The Murdoch Fall-Out: BSkyB, U.S. Cross-Ownership and the Future of News Corp's News Holdings
What’s an American to make of the astounding news that News Corp is closing Britain’s top Sunday paper, The News of the World, in the wake of a cascading scandal? That scandal, of course has morphed from political wiretapping to wiretapping families of murdered children to bribery of London’s police; we can expect it to further roll on, as these stories do, as lips loosen.
For Americans, it’s a bit tough to understand. Where does NOTW fit in? How does the BSkyB acquisition figure into this? Is Murdoch’s power much different in UK than the U.S.? And: are there any implications for what happens with News Corp properties in the U.S.? That last question became newly interesting this morning when the Third Circuit Court of Appeals sent back the amended-in-2007 newspaper/broadcast cross-ownership policy to the FCC, citing procedural and due process issues.
My short take: expect this earthquake to produce lots of aftershocks. Rupert is the pro’s pro at absorbing shaking and quaking about his power, but the deepening revelations will make that maneuvering more difficult.
News Corp’s extraordinary move — announced with full mea culpa by scion James Murdoch today — is, of course, intended to contain the controversy. It’s like Johnson and Johnson pulling all Tylenol off the shelves, because of some tainted supply — and putting the brand to eternal rest. News Corp’s move says: This series of extraordinarily unethical moves and poor editorial judgments will be put to an end by the simple closure of NOTW. It may be a smart move, clever and calculating, classic Murdoch. The bigger prize — keeping the full acquisition of BSkyB, Britain’s largest satellite broadcaster on track toward its likely fall government approval is, of course, the game. BSkyB expands Murdochian influence — news power is increasingly in multi-platform video and this acquisition underscores that point.
You had to laugh in reading the tortured conditions for the BSkyB approval. Again, classic Murdoch offering: “A corporate governance and editorial committee, including an independent board member with senior editorial and/or journalistic experience, which will be responsible for overseeing compliance and advising the board on provisions relating to editorial independence.” That’s from the same playbook well-executed in the Dow Jones/Wall Street Journal deal, I recall, and, I believe, in the Times of London buy as well.
What News Corp hasn’t yet done is throw one of its most favored execs, Rebekah Brooks, now head of Times International (the holding company for its UK papers) to the wolves. The wolves’ cries are growing louder, with the cries only logical from an outside point of view: Brooks was editor of NOTW when much of the illegal — and increasingly unseemly — wiretapping was taking place. Her paper published those stories, so we are left to include she is either complicit or negligent. Negligence is not a survival strategy, given the severity of the the charges. Yet, within the hour, James Murdoch has doubled down on his support of Brooks, who as recently as yesterday has been “in charge” of investigating what happened. Even Murdoch favored son, Prime Minister James Cameron, has been distancing himself from the whole mess (though trying to separate it from the little BSkyB matter), expressing his utter distaste. Brooks will have to go; the question is how and when. (For extraordinary coverage of this extraordinary story, start here with this page from the Guardian, which deserves great credit for staying on the wiretap story and pushing out some of the latest revelations.)
From a News Corp point of view, the damage due to NOTW’s closure is small (and its stock up today). News revenues only make about 20% of News Corp’s revenues, as satellite, Fox News, Fox Sports and movies drive News Corp’s business fortunes. In fact, shareholders and company executives have long pressured Rupert to further winnow newspaper holdings — a drag on profits and attention — but Rupert, the newspaperman through and through, has told them to piss off. Expect those arguments to only increase with NOTW’s implosion. Why bother with this tawdry tabloid business when the real money is in the clouds? If history is a guide, the decision to reduce newspaper exposure dramatically will be a post-Rupert decision. Rupert is 80.
Financially, the profits from NOTW and the daily Sun have propped up UK newspaper balance sheets. The Times of London and Sunday Times — News Corp’s quality paper plays — are hemorrhaging money, even as all the UK quality press struggles to find profit, with perhaps only the Telegraph doing it now. The daily Times is down 11% in the last monthly circulation reports, the loss leader among the national quality press. Even as its paywall experiment continues and throws off some money, it is far from a success. So one of the props of the Times has just been loosened. It will be replaced quite quickly though. The universal expectation is that News Corp will soon put out a Sunday replacement for NOTW to recoup revenues — the Sunday Sun is apparently already taking shape — though that it will damp some revenues at least in the short term.
All in all, it’s at least a further hiccup in Rupert’s stay-the-course with newspapers intention.
The bigger, longer-term question is the knotty one of media consolidation, both in the UK (BSkyB) and the U.S.
Which takes us back to the FCC case. When I wrote about FCC Chairman Kevin Martin’s “misguided missile” three and a half years ago, we could see the outlines of cross-platform print/broadcast combinations. In 2011, in the age of iPads, coming 4G and video-forward news, the strategic and technology-driven rationale for combining local media operations (print + broadcast) has only gotten stronger. D.C.-based TBD.com’s abortive effort was right, strategically. Other media companies are already strategizing a local future in which only one entity (text + video) will be able to garner enough local ad revenue to support ad operations.
So the FCC, the new Democrat-led FCC, will go back the debate of cross-ownership and media diversity. It’s a clear case in which business imperative (and financial reality) leads one direction, and the public’s benefit from strong, diverse, journalistic voices are at loggerheads.
Which leads us back to Rupert. His Fox is a strong player in regional TV and in regional sports. Fox’s ability to profit — and increase its presence — under more relaxed U.S. cross-ownership rules is evident. So expect the reverberations from the NOTW wiretapping scandal of 2011 to play out in U.S. debates, later this year and/or into 2012. The world really is getting smaller (“The Newsonomics of the British (News) Invasion“).
Media power is growing global, though our regulatory apparatus — set up for an analog age — is still national. That’s a story as least as fascinating, though less sexy, than the rat-a-tat revelations out of London today.