Murdoch's newspaper holdings go from Trojan horse to Achilles' heel
The scandal in which operatives of News Corp.'s News of the World tabloid stand accused of hacking into the phones of not only celebrities and members of the royal family, but also victims of crime and terrorism has torn through the company and threatens Murdoch's empire.
The imbroglio has already resulted in the shuttering of News of the World, resignations of two Murdoch associates and the arrest of one of them, and the collapse of a $12-billion deal to buy outright the powerful British Sky Broadcasting satellite TV service. In the last few days, the commissioner and assistant commissioner of Scotland Yard were also brought down by the fiasco.
On Tuesday, Murdoch and son James testified before Britain's Parliament and endured verbal blows and -- in the case of Rupert Murdoch -- a physical attack. Media analysts are hoping the phone-hacking debacle will finally convince the 80-year-old mogul that it is time to stop the presses that have put the entire company in peril.
Wall Street has never been on the same page as Murdoch when it came to the value of owning newspapers. "Investors hate everything to do with the newspaper business," said Rich Greenfield, an analyst with BTIG. "It is perceived to be the worst asset within News Corp."
But watchers of Murdoch and his empire counter that it was News Corp.'s newspapers that gave the mogul access to the halls of power. Politicians would seek to curry favor in exchange for endorsements. Politicians kowtowed to the press baron and his papers in exchange for endorsements. Once inside those corridors of power, Murdoch's newspapers could also go on the attack, laying waste to any opposition.
"The newspapers brought Rupert Murdoch social standing, position and enormous power — and enabled him to build an empire," said James O'Rourke, a professor of management at the University of Notre Dame.
The clout the newspapers have has given Murdoch power around the globe and has helped News Corp. in ways that bottom-line-focused Wall Street sometimes overlooks.
"There is no question — circulation equals reach, which equals influence, which soon equals access," said Frank Sesno, a former senior executive at CNN who is now director of George Washington University's School of Media and Public Affairs.
Now it's the politicians who are on the attack, and what always turned out to be Murdoch's strength -- access to power -- has become his weakness, perhaps the News Corp.'s fatal, final flaw.
For more on the disconnect between Wall Street and News Corp. when it comes to newspapers, please see the story in Tuesday's Los Angeles Times.
-- Joe Flint
Photo: Rupert Murdoch. Credit: Ki Price/AFP/Getty Images