A News Corp without newspapers?

2011-07-14 10:07

Washington - Rupert Murdoch built his vast fortune selling newspapers, expanding a single daily in his native Australia into a media and entertainment empire that spans the globe.

But the phone-hacking scandal in Britain that led to the shock closure of the News of the World is raising the once-unthinkable possibility of a News Corp without newspapers - or at least no British dailies.

Within hours of the announcement that News Corp was abandoning its bid for full control of British satellite TV broadcaster BSkyB, Nomura analyst Michael Nathanson was arguing for a strategic re-orientation by the company.

"Perhaps this rebuke will force News Corp to reconsider its ownership of UK newspapers," Nathanson said.

"We hope this is a turning point for the company's strategy and asset allocation as the ownership of highly inconsequential newspaper assets has forced the dropping of a strategically important asset," he said.

The Wall Street Journal reported on Wednesday that the phone-hacking scandal has already forced News Corp to consider selling off its remaining British newspapers.

Reputation is everything

Citing unnamed sources, the News Corp-owned Journal said the firm has explored whether there are any potential buyers for News International, which includes British newspapers the Sun, the Times of London and the Sunday Times.

Virgin Group chief Richard Branson warned meanwhile at a corporate event run by software giant Microsoft in Los Angeles that Murdoch's businesses around the world could suffer because of the British firestorm.

"Your reputation is all you have in life, your personal reputation and the reputation of your brand, and if you do anything that damages that reputation you can destroy your company," the British tycoon said.

"In the UK right now News International are on their knees. You could argue that they should have been on their knees years ago because the way they've run some of their newspapers... has been quite questionable for a long time.

"But they're certainly getting their come-uppance now, and it's going to be very difficult for that brand to ever recover," he said, adding that the knock-on effects on "some of their other interests around the world will be considerable".

News Corp's other newspaper holdings are in Australia, where Murdoch began after inheriting The Adelaide News from his father, and in the United States, where News Corp owns the New York Post in addition to the Journal.

Thousands of potential victims

The scandal has been confined to Britain so far but is threatening to spread to the United States, where US senators called on the Justice Department and Securities and Exchange Commission on Wednesday to open an investigation.

In a joint letter, Senators Barbara Boxer and Jay Rockefeller said the "reported allegations against News Corporation are very serious, indicate a pattern of illegal activity, and involve thousands of potential victims".

They urged the US authorities to look into whether US-incorporated News Corp violated US law by allegedly bribing police to gain access to private telephone information and records.

The Justice Department declined to comment. A spokesperson said: "We don't typically confirm or deny investigations even if one were to happen."

With his newspapers under growing scrutiny, analysts are speculating about whether Murdoch might be compelled to cut them loose in order to protect his other, more lucrative interests such as Fox Television and 20th Century Fox.

Morningstar analyst Michael Corty said News Corp makes around three-fourths of its profits from its cable television networks and movie businesses and that newspapers contribute little to the bottom line.

Follow the money

"If push comes to shove the entertainment businesses are much more important to the company these days," Corty said. "Although the news organisations in the UK have put a black eye on the company it doesn't really impact how these other businesses are run and how profitable they are."

Media analyst and Murdoch critic Jeff Jarvis said the 80-year-old News Corp chief executive's passion for newspapers is well known but "the question is, what's more valuable to the Murdoch clan: Power or money?

"I'd follow the money every time," Jarvis said in a post on his blog,

"So I wonder whether News Corp will have to get out of the news business to save the business of News Corp" he asked.

"You might say that Rupert would have his newspapers pried from his dead hands and that might well be the case," Jarvis continued. "But know well that he is not loyal to media.

"When he had a choice of owning TV stations or newspapers in Boston and Chicago, there went the papers," he said. "So I could see stockholders and managers and heirs pressure Murdoch to get rid of his news properties."