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The Globe and Mail

The beginning of the end of the Murdoch era

What started as a mere annoyance for the Murdochs five years ago - the emergence of the News of the World phone-hacking scandal - has flared into a humiliating retreat by the world's mightiest media baron.

Rupert Murdoch shut the tabloid, the foundation of his British media empire, last week. On Wednesday, while lawmakers and Britons of every political persuasion called for his head, he yanked his £8-billion ($12.3-billion) takeover bid for British Sky Broadcasting (BSkyB), his biggest European business.

As his silver Land Rover sped away from the headquarters of News International, his British holding company, in Wapping, East London, there was a sense that the commercial damage to his businesses was far from over. For days, there has been endless talk that he would happily unload the rest of his national titles - The Times, The Sunday Times and the Sun -but not the 39 per cent of BSkyB that he and James Murdoch, his son and heir apparent, hold dear to their hearts.

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Worse, there was speculation that the scandal's dirty tide could wash up on the shores of America, where the holdings of News Corp., his top company, controls Fox Broadcasting, Twentieth Century Fox, The Wall Street Journal and publisher HarperCollins. News Corp. has already suffered damage to its reputation; its share are down 8 per cent in a week. But that could just be the start of it, thanks to a barbed piece of legislation called the U.S. Foreign Corrupt Practices Act (FCPA).

The FCPA is an anti-bribery law and the nasty thing about it (for perpetrators) is that it can apply to any bribes paid outside of the United States. News Corp., which trades on Nasdaq, is an American company. Some years ago, Mr. Murdoch, now 80, dumped his Australian citizenship and became an American to avoid the foreign ownership restrictions that would have impeded his conquest of the U.S. media market.

The FCPA could pose problems for the Murdochs because of the allegations that the News of the World paid more that £100,000 in bribes to police officers in exchange for story tips and other information. A police investigation has been launched into the matter and, last week, Andy Coulson, the former News of the World editor turned communications director for Prime Minister David Cameron until this past January, was arrested in connection to the phone hacking and alleged police bribes.

Senators Barbara Boxer, John Rockefeller and Frank Lautenberg on Wednesday asked Attorney-General Eric Holder and SEC chairman Mary Schapiro to look into a potential violation of the FCPA.

"The reported allegations against News Corporation are very serious and indicate potentially thousands of victims and a pattern of illegal activity. It is important to ensure that no United States laws were broken and no United States citizens were victimized," Mr. Rockefeller and Ms. Boxer wrote in a letter to Mr. Holder and Ms. Schapiro.

A day earlier, Mr. Rockefeller said he was concerned that the phone hacking "may have extended to 9/11 victims or other Americans. If they did, the consequences will be severe."

Already, one U.S. Democratic senator, Jay Rockefeller, is urging government agencies to launch investigations into News Corp. to see if any U.S. laws were broken. "The reported hacking by News Corporation newspapers against a range of individuals - including children - is offensive and a serious breach of journalistic ethics," he said in a statement. "This raises serious questions about whether the company has broken U.S law … I am concerned that the admitted phone hacking in London by the News Corp. may have extended to 9/11 victims or other Americans. If they did, the consequences will be severe."

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Any U.S. investigation might go nowhere. The American authorities could decide that British anti-corruption and anti-bribery laws are enough to punish any wrongdoing and that engaging in a transatlantic legal turf war might be both unnecessary and insulting to the British. Still, even the mention of possible FCPA charges has been enough to rattle News Corp. investors.

In Britain, the political backlash against News Corp. and the Murdochs, a family that had been courted by Britain's political and business elites for decades, has been extraordinarily vicious (Mr. Cameron called it "a firestorm"). While the phone-hacking scandal has been burbling away for years, it picked up momentum in recent months, thanks to a steady stream of nasty revelations reported by The Guardian, and burst wide open early last week.

Mr. Cameron said he was "absolutely disgusted" by the scandal and, on Friday, launched two independent inquiries, the first to determine the true extent of the hacking scandal, the other into press regulation. Meanwhile, the police are investigating possible police corruption in connection to the payments from reporters.

When Rupert and James Murdoch euthanized the News of the World, their biggest newspaper, with a circulation of 2.7 million, they may have thought the swift and brutal act was enough to buy them some political sympathy and preserve their attempt to buy the 61 per cent of BSkyB that they did not already own. They were dead wrong.

Former prime minister Gordon Brown went ballistic when reports surfaced that his phone may have been hacked to discover medical information about his son. On Wednesday, in Parliament, Mr. Brown accused News International of "law breaking on an industrial scale" and said the News of the World "had descended from the gutter into the sewers." Ruling and Opposition politicians joined the fray, demanding that News Corp. kill its attempted takeover of BSkyB while the criminal inquiries were under way.

It did. The Murdochs' power stranglehold over the British media market has been broken.

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While it has suddenly become unfashionable to defend the Murdochs in any way, there is no doubt that attacks on the waning empire are tinged with hypocrisy. Until very recently, politicians, including Mr. Cameron, would jump at the opportunity to attend a lavish Murdoch reception. Rebekah Brooks, the News of the World editor who was replaced by Andy Coulson, counted the Prime Minister among her best friends.

And the rival papers who attacked the Murdochs and their lieutenants with alacrity might remember that without Mr. Murdoch, they might not exist. In 1986, he smashed the Fleet Street print unions and moved his papers to Wapping, a bold move that saved the entire newspaper industry a fortune. Thanks to Mr. Murdoch, an industry renaissance was launched.

But the News of the World went too far. No amount of Murdoch goodwill could survive the truly horrific hacking scandal. Mr. Murdoch met his Waterloo at Wapping.

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About the Author
European Columnist

Eric Reguly is the European columnist for The Globe and Mail and is based in Rome. Since 2007, when he moved to Europe, he has primarily covered economic and financial stories, ranging from the euro zone crisis and the bank bailouts to the rise and fall of Russia's oligarchs and the merger of Fiat and Chrysler. More

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