in the Murdoch family's management of the company is shaken, maybe irreparably.
It would seem that Murdoch is in deep, deep trouble.
Does he realize it? This weekend when he arrived at his Mayfair apartment, reporters were treated to a scene in which he exited the building with his arm around the shoulders of the embattled News International executive and former News of the World editor Rebekah Brooks, a sort of Medea-esque villain in the British press today. Asked what his first priority was in England, he pointed to her and said "this one."
At the same time back in New York, a decision was being made to drop the BSkyB bid.
The American media is entranced with the scope and greatness of the growing scandal in Murdoch's midst, but where journalists construe catastrophe, investors merely see opportunity. This morning, analysts at Citi Investment Research and Analysis put News Corp. stock on their Top Picks list, telling investors they "see few (if any) scenarios that would result in permanent damage of News Corp.'s existing assets," from the scandal.
Will the six-month period before Murdoch can reintroduce a BSkyB bid be enough to clear News Corp.'s good name?
The investigation will take a little more than a year, according to Parliament-watchers. And Murdoch is clearly of the belief that if the best new stuff anyone can come up with is that his journalists employed distasteful methods in reporting Gordon Brown's son's cystic-fibrosis diagnosis, then the bargain-hunting investors are right about how this all ends. The political storm will blow over, and News Corp. will be just fine.
I wonder if his outgoing lawyer believes the same.