Why Rupert Murdoch's reign may be over

Share

For decades, Rupert Murdoch used an audacious mix of naked capitalist aggression, daring and opportunistic timing to bludgeon his way to the top of the British media market, where he ruled like an emperor.

His successes brought him enough power to make or break political careers. As he assembled the world's second-largest media and entertainment empire, behind only the Walt Disney company, he came to be wooed by cabinet ministers and premiers, who both feared and courted the aging News Corp. chairman. Their reverence made his business aspirations ever easier to achieve.

The rules that governed ordinary media barons and their empires didn't seem to apply to Mr. Murdoch. Early this year, the government gave him the ability to stave off a competition commission inquiry into his company's proposed purchase of the 61 per cent of British Sky Broadcasting (BSkyB), Britain's dominant satellite-TV service, that he did not already own. Sidelining the commission enraged the Opposition, which accused the government of doing everything possible to ensure Mr. Murdoch would get his prize with minimum fuss.

On Friday, the day after James Murdoch, Mr. Murdoch's son, closed the News of the World, the tabloid behind the bombshell phone-hacking scandal, British Prime Minister David Cameron acknowledged that courting the media had gone way too far.

The result was an immoral alliance between politicians, the press and the police that has now triggered criminal investigations into the hacking scandal, a probe into police payoffs for story tips, a public inquiry into media regulation and the execution of the News of the World, the English-language market's biggest newspaper.

"Over the decades, on the watch of both Labour leaders and Conservative leaders, politicians and the press have spent time courting support, not confronting the problems," Mr. Cameron said. "Well, it's on my watch that the music has stopped."

Translation: The Murdoch reign may be over.

The enmity toward the Murdochs in general and the News of the World in particular is palpable in Britain, from the Prime Minister himself, who called the hacking scandal "absolutely disgusting," to the readers and advertisers who boycotted the tabloid because they were shocked by the allegations that the paper's reporters hacked into thousands of mobile phones, including those of murdered children and the relatives of dead British soldiers. Advertisers abandoned the News of the World in droves. On Friday, French auto giant Renault announced it would yank its ads from all of Mr. Murdoch's London papers.

The turnaround has been swift and brutal. Mr. Murdoch has been compared to a North African dictator; powerful one day, yet unaware of his own vulnerability, and on the run the next day as the masses rise up against him. Where politicians "wanted him on their side," according to one member of the House of Lords, "both sides of Parliament are absolutely opposed to Murdoch now ... Now it's the kiss of death to have him on your side."

The storm blows in

The week that turned into a horror story for the Murdochs started just fine. In the days leading up to The Guardian's revelation that News of the World reporters had hacked in the phone of murdered teenager Milly Dowler, there was no talk that the tabloid, still profitable and back to its old scoop-generating self, would meet an early demise. The government had signalled that approval for News Corp.'s bid to take full control of BSkyB, a company with a stock market value of £14-billion ($22-billion), would come before the middle of July.

Approval would have an ulterior benefit: Confirmation that James Murdoch, 38, the driving force behind the buyout, could handle a big acquisition, reinforcing his credentials as his father's worthy successor, and guaranteeing the Murdoch family control for another generation. For News Corp., earnings from BSkyB would help to offset the declining newspaper assets.

But by the end of the week, those aspirations were left in tatters. The News of the World was dead; the government had ordered independent inquiries into the hacking scandal; Mr. Cameron himself suggested that Rebekah Brooks, the tabloid's editor in the early days of the hacking campaign, now CEO of its parent company News International, should resign; and Andy Coulson, who replaced Ms. Brooks as editor and went on to become the Prime Minister's communications director, was arrested along with Clive Goodman, the paper's former Royals editor.

If that all that wasn't bad enough for the Murdochs, politicians and consumers heaped pressure on the government to delay, or kill, News Corp.'s BSkyB buyout attempt. While Mr. Cameron insisted the deal would go through proper review channels, the media regulator, Ofcom, said it might have to determine whether News Corp. would be a "fit and proper" owner of the satellite broadcaster. At the same time, the Culture Minister said he would have to review the flood of public submissions lodged against the deal before any approvals were issued.

There were even hints from the Prime Minister that the younger Mr. Murdoch would be questioned in the criminal inquiry into the phone-hacking scandal. At his Friday press conference, Mr. Cameron said the inquiry "would question anyone, no matter how high or low."

On Friday, BSkyB shares fell 8 per cent, taking the five-day fall to 12 per cent, as investors realized that the takeover was, at best, on hold; at worst, dead. "I don't see how News International will be allowed to take over the whole of BSkyB," former BBC director-general Greg Dyke told BBC radio Friday.

One popular theory was that the Murdochs killed the tainted News of the World to buy favour with the government. His former rival Conrad Black, no stranger to the travails of powerful media barons suffering a sudden shift in public sentiment, saw the move as a ploy.

"I assume it's just another flimflam job by Rupert, that the Sun on Sunday will be out next week, followed by a few ceremonial firings, whatever he thinks he needs to get the BSkyB cleanup done, though it may be so cynical, it could backfire," Mr. Black said in an e-mail.

If that was Mr. Murdoch's scheme, it does indeed seem to be backfiring. The attacks on the Murdochs and their lieutenants, current and former, became more intense by the end of the week, as if they were motivated by revenge. "The vituperation level in the Commons yesterday was dangerously high even if most of it came from Labour backbenchers," Mr. Black said.

Or, as one former Fleet Street editor, said: "This is Britain's Arab Spring. We've lived under this unelected power too long."

The evolution of a media mogul

Rupert Murdoch has newspapers in his blood. born in Australia in 1931, he is the son of Keith Murdoch, who owned several regional newspapers. Rupert found himself running the little empire at age 22, after the premature death of his father.

He developed an early skill for acquisitions, buying several papers and launching others, including the Australian, a national daily. He then turned his ambitions to Britain, where he had attended Oxford University.

His British media dream started in 1969, when he wrestled the News of the World, founded in 1843, from Robert Maxwell, the media baron who died in 1991 under mysterious circumstances. The Sun tabloid came soon thereafter.

The next two decades or so were spent battering his way through Fleet Street with swift, aggressive moves that still characterize the Murdoch operating style, as the quick and brutal decision to sacrifice the News of the World shows.

At the same time, he was building his American portfolio, an effort that required him to drop his Australian citizenship and take on U.S. citizenship to get around foreign ownership restrictions.

His U.S. acquisition spree was voracious. By the pst decade, he was firmly established as a TV and film magnate, through his neo-conservative Fox network and the 20th Century Fox studio. His passion for newspapers never dimmed, even though on-line competition was chewing into their profits. He paid a rich price for Dow Jones, owner of The Wall Street Journal, in 2007 and soon started a readership war with The New York Times. As he remade the staid business paper, he gained control for the first time of a powerful establishment publication in the U.S.

His British newspaper holdings were even bigger. In the early 1980s, he bought The Times of London and The Sunday Times from the Thomson family (the controlling shareholders of The Globe and Mail). A few years later, in perhaps his boldest move, he busted up the print unions by moving the papers from Fleet Street to grim industrial warehouses, ringed with barbed wire, in Wapping, just east of the Tower of London.

His big diversification move in Britain came in 1989, when he launched the Sky television satellite broadcaster, a pioneering and risky venture that was widely predicted to end in tears. To help ensure its success, he took over rival BSB in 1990 to form BSkyB. A year later, he blew a hole through the terrestrial TV market with his purchase of the Premier League soccer rights.

A few years later, Mr. Murdoch indulged his competitive instincts yet again by launching a price war against The Daily Telegraph and its Sunday sister, then the pride and joy of Mr. Black. Mr. Black later compared Mr. Murdoch to a great white shark for his savage attacks on the Telegraph titles. He called the newspaper battle "a sideshow for Rupert, but a life-and-death struggle for us."

The 1980s and 1990s marked the height of Mr. Murdoch's newspaper success in Britain. The titles never adapted well to the arrival of the Internet; they tried various online strategies and eventually settled on ramming The Times behind a pay wall that has failed to reverse the paper's fortunes.

BSkyB, however, has become a broadcasting powerhouse and spawned Sky Italia, the biggest satellite service in Italy and enthusiastic tormentor of the terrestrial channels controlled by Prime Minister Silvio Berlusconi.

And Mr. Murdoch's political power continued to rise, to the point that politicians went out of their way not just to curry favour with him and his top executives, including Ms. Brooks and Mr. Coulson, but to hire and befriend them.

Cracks in the empire

The Murdochs are promising to co-operate with any investigations into their employees' roles in the hacking affair. The betting, however, is that their best days are behind them in Britain. The profitable News of the World will be gone on Sunday, when it publishes its last edition. The Sun's circulation is falling. The Times is losing about £40-million a year and the Sunday Times is only intermittently profitable.

With the newspapers either dead or in decline, the Murdochs are keen to own all of BSkyB, which will produce about £1-billion a year in cash, analysts say. Saving that deal was worth enough to the Murdochs that "we see [closing the News of the World]as something to restore or remedy a tarnished reputation for the News Corp. group," said Stephen Adams, fund manager at Aegon Asset Management. "We also critically see it as reflection of News Corp.'s desire to progress the BSkyB bid and have full ownership of the company."

But by Friday, the BSkyB strategy was failing, as the falling shares showed. Pressure was building on News International to come clean on what it knew when about the true extent of the phone hacking scandal.

And the extent could be much greater. Ms. Brooks told her staff Friday that "this is only going to get worse," according to a New York Times report. Part of the criminal investigation, she said, according to the Times report, would be "a very dark day for this company" and explain why News of the World was shuttered.

On Friday night, the Murdochs got more bad news when The Guardian, the paper that has broken most of the hacking scandal stories, reported that police are investigating evidence that News International may have deleted millions of e-mails from an archive, possibly obstructing the police investigation into the scandal. After years on meeting virtually no resistance to their ambitions, the mighty Murdoch machine is suddenly on the defensive.