News Corp.’s dramatic decision to close News of the World, the leading UK tabloid engulfed in a growing phone-hacking and police payoffs scandal, will have little impact on the media conglomerate’s bottom line, analysts said Thursday, despite the massive black eye for News International, the company’s UK publishing arm. That’s as long as it doesn’t derail the bid to own all of BSkyB.
Despite the high visibility of News of the World, and the sordid details of the scandal, the paper is but one small component of Rupert Murdoch’s far-flung media empire.
“News of the World is pretty immaterial to News Corp.’s earnings, in the one percent range, so whatever happens there is a flea on the back of an elephant,” Barton Crockett, an analyst at Lazard Capital Markets, told Bloomberg. “News Corp (NSDQ: NWS). is a company that’s really driven by their TV networks in the U.S. and internationally, and that part of the story is very strong right now.”
Under the circumstances, News Corp. executives clearly felt they had no choice but to amputate News of the World, which has become toxic, lest it infect the rest of the company or tarnish James Murdoch’s prospects of succeeding his father as overall News Corp. chieftain. In 2007, James Murdoch became chairman of News Int., which publishes News of the World, as well as The Sun and The Times of London. His corporate role has since expanded, and earlier this year he was appointed Chairman and CEO of News Corporation Europe and Asia., while retaining his News Int. responsibilities.
News Corp., executives are also clearly mindful of the possible fallout on the company’s $19 billion bid to take complete control of the British Sky Broadcast network. UK government regulators are currently weighing whether to approve that deal.
“The question is: does the political furor over terrible headlines cause the government to delay approval of the transaction,” Crockett said. “We were expecting the approval to be handed down basically this week and then all of this stuff erupts, and it’s troubling and surprising. But I still think we’re looking at a delay rather than the transaction not going through.”
Louise Cooper, an analyst at BGC Partners in London, echoed Crockett’s view, telling the Associated Press that the closure would have little impact on the parent company’s bottom line.
“Mr. Murdoch was clearly not willing to jeopardize his bid for BSkyB,” Cooper said. “Murdoch has shown what a brilliant operator he really is.”
The demise of the News of the World leaves a gaping hole in Britain’s all-important Sunday newspaper market. Despite rumors that The Sun, another News International tabloid, might expand from six says a week to seven in order to fill the void, a company spokesperson told the AP there were no plans to do so, “at the moment.”
Pressure on News Corp. over the phone-hacking allegations had been building for months, but the scandal erupted this week after the Guardian broke the news that News of the World journalists hacked into the mobile phone of Milly Dowler, a young girl who had been abducted and murdered in March 2002.
In the wake of that report, News Corp. shares closed sharply lower on Wednesday, even as company chairman Rupert Murdoch sought to diffuse the scandal from Sun Valley, where he is attending Allen & Co.’s annual summer camp for media moguls.
But startling allegations continued to emerge, including the claim that News of the World journalists interfered with a police investigation of murder. On Wednesday, the Guardian reported that Rebekah Brooks, formerly the paper’s editor and now CEO of News Int., had been advised that one of her most senior journalists had used company resources to run surveillance on behalf of two private investigators suspected of murdering a former colleague.
Throughout the saga, News Corp. has insisted that the wrongdoing at News of the World was limited to rogue employees within the paper. But that posture collapsed on Thursday, when James Murdoch announced the paper’s closure.
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