How Rupert Murdoch separated his son from his beloved newspapers, for the sake of both

The Murdochs testify in Parliament on phone hacking. ()
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The announcement this morning that James Murdoch, son of News Corp. founder and chairman Rupert Murdoch, was leaving his role as executive chairman of News International, the company's U.K. publishing unit, was long enough in coming.

The drumbeat had gotten louder this month: On Feb. 14, the influential consulting firm Pension Investment Research Consultants, which advises institutional investors on corporate governance issues, wrote in a newsletter that "it is at board level that reform may still be required," after news broke that five journalists at Murdoch's U.K. tabloid The Sun had been arrested on charges of bribing police and other officials in the still-growing phone-hacking scandal that has come to a boil over the last year.

"James Murdoch's name ... is inextricably linked to the company's failure to deal with the hacking issue much earlier, with questions still outstanding over what he knew and when," the newsletter said.

What's not clear is whether the removal of James, who has been removed from London to New York for an unspecified time, is intended to preserve the prospects of News Corp. and his beloved newspapers, or the prospects of James himself. Or whether there is a chance, however small, that the move will accomplish both aims.

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Murdoch-watchers all seem to agree that the usually brutally pragmatic boss has a certain sentimental streak, but there are serious disagreements about where that streak lies. Do his actions here betray sentimentality about his family's future role in running News Corp.? Or is Rupert Murdoch being sentimental about what sort of business News Corp. actually is?

The newspapers present him with his most intractable conundrum. To save them he must somehow calm a restive stable of journalists and trusted deputies even as his investigators, out of New York, continue to dig through email archives and phone records and hand names over to the Metropolitan Police.

Getting control of the growing scandal means knowing everything, and handing over that information to the police, so that whoever is getting arrested gets arrested, and News International can be washed clean. The arrests of the Sun journalists were based, according to reports, on information supplied to the police by Murdoch's own internal investigation.

It's not surprising that none of the statements today from News Corp.—neither Rupert's nor James'—make any mention of the scandal. It's also not surprising that they dare to call the younger Murdoch's tenure as the head of News International a success on balance. The act of removing James spoke louder than words could have in some quarters: News Corp. stocks rose this morning on the news.

The idea that this first-generation mogul is creating a House of Murdoch for the ages is complicated by the way things have actually unfolded over the past decade or so. His relationship with his family has been public and often rocky. At different times he has seemed to groom different children, in different high-placed roles in the international media powerhouse, for the general leadership. And time after time, it's seemed like they have been voted off the island, usually for reasons that are hard to discover (but that reporters have nevertheless tried hard to uncover).

In this case, the breakdown of James Murdoch's prospects are as public as they can possibly have been. Taking him down a notch comes after express requests from minority shareholders and market-watchers alike.

But to me what this really means is that it is impossible to guess, in the mind of Rupert Murdoch, whether his son's fortunes are recoverable. Like a second son sent down from Oxford and dispatched for two years to Baden-Baden and Italy in an old Victorian novel, James' coming time in New York running the relatively uncontroversial international satellite television business is also an opportunity, perhaps, to lie a little lower, grow a little older, as the names of the people he was associated with at News International fade from the headlines. This sort of Murdochian rehabilitation is nothing new.

Everything about the organization of the corporation is meant to make the business work as an international conglomerate whose ruling faction is a family. Like many other organizations (The New York Times company, a public company run by the Sulzberger clan, comes to mind, and Wall Street Journal owners Dow Jones, similarly ruled by the Bancrofts until Murdoch's News Corp. acquired it) Murdoch's struggle has in many ways been a fight to maintain family control of a public company, especially as shareholders question those lines of succession in the name of unsentimental expansion and value-creation.

But the British newspaper division is another sentimental streak. To be sure, Murdoch's British and Australian newspaper properties never sputtered and faltered as businesses the way Murdoch's local tabloid, The New York Post, has done, but they certainly don't matter in terms of margin against News Corp.'s vast multimedia empire.

The fact that the scandal has already shut down one newspaper, The News of the World, would from this point of view be a tragedy to Murdoch. Murdoch's first steps from provincial Australian newspaper publisher to international mogul were cemented in the deals he struck to buy newspapers in Britain. Like the first factory of an old manufacturing concern, they have a place close to Murdoch's heart.

Chief Operating Officer Chase Carey told attendees today at the Deutsche Bank media conference in Palm Beach, Fla. that top executives had discussed selling or spinning off the newspaper divisions of News Corp. “There certainly is an awareness” that shares in the company would trade higher if they did, he said. "Publishing accounts for less than a fifth of annual operating income and is 'significantly down year-on-year on profitability,'" Carey is quoted as saying in a report from Bloomberg's Edmund Lee this morning.

It's telling that the discussions have so far foundered; in one report, an insider described how Murdoch reacted to the idea when it was presented last year.

"It was basically one of those things where it was talked about for maybe two to five minutes and Rupert would say, 'No way'," The Australian quoted one source as saying last summer.

Some Murdoch-watchers, particularly British ones, say that his interest in British newspapers has always been more pragmatic than sentimental. It was through the newspapers that Murdoch wielded such outsize influence in British society and politics, a useful thing for a mogul who also wants world domination for his British-based broadcasting corporations.

But surely the usefulness of that tie to the British newspaper division of News Corp. is now ended. Cops and officials aren't likely to take bribes again, and Parliament's investigations into the scandal have constituted nothing less than a wide-scale revolt of politicians who've had enough of the newspapers' power over their careers.

It is in this environment that Murdoch defiantly began publishing a new newspaper in Britain. The new paper is The Sun on Sunday, and though it faced early skepticism from ad-industry experts, it is one of the "successes" today's Murdoch press release touts on behalf of James.

So what Rupert Murdoch has done, really, is sever the future of his British newspaper division from the future of his son. This had to be done, to protect both of Murdoch's sentimental investments and their ties to each other.

The dream of a line of Murdochs running the most powerful international media conglomerate in memory can only be possible if James is given the time and personal space to get his ethical rest-cure. And the continuity of Murdoch's stake in British newspapers is contingent on his ability to demonstrate a complete house-cleaning in their upper ranks to persuade readers, and shareholders, that they're not the same properties anymore that his son has run into the ground.

By trying them separately, I don't think he's given up on James, or on newspapers. He's just isolated them from one another, because he thinks it gives him his only chance of saving both without each of them dragging the other down.