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Scandal and Scrutiny Hem In Murdoch’s Empire

In the months after a phone-hacking scandal erupted in Britain last summer, Rupert Murdoch told people within News Corporation that he wanted to revisit his media company’s discontinued $12 billion bid for the pay television service British Sky Broadcasting.

Mr. Murdoch, the chairman of News Corporation, still viewed the acquisition of the 60 percent of BSkyB not already owned by News Corporation as a strategically important investment. The TV company, which posted an operating profit of more than $1.7 billion in 2011, would have provided a steady revenue stream for his company.
Pressure was put on News Corporation, mostly by investment bankers specializing in the media sector, who suggested that the best way to win government approval for the deal would be to sell or spin off its embattled British newspaper unit, News International, to help ease lawmakers’ concerns about Mr. Murdoch’s company owning the country’s largest satellite TV operator.

Mr. Murdoch rejected those proposals, according to a person involved in the discussions who was not authorized to comment publicly on the conversations.
Any shred of hope for a BSkyB takeover in the near future appeared to have been dashed last week after e-mails surfaced suggesting that a News Corporation lobbyist and a British culture minister had conspired to get the deal approved.
“I don’t think anybody believes they’ll get another shot at controlling BSkyB any time this decade,” said a person familiar with the company, who would discuss its strategic plans only on the condition of anonymity.
The failed deal highlights a period of caution and relative stagnation at the $50 billion media empire known for its risk-taking and forward-thinking acquisitions.
For months, News Corporation’s buoyant stock price and solid financial performance, driven by the strength of its United States television assets, had allowed executives based in New York to paint the scandal as an unfortunate but isolated series of events at the British tabloids, a tiny part of the overall business.
But the events in Britain and the resulting scrutiny have begun to take a toll on the broader empire, according to at least a dozen people familiar with the company, including several former News Corporation executives.
On Tuesday, the Culture, Media and Sport Committee of the British Parliament is expected to release a report that could further damage the company’s reputation.
Inside the company, one of the biggest concerns is that News Corporation now sits under a magnifying glass, making any potentially suspect business dealings, even from years ago, vulnerable to scrutiny by the United States government.
A former News Corporation subsidiary, a Moscow-based billboard company called News Outdoor Russia, is the subject of an F.B.I. inquiry into whether the company bribed local officials to advance its business. The findings of that investigation could prove a violation of the Foreign Corrupt Practices Act, according to a person briefed on the inquiry. News Corporation sold the company in July to a bank controlled by the Kremlin.
The potential for a billion dollars in fines related to a violation of the corrupt practices act could dwarf the economic downside of anything related to the lawsuits in Britain, said Behnam Dayanim, a regulatory lawyer based in Washington. “It may be the single most feared corporate criminal statute out there today,” Mr. Dayanim said.
News Corporation declined to comment. News Outdoor Russia has denied all suggestions that the company bribed officials to advance its business.
The hacking scandal has delivered a blow to News Corporation’s push into the potentially lucrative education sector, a project prized by Mr. Murdoch. In November 2010, News Corporation paid $360 million for a 90 percent stake in Wireless Generation, an education technology company based in Brooklyn that specializes in interactive learning tools.
In August, Wireless Generation lost its $27 million no-bid contract to develop educational software for New York schools. Thomas P. DiNapoli, the New York State comptroller, said the state rejected the contract “in light of the significant ongoing investigations and continuing revelations with respect to News Corporation.


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