The Media Equation: Scandal Splinters a Family Business

@nytimesThe New York Times

The Media Equation: Scandal Splinters a Family Business

The News Corporation, the global enterprise controlled by Rupert Murdoch, has a history of living by its own rules and operating beyond consequence. That ended last week.

Mr. Murdoch, long a spectral presence who made his plays on a chess board of his own making, was brought low before a committee of Parliament composed of people he could not have been bothered with three weeks ago.

In testimony last Tuesday, he appeared as a supplicant, a faltering one at that, who interrupted his son James in the opening moments of the hearing, not to correct him, but to tell the members of the committee how sorry he was.

He is very sorry. Sorry that one of his tabloids hacked into the voice mail of a 13-year-old murder victim. Sorry that the scandal threatens to derail his plans of succession. And sorry to find himself suddenly in the public stockade.

Is he sorry that he and his employees created a culture and a business where all that seemed cricket? Probably not so much.

His family and the board of his company are sorry as well, but that will probably not end up meaning much. The protective instincts of the family were on broad display last week. James sought to leap in front of every hard question while Mr. Murdoch’s wife, Wendi, inserted herself into the fray when someone tried to shove a shaving cream pie at her husband. She has a mean right hook.

Rupert has his own protective streak when it comes to his family, and has gone to great lengths to make them central to the News Corporation’s success structure. But what his sons and daughters could soon find out is that if Mr. Murdoch is forced to choose between the family and the company he has built, he will choose the News Corporation.

“Rupert may end up having to make a choice between his son and the company, which is fairly biblical,” said a friend of the family who works in the media business and who declined to be identified when speaking about private family matters.

James Murdoch is done. He and his father both know that. His testimony curdled as he emitted it, and within two days a couple of former News Corporation executives publicly challenged it. The hooks are still in him, as Prime Minister David Cameron made clear when he said James still had “questions to answer.” And so he will, gradually sinking further into the mess he has overseen.

Oddly, the News Corporation’s stock began to tick up during the hearings as Rupert Murdoch testified, his large hands thumping as he dropped them to the table. But it was less about his performance than about the clear message that emerged: an era had ended. The family business is splintering. If James is out, as would seem to be the case, will his other offspring, Elisabeth and Lachlan, come swinging into view? I and others doubt that the charms of a global media enterprise being run as a corner grocery store will continue.

While the family reign seems certain to fracture, the News Corporation’s own fortunes are less predictable. A report by the analyst Michael Nathanson of Nomura Capital Investments nicely captured the moment. The market does not care if you have done bad things; it cares when you get caught.

“While we remain disappointed by the actions of a muckraking newspaper and frustrated that perhaps the least-valuable asset in the News Corp. portfolio could cause this much value destruction,” Mr. Nathanson wrote, “we continue to believe that the risk/reward for News Corp. investors remains positive.”

Reached later by phone, Mr. Nathanson suggested that the News Corporation had been cornered into doing the right thing, after doing a lot of not-so-right things. The fact that the company moved swiftly to buy back its stock — approving $5 billion of the oodles of cash the company has on hand — calmed the markets, if not the troubled waters that the company finds itself in.

“The loss of the BSkyB deal is significant and not good for the company, but in the long term, I think this will force the company to take a hard look at where they are putting capital,” he said, referring to the company’s abandoned bid for British Sky Broadcasting, Britain’s most lucrative satellite television network.

Historically, Mr. Murdoch has used the digital and broadcast parts of his empire to make money, and the more quotidian assets — newspapers, family influence and raw political power — to create running room for the rest of the organization. That was fine as far as it went.

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