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News Corp.'s British debacle shines spotlight on U.S. operations

July 11, 2011 |  4:37 pm

This post has been corrected. See the note at the bottom for details.

With the phone-hacking scandal that took down News Corp.’s News of the World tabloid showing no signs of slowing down, media watchdogs and industry observers are starting to wonder whether the flames engulfing media mogul Rupert Murdoch’s ambitions in Britain could eventually spread to here and threaten his U.S. operations.

RUPCAR The black eye that News Corp. is taking abroad for accusations that News of the World hacked into the voice mail accounts not only of celebrities and members of the royal family but also of victims of crime and terrorism has thrown the company’s plans to take control of British Sky Broadcasting into disarray. The company took the unusual step Monday of setting in motion a more excruciating regulatory review of its plans to acquire the 60% of BSkyB it doesn’t own in hopes that the gesture would be seen as a token of goodwill.

News Corp. shares continued to feel the pain of the hacking mess and dropped for a fourth day in a row on Monday, losing $1.23, or 7.1%, to a six-month low of $16.10 on the New York Stock Exchange. The stock has fallen 13% over the last week.

So far, the fallout from the News of the World debacle has been mostly limited to Britain. However, as the coverage continues to grow around the globe, it is giving new ammunition to critics of Murdoch and News Corp. in the United States.

“It is becoming increasingly clear this scandal was not perpetrated by a few rogue reporters, but was systematically orchestrated at the highest levels of News Corp.,” said Melanie Sloan, executive director of the advocacy group Citizens for Responsibility and Ethics in Washington, which has called for a congressional investigation of News Corp. “If Mr. Murdoch’s employees can be so brazen as to target the British prime minister, then it is not unreasonable to believe they also might hack into the voice mails of American politicians and citizens,” Sloan added.

The concerns about the shenanigans at News of the World are not limited to groups that see themselves as counterweights to News Corp.’s Fox News and other outlets deemed to have a conservative agenda. Some investors are outraged as well.

On Monday, a group of News Corp. investors led by Amalgamated Bank in New York accused the company of “improper conduct” in a lawsuit filed in Delaware Chancery Court. The suit, a revision of a previous filing against News Corp. over the terms of its purchase of a production company owned by Murdoch’s daughter Elisabeth, said the revelations in Britain show a “culture run amuck within News Corp. and a board that provides no effective review or oversight.”

HINTON One of News Corp.’s top U.S. executives has found himself under a cloud as a result of the debacle in Britain. Les Hinton, chief executive of News Corp.’s Dow Jones & Co., parent of the Wall Street Journal, is the former head of News International, the unit that housed News of the World. Hinton’s tenure there ran from 1995 to 2007, when much of the allegations of hacking took place. Like Rebekah Brooks, the current chief of News International, Hinton has close ties to Murdoch and is considered one of his top executives.

“It should be a wake-up call,” said Ilyse Hogue, a senior advisor at Media Matters, who said questions about how News Corp. operates in the United States “need to be raised now.”

The bulk of News Corp.’s U.S. operations, including its movie studio 20th Century Fox and its influential Fox News Channel, are run without any government oversight.

However, the backbone of its broadcast operations including the Fox network are its 27 television stations that reach almost 40% of the country, are licensed by the Federal Communications Commission and can be challenged when they come up for renewal.

The FCC has a policy regarding character requirements for licensees of broadcast television and radio stations. Misconduct that could result in the revocation of a broadcast license include criminal convictions and/or misrepresentations to the FCC or any other governmental unit. The FCC declined to comment on News Corp. and whether the ongoing probe of its British operations would have any repercussions in the United States. News Corp. also declined to comment.

"At this point, there is no evidence News Corp. did anything in the U.S. as it allegedly did in the U.K., something would have to happen within the FCC's jurisdiction to trigger any investigation here,” said Art Brodsky, communications director of the advocacy group Public Knowledge.

News Corp.'s Fox has dodged FCC scrutiny before. In the mid-1990s, the FCC, prodded by the NAACP and NBC, investigated whether News Corp. was in violation of government regulations regarding foreign ownership of television stations.

Although the agency ultimately found that News Corp. was in fact in violation of its caps on foreign ownership of broadcast licenses, it granted the company a permanent waiver and blamed a previous regime at the agency for the problem and not News Corp., which had been accused by media watchdogs and rivals of misleading the government on the issue.

Interestingly, current FCC Chairman Julius Genachowski was at that time a top aide to then-FCC Chairman Reed Hundt.

People familiar with the inner workings of the FCC note that there have been only a handful of license revocations and that the last was almost 25 years ago, when RKO lost its broadcast license on issues of character.

“It is very rare,” said Blair Levin, a fellow at the Aspen Institute and a former high-ranking FCC official. Levin did add that with regard to News Corp., he could “easily see battles arising on these issues.”

Even if News Corp. is found to have behaved badly abroad, short of a conviction of Rupert Murdoch himself, the FCC may find itself with its hands tied.

“If News Corp. or one of the Murdochs or other senior officers or directors got a criminal conviction, maybe, on a really good day, with wind at your back, calm seas and a nuclear turbine, you might get something going,” said John Hane, an attorney with Pillsbury Winthrop Shaw Pittman. “But I really doubt it.”

That sentiment was echoed by Rebecca Arbogast, a media analyst at Stifel, Nicolaus & Co. “A lot of people might argue what was going on there indicated something less than high character, but I do not see the government stepping in and doing anything here,” she said

Media Matters’ Hogue argued that the government should be proactive on News Corp. “Waiting for proof beyond a shadow of a doubt where lines were crossed gets us to where the U.K. was,” she said, adding: “Criminal investigations absolutely need to happen right away.”

For the record: A previous version of this post incorrectly referred to the group Public Knowledge as Public Interest.

-- Joe Flint


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Photos: Top right: Rupert Murdoch: Credit: Andrew Cowie / AFP/Getty Images. Bottom left: Les Hinton. Credit: Joshua Roberts/Bloomberg