What the UK report on Murdoch means for his empire

LONDON — How do you solve a problem like Rupert Murdoch?

That’s the issue now facing sections of his media empire after a damning British parliamentary report labeled the powerful press tycoon unfit to run a major international company.

A committee of British legislators who have spent months investigating the phone hacking scandal involving one of Murdoch’s leading UK newspaper titles concluded this week with a majority verdict that the 81-year-old was “not a fit person” to be at the helm of News Corp.

Their findings grabbed attention not just in the UK but across the Atlantic, where headlines in the New York Times, Washington Post and Murdoch’s own Wall Street Journal must have made uncomfortable reading for News Corp. staff and shareholders.

Read more: EU moves closer to record-label dominance

The committee’s judgment carries no threat of sanction, but with lawsuits pending in the US over hacking and the threat of possible prosecution under the powerful Foreign Corrupt Practices Act, it will offer little in the way of reassurance.

Having conceded that the British parliamentary inquiry was right to highlight “serious wrongdoings” at the now defunct News of the World title, News Corp. took issue with the “unjustified and highly partisan” verdict on its boss.

Murdoch himself issued a statement to staff admitting mistakes but declaring that “our business has never been stronger.” News Corp.’s board also issued a statement saying it had “full confidence” in its CEO and chairman.

Read more: Murdoch strikes back

However, with criticism of Murdoch continuing to mount in the UK, questions were being raised as to what extent the report would harm his business interests both here and in the United States, with some shareholders suggesting it was time to shift power out of Murdoch’s hands.

A day after the report, elements of his $50 billion media empire appeared to be attempting to distance themselves from Murdoch, not just by prominently reporting the committee’s scathing assessment, but by explicitly stating their independence of his command.

There was speculation that a small surge in News Corp. share prices in the wake of Tuesday’s verdict reflected anticipation that the company would soon divest itself of its troubled UK newspaper titles and set wheels in motion to reduce Murdoch’s influence over the company.

Rupert Murdoch is "finished in the United Kingdom," wrote Michael Wolff, author of “The Man Who Owns the News,” an unauthorized biography of the News Corp. founder. “Understanding that Britain is a lost front, he will retreat to his US stronghold. From New York, the process of disposing of the British papers, which, by reliable insider accounts, has begun, will hasten.”

Of primary concern in the UK is whether the “not a fit person” verdict will have any impact on a separate inquiry by British communications industry regulator Ofcom over whether News Corp. is a “fit and proper” owner of a lucrative 39.1 percent stake in prominent broadcaster BSkyB.

Read more: London's mayoral race is a cast of (flawed) superheroes

Any decision that would force News Corp. to offload its BSkyB holding would be a considerable blow to the media giant, which had hoped to buy the broadcaster outright but later abandoned the deal after the phone hacking scandal inflamed opposition.

On Wednesday, BSkyB’s chief executive, Jeremy Darroch, used the publication of record financial results to disassociate his company from Murdoch and — clearly wary of the threat to its prized broadcast license — talk up its annual $1.6 billion tax contribution to the British economy.

“I would emphasize that it’s important to remember that Sky and News Corporation are separate companies,” he told reporters. "We believe that Sky's track record as a broadcaster is the most important factor in determining our fitness to hold a license."

Aware of the potential damage his presence could bring to the company, Murdoch’s son James last month stood down as chairman of BSkyB, saying he didn’t want to be a “lightning rod” for criticism over the hacking scandal.

Speculation is now mounting over whether the News Corp. brand will also be vulnerable to critical, financial and legal thunderbolts if Murdoch senior resists shareholder efforts to usher him into a backseat role.

Read more: Protesters gear up for London Olympics

“I think you have to be careful about extrapolating from what has been an appalling set of circumstances around one newspaper group … to the continuing demise of News Corp.,” said Charlie Beckett, director of Polis, a media and society think tank at the London School of Economics.

Beckett said that while the parliamentary verdict would certainly cast a shadow over any News Corp. deals, mergers or takeovers in the future, there was nothing inevitable about the demise of the company or its subsidiaries.

Likewise, he said that while there was support for scaling down Murdoch’s control over News Corp., shareholders would also bear in mind the fact that the media tycoon’s sharp business acumen has consistently paid dividends, regardless of any questions of ethical culpability.

“There are some people who would welcome the defamiliarization of the company, but you could also argue that this is a guy who has an extraordinary track record on delivering profit,” he told GlobalPost.

Beckett said that plans would already have been in place to arrange a succession of command, and while these may now be fast tracked down from five years to two, News Corp. would be unwise to proceed with too much haste.

“It’s in everyone’s interest for the thing to not fall apart in the next year or two. Even those people who want Murdoch to recede don’t want him to jump out of the top floor. That would be far too destabilizing.”