Hacked! How the News of the World Scandal Threatens Murdoch’s Empire

By shutting down the British tabloid, the company may have rescued a deal for BSkyB, but the taint could spread

News Corp. chief Rupert Murdoch took drastic action Thursday to shut down a growing scandal emanating from his largest print property, the U.K. tabloid News of the World.

But the fiasco still threatens his broader media empire, raising questions of what the CEO may have known about illegal phone-hacking and payoffs to police.

Also read: Former News of the World Editor Arrested

British Prime Minister David Cameron has announced two government-led investigations, while his former media adviser and former editor of the World was arrested Friday. More arrests connected to the phone-hacking scandal are reportedly on the way.

The acknowledgement by James Murdoch that News of the World engaged in significant wrongdong sent a series of questions rippling through the media world on Thursday: 

>> When did Rupert Murdoch become aware of illegal news gathering tactics such as hacking into cellphones of celebrities, political figures and terror victims?

>> Why didn’t News Corp. higher-ups take action long ago in a scandal that stretches back nearly a decade?

>> What is the connection between News of the World editors and political figures including Prime Minister David Cameron?

>> Did any other News Corp. properties hack into cellphones illegally?

>> Will the scandal scuttle Murdoch’s pending $12 billion deal to buy British Sky Broadcasting?

Murdoch’s son James summarily shut down the scandal-plagued News of the World on Thursday, stating that the “wrongdoers turned a good newsroom bad” and that “this was not fully understood or adequately pursued.”

Also read: The News of the World Scandal: How Europe's Rival Tabs and Papers are Coping (Slideshow)

But the revelations are a reminder of the bare-knuckled tactics of Murdoch’s past, an unseemly period long airbrushed out of News Corp.’s corporate image.

It also raised many questions about the company’s connections to police corruption, illegal news gathering practices and the reigning political structure in the United Kingdom.

Also read: The 'News of the World' Phone-Hacking Scandal: A Timeline of Tabloid Espionage

“The initial sense was this was one bad apple with journalists. Now they are trying to extend it to one bad apple in the sense of the publication, but there's enough of a pattern that you have to connect the dots,” Ilyse Hogue of the left-leaning watchdog site Media Matters told TheWrap.

A News Corp. spokesperson did not respond to requests for comment.

But even longtime executives at News Corp. were said to be shocked at the sudden decision to close the tabloid, the company's largest print publication with a circulation of 2.6 million readers per issue. 

Also read: A Newspaper Scandal Hacks Away at Murdoch's Invincibility

Among the dots to be connected are Andy Coulson and Rebekah Brooks. Coulson is the former World editor and member of Cameron’s administration. He resigned from both posts and was arrested Friday. Brooks, another former editor of the World, led the newspaper when the new transgressions exposed this week allegedly occurred.

She is currently the head of News International, News Corp.’s British publisher, and is a close friend of both Murdoch and his older children. Many have portrayed the shuttering of the World as an effort to protect her.

The scandal doesn’t stop there, and could quickly spread to News Corp.’s news properties in the United States.

Les Hinton, the former head of News International and Brooks’ former boss, now serves as publisher of The Wall Street Journal. It was Hinton who conducted an investigation into hacking allegations at the World back in 2007.

He declared that Clive Goodman, the royals editor, was the only person at the World who engaged in such tactics, and was also the only person who knew about them. That conclusion has since been proven false, and Hinton’s investigation has been widely criticized.

This leads some to question whether illegal tactics at the News of the World were also accepted at aggressive News Corp. properties like The New York Post, or even its spiffy new tablet paper, The Daily.

“There is nothing to indicate that the same thing wasn’t happening [in the United States],” Hogue said.

“It's part of a bigger pattern of putting personal and political interests ahead of good business practices and public welfare,” she added.

In a company as vast as News Corp., it will be difficult to know for certain how far knowledge of the scandal managed to climb up the corporate ladder. 

“It's conceivable that [Rupert Murdoch] didn’t know about it,” said Victor Navasky, chairman of the Columbia Journalism Review and former publisher of The Nation. “The question is, would he care if he did know about it?”

Though News of the World claims it is the most widely read paper in the United Kingdom, with a valuation of $650 million or 25 cents per share, its loss will barely register on News Corp.’s balance sheet.

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Indeed, News Corp. has lost more in terms of share price over the last few weeks than it likely will by cutting the cord to one of its U.K. tabloids. News Corp.'s shares fell 66 cents, or 3.6 percent, to close Wednesday at $17.47. The stock has traded from $11.66 to $18.35 in the past 52 weeks.

“It was hurting them politically. Murdoch couldn’t win by keeping it open,” Laura Martin, a media analyst at Needham & Company, told TheWrap.

In the meantime, closing down the News of the World has helped arrest the company’s sputtering stock price. News Corp. shares rose 2 percent on the Nasdaq after the announcement of the closure was made.

That growth ended up flattening out over the day as regulatory approval of the BSkyB was pushed back to September.

The deal was expected to be approved Friday, but as more details of the scandal emerged, the British government halted Murdoch’s ambitions to own a controlling stake in the satellite broadcasting company.It is unlikely, analysts say, that a deal could have gone forward with more embarrassing revelations seeping out each day.

Also read: James Murdoch's Full Statement

Clearly, the sordid activities of the News of the World staff are an uncomfortable reminder of the tabloid origins of Murdoch’s empire, whereas BSkyB represents its satellite and pay TV future.

Currently, cable and television accounts for nearly half of News Corp.’s revenues, while the newspaper business is less than 20 percent of the pie.

“Rupert is at heart a newspaperman and he has a tabloid background that comes with that,” Harold Vogel, head of Vogel Capital Management, told TheWrap. “But now he’s got lots of upscale, upmarket properties and licenses from government agencies that need to be maintained. That previous background doesn’t apply anymore.”

Now that News of the World has closed, Murdoch must be hoping he can go back to being a media visionary and leave his gossip-sheet days in the past.