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Rupert Murdoch’s Annus Horribilis

10 July 2012

It’s a year since News Corporation’s cover-up of phone-hacking in Britain began to unravel. Rodney Tiffen takes stock of the damage so far, assesses the News Corp split, and looks ahead


Early casualty: former Murdoch editor Andy Coulson resigns from his job at 10 Downing Street in January last year. Flickr

Early casualty: former Murdoch editor Andy Coulson resigns from his job at 10 Downing Street in January last year. Flickr

ON 4 July 2011, Rupert Murdoch’s world changed forever. On that day the Guardian reported that a private investigator, Glenn Mulcaire, employed by the News of the World, had hacked into the mobile phone of an abducted teenage girl, Milly Dowler, who was later discovered to have been murdered.

The story was the work of investigative reporter, Nick Davies, who had broken his first story on the phone-hacking scandals two years previously. The first visible tip of what eventually proved to be a large iceberg had come with the convictions in January 2007 of Mulcaire and the Murdoch tabloid’s royal reporter, Clive Goodman, for hacking into the mobile phones of members of the Royal Family and their household. News International dismissed it as an isolated act, the work of a single rogue reporter, and that defence held for the next several years.

By mid-2011, the scandal had been building on a number of fronts, but had not grabbed the attention of other media, politicians or the reading public. The Milly Dowler story opened the floodgates. Veteran journalist and newspaper historian Roy Greenslade called the next two weeks “the most astonishing fourteen days in British press history, with daily shock heaped upon daily shock.”

A series of dramatic events unfolded in quick succession. The Murdochs closed the News of the World, which had been labelled a “toxic brand” by James Murdoch and abandoned by many advertisers. Several journalists associated with the paper, including its former editor and former prime ministerial adviser Andy Coulson, were arrested. Prime minister David Cameron cut short an overseas trip to confront the crisis, and announced two judicial inquiries. With majority support from all parties, the House of Commons declared its opposition to Murdoch lifting his stake in the satellite broadcaster BSkyB from 39 per cent to 100 per cent, despite the fact that communications minister Jeremy Hunt had declared his approval just weeks before. News International was thus forced to withdraw from what would have been the single biggest deal (£7.8 billion) of Murdoch’s career. On successive days London’s chief police officer and one of his deputies resigned. And Rupert and James Murdoch were forced to appear before a parliamentary committee, televised live, in what Rupert called the most humble day of his life.

When Murdoch had belatedly jetted into Britain, he failed to understand the strength of the storm he was facing. Amid all the outrage, his declaration to the TV cameras that his main priority was to save the head of News International (and former editor of the News of the World and the Sun), Rebekah Brooks, hit a discordant note. His attempt was useless anyway; days later she resigned, and a short time after that she was arrested.

But just as astonishing as the momentous events of July 2011 is the fact that the scandal’s intensity has continued throughout the past the year and looks as if it will dominate Murdoch’s life for the coming year as well. As the police probes, the court actions and the inquiries continued with their own relentless logic, the revelations still threaten to have profound consequences – including prison – for some of those involved.

The most prolific source sustaining the scandal over the past year has been the Leveson Inquiry, conducted by Lord Justice Leveson assisted by QC Robert Jay, whose public hearings have brought before TV cameras an unprecedented cross-section of prominent Britons. The prime minister and three former prime ministers, a series of other prominent politicians, journalists and editors, celebrities, sporting personalities, police, crime victims and, of course, Rupert and James Murdoch and some of their most senior executives, have testified and been cross-examined under oath. A total of around 500 people and organisations have made submissions and/or appeared as witnesses.

The hearings in particular have provided material for many headlines and provoked much commentary. Sometimes the revelations have seemed less than dramatic –who would have thought that senior News International people met so often with senior political figures and discussed so little? But the testimony offers a rich vein that analysts will be able to mine for undramatic but significant disclosures of many of the nether regions of British politics and media. Leveson began sitting on 14 November 2011; his public hearings are almost at an end, and his report is expected in October or November.

The other major public forum to produce telling testimony has been the House of Common select committee, one of the few means by which the scandal had been pursued before 2011. The committee hearing at which Rupert and James appeared in July last year – having initially refused to attend, but then been ordered to do so – provided an early climax of attention. Most importantly, on 1 May this year the committee issued a report which concluded that Rupert Murdoch was not a fit person to exercise stewardship of a major company. News Corporation seized on the fact that the main finding against Rupert was not unanimous but passed along party lines, with Labour and the Liberal Democrats supporting and the Conservatives opposing. Much legislation is also passed along party lines, but this does not stop it becoming law. But more importantly, it would have been unthinkable a year earlier that a group of Labour and Liberal Democrat MPs would have unanimously reached such a conclusion. The Conservatives dissented partly because they thought such a finding was beyond the committee’s mandate.

Many of the committee’s other major findings were unanimous, and strongly critical of News International’s behavior. Members unanimously agreed that News International lawyer Tom Crone, former editor Colin Myler and former News International executive chairman Les Hinton had misled the committee and demanded that they be censured by parliament. Although James Murdoch’s testimony was strongly criticised he escaped this fate.

The report was a personal triumph for Labour’s Tom Watson. The MP’s ministerial career had been destroyed and his personal life almost destroyed by News International vendettas. His account of that persecution and the personal cost it wrought, and his later pursuit of Murdoch’s wrong-doings from the parliamentary backbench, are recorded in hair raising detail in his book, Dial M for Murdoch.

Although they haven’t so far made the same kind of headlines that these two public inquiries have generated, the most ominous developments for Murdoch are on the legal front, involving both civil and criminal actions.

One of the means by which the News International defences were initially breached was publicity attracted by civil cases brought by people whose phones had been hacked. Some of Davies’s early stories revealed unusually large payouts that had clearly been designed partly to buy silence. Even after that possibility disappeared, News International’s strategy was to avoid any defence that gave the cases a higher profile. On a single day, 19 January 2012, it settled thirty-seven cases, with former deputy prime minister John Prescott, for example, receiving £40,000 and actor Jude Law £130,000. Another batch of cases was settled three weeks later, on 9 February.

As the scale of News International’s phone hacking became more widely known, the number of litigants rose. The numbers became so great that the judge has laid down several guidelines about procedures and fees and directed plaintiffs to around a dozen law firms who have built up expertise in the area. Even though many cases have already been settled, the Guardian reported last month that there were still forty-nine individuals suing the company. But News International says that it believes the number of claims could rise to over 500 as new information comes out. Scotland Yard identified 829 potential victims of phone hacking, of whom 231 are deemed not contactable. Close to 4000 other people are mentioned in transcripts or as the other party in calls involving the people being hacked.

Earlier, the Leveson inquiry was told that Mulcaire’s notes revealed that he had dealt with twenty-eight staff members at the News of the World. News International disputes that the number involved was that high, but we have moved a very long way from an isolated act by a single rogue reporter.

Although each new case can seem like simply more of the same, and although it is hard now to be shocked by new revelations about whose phones were hacked, Britain’s Supreme Court made an important ruling just a few days ago, on 4 July. Private investigator Glenn Mulcaire had been resisting all orders to reveal who at the newspapers had selected which phones to hack, but now the court – as if to observe the anniversary of the Milly Dowler story – has ruled he must do so. Such revelations will put much more pressure on News internally, especially if the new information leads to criminal cases, which pose the greatest threat to the individuals involved and perhaps to News as a company.

The News defence of a single rogue reporter would have collapsed at the beginning if the police had acted competently. Instead, according to Watson’s account in Dial M for Murdoch, the police decided to “ring fence” the prosecution when Mulcaire and Goodman were facing trial in 2006 so that no “extraneous matters” would be dragged in, and the prosecution agreed the case should be limited to “less sensitive” witnesses. Evidence of the extent of Mulcaire’s operation lay stored in plastic bags in a police basement for four years. Police embarrassment mounted with revelations of the extent of interchange between police public relations staff and News publications, and evidence of the lavish hospitality to which police were treated, including during key moments of the investigation.

Eventually, the embarrassed police decided to act effectively. In January 2011 they set up Operation Weeting to investigate phone hacking under the direction of a senior police officer, Sue Akers. When it was clear some offences would fall outside its scope, two further inquiries were set up. Operation Elveden would investigate payments to public officials and Operation Tuleta, initially a “scoping exercise,” was set up to investigate allegations of computer hacking.

So far, few arrests have been made by Operation Tuleta, but twenty-four people had been arrested under Operation Weeting and thirty-seven under Operation Elveden. Some charges of destroying evidence have also been laid. And there may be more to come.

In total, there are likely to be more than fifty criminal trials yet to be heard – assuming each one is handled individually – involving either News International employees or people who have (by accepting bribes, for example) been in contact with them. Many of these charges carry the prospect of heavy jail sentences. The stakes for the individuals involved are very high, and often their defensive strategy could be to implicate others. The former solidarity of News Corp will be subjected to unprecedented stresses.

The corporate stakes for News are also very high. While the British parliament has voiced its opposition to an extension of News International’s stake in BSkyB, if there are findings of corporate misconduct then the regulatory agency, Ofcom, could conceivably force a divestiture of the existing holding. Convictions in Britain could also have repercussions in the United States under that country’s Foreign Corrupt Practices Act.

PERHAPS to quarantine the wrongdoing and deflect such consequences, Murdoch bookended his year of scandal with a surprise. In late June he announced that News Corp would split into two: a (much larger and more profitable) entertainment and media company and a (much smaller, much less profitable and more controversial) publishing company. He insisted that this had nothing to do with the scandal – “Nothing to do with it at all. This is looking forward to what’s best for our company and for our shareholders” – but his biographer Michael Wolff judged otherwise. “Until the phone hacking scandal came to dominate every aspect of News Corp’s corporate consciousness,” he wrote, “hell would have had to freeze over before Rupert would have let his papers go.” A year earlier, Murdoch had dismissed the idea as rubbish, and even in the month before it occurred he denied it was being contemplated.

Nevertheless Murdoch embraced the change with characteristic chutzpah. An email to News Corp’s 50,000 employees declared that “we will wow the world as two.” The company said it had decided to restructure because of its “increasingly complex” asset portfolio. “We must realign and reorganise in this moment of opportunity,” said Murdoch. “Over the years, I have become accustomed to the noise of critics and naysayers... and pretty thick-skinned!’ he reassured staff. “Remember what they said when we started Fox Network, Sky, Fox News and the Sun? These experiences have made me more resilient.”

News Limited headlines in Australia joined the chorus: “Divide and Conquer”; “Break Up Logical, Good for Shareholders and Gives Print a Chance”; “Murdoch Finds Way for Papers to Thrive”; “Double the News”; “News split to ‘wow the world.’”

News Corp shares reached their highest levels for five years on the news. The reason most business analysts applauded the demerger was that, in journalist Amy Chozick’s words, they believed that, “in effect, News Corporation had evolved into a successful entertainment company with a newspaper problem.” Or, as Michael Wolff put it, “From a rational business view, the papers consumed far more resources than any returns they can ever hope to offer.” Murdoch explicitly rejected this view. “Our publishing businesses are greatly undervalued by the sceptics. Through this transformation we will unleash their real potential, and be able to better articulate the true value they hold for shareholders.”

According to media writer Roy Greenslade, though, New York stockbrokers were referring to the two companies as GoodCo (the entertainment part) and BadCo (the publishing side). He quoted David Carr of the New York Times, who observed that creating a separate division to allow newspaper businesses to grow and reach their full potential “is a little like the engineer of a locomotive unhitching the caboose and telling the people marooned there that they were now free to travel toward any destination they desire.” A cartoon in the Economist offered the most succinct analysis, picturing the media company as an eagle and the publishing company as a turkey.

Internally, many of the company’s print journalists had qualms. One exasperated reporter at the Wall Street Journal briefing is said to have asked, “How exactly is this good for us?” and another commented: “Instead of being part of a big, diverse cash rich aircraft carrier of a company, we’re going to be part of a car ferry.”

Such fears would not have been quelled by Murdoch’s pronouncement that “you’re not going to see any print losses tolerated anywhere.” Each newspaper, he said, would be expected to pay its way over time. This is probably mock heroics, and would represent a radical change of policy by Murdoch, who has been willing to incur financial losses on some newspaper titles in order to maintain his political clout. When Michael Wolff expressed the view that the New York Post may well have lost more money than any other media enterprise in history, Murdoch’s editor at the London Times countered that the London newspaper might equal it. The Australian Financial Review’s Murdoch-watcher, Neil Chenoweth, thought that the demerger “will leave the three big money losers particularly exposed: the New York Post, the London Times and the Wall Street Journal. The losses among them might be as great as $250 million.”

Nor is the split quite as neat as the headlines suggest. First, the changes will occur in twelve months’ time. As business writer Stephen Mayne observes, this creates “a unique opportunity” for Murdoch “to shuffle the deck on family succession and hand pick future non-executive directors who agree to family dominance.” According to Michael Wolff, while “Rupert has been forced into this deal” he has “bought himself twelve months to undo or modify it.”

Moreover, the proposed publishing division will include not only newspapers and book publishing but also educational products and the US inserts business. Most notably it will also include Foxtel, the Australian pay-TV operation, which means that the Australian company will continue as a single entity – because, said Murdoch, it is so far away. One reason for the unique Australian grouping may be that any change in News Limited’s ownership structure here could provide the other owners of Foxtel with an opportunity to reopen the question of News’s management control of Foxtel. Although the publishing company will probably be based in New York, more than 60 per cent of its assets will be in Australia, a fact that most commentary has ignored.

Wolff, the biographer who has had the most extensive access to Murdoch and his closest associates, has placed the most radical interpretation on the demerger: “If this is, as I believe, something of a high pressure game, if not an outright putsch, directed at a weakened Murdoch (and Murdochs), then there is blood in the water. So, rather than being seen as a straightforward, logical and advantageous transition for the company, it should be seen as setting the stage for vengeance, payback, and an ongoing fight for control…”

If Wolff is correct, not only Murdoch’s dynastic ambitions but even his own ability to run his corporation as a personal fiefdom will be under increasing internal challenge. At the same time, the external pressures will continue unabated. The Leveson report will be published; Ofcom may have started inquiries into whether he is a fit and proper person to be a broadcaster in Britain; the British parliament will be considering policy issues arising from the scandal. Not least, there will be several dozen court cases under way involving his company and employees. The coming year threatens to be just as horrible for the once-invincible magnate. •

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