News of the World casts shadow over News Corp.

8th July 2011, Comments 0 comments

The News of the World phone-hacking scandal is casting a shadow over Rupert Murdoch's News Corp. with analysts calculating the damage to the media and entertainment giant's image and bottom line.

News Corp. shares tumbled 3.9 percent on Wall Street Friday amid concern that the scandal which led to the abrupt closure of Britain's best-selling Sunday tabloid could thwart Murdoch's bid to take full control of pay-TV giant BSkyB.

News Corp.'s British newspaper holdings are only a "very small part of the business these days," said Morningstar analyst Michael Corty.

"But people are concerned that (the scandal) might delay or hurt their chances in the BSkyB acquisition," Corty told AFP.

News Corp. is seeking to purchase the 61 percent of BSkyB that it does not already own but the British government has reportedly delayed a decision on the deal until September.

BSkyB holds most of the lucrative rights to English Premier League football.

Collins Stewart analyst Thomas Eagan said the financial impact of the News of the World shutdown on News Corp.'s overall business is "minimal."

News Corp.'s newspaper division, which includes papers in Australia, Britain and the United States, accounted for $530 million of total operating income of $3.96 billion in fiscal 2009-10.

Marc Pado, US market strategist for Cantor Fitzgerald, said the key question is "the liability and how high does it go?"

The British authorities "are going to dig into this and they could take down key players within the corporation beyond the tabloid paper," Pado said.

Most financial analysts said it would be premature to try to gauge the full impact of the scandal on News Corp., whose interests also include the highly profitable Fox television networks and 20th Century Fox movie studio.

Frank Sesno, professor of media and public affairs at George Washington University, said "the reputation of the entire corporation is endangered by something like this."

"The senior management of the corporation have to show that they get it, that they understand how serious this is," Sesno said "They'll be judged through their other properties by their response to this crisis."

A number of media analysts pointed the finger at News Corp. chairman and chief executive Murdoch himself.

In a blog post for the online edition of The New Yorker, Ken Auletta described the 80-year-old Murdoch as a "brilliant, daring business executive" but also a "man whose newspapers too often traffic in sleaze."

"That is the culture he built and that his minions immersed themselves in," Auletta said.

"Even taking the dramatic step of closing the News of the World will not, I suspect, tame the controversy and allow News Corp. to deflect blame," he said. "The phone-hacking scandal is one Murdoch cannot escape, because he is culpable."

Dan Kennedy, an assistant professor at the Northeastern University School of Journalism, noted that the scandal "implicates people who are very, very close to" Murdoch but declined to speculate on how it will turn out.

"Murdoch has always had a lot of successes and a lot of failures simultaneously," Kennedy said.

© 2011 AFP

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