Why Murdoch Should Sell?

A supporter's view

Over the years I have met a number of the central figures in the current drama engulfing News Corporation, including Rebekah Brooks (who I met when she was still Rebekah Wade) and James Murdoch (who I met when I managed a media stock portfolio that included shares of Sky, where he was CEO), and I have on a few occasions enjoyed Rupert Murdoch’s hospitality. I hold him in much higher regard than does the editor of this magazine, and he has never been anything but courteous and kind to me. I worked for a while at a newspaper that directly competed with News International’s British press, and was once even offered the job of Deputy City Editor at the Sunday Times, a position I actually rather regret turning down. To this day quite a few of my dearest friends work at News Corporation companies and one even serves on the board.

All of which is to say that this is not personal. It is not for me to make moral judgments about the practices at News International’s newspapers – plenty of more morally judgmental people than me have already adequately covered that ground.

I prefer to take a stab at outlining a scenario for how events may unfold from here.

It is not hyperbole to say that the continued economic viability of News International’s newspapers under Rupert Murdoch’s ownership is increasingly in doubt. Each day that the scandal continues, with revelations of the depths to which journalists at the News of the World and other Murdoch papers have sunk in the pursuit of stories, thousands of readers are cancelling their subscriptions and dozens of marketers are cancelling their advertising. Already Renault, Ford, T-Mobile and many others have voted with their feet.

The public mood in Britain, where I happened to be last week, is fevered. The Murdoch press, normally so adept at identifying and harnessing to its own ends the bouts of populist outrage to which the British can periodically succumb, now finds itself the focus of universal rage and scorn. It also finds itself, for the first time, entirely friendless. The public, to whose appetites News International has so successfully pandered for almost 40 years, has turned against Murdoch with the zeal of the sans-culottes. Politicians, so assiduously cultivated, cajoled and strong-armed by News International for so long, and who were instrumental in Murdoch’s great past victories (the breaking of the unions in the 1980s, the creation of Sky in the 1990s), have been finally liberated from the spell of his power by the public’s anger at him and them. And the rest of the media – once happy to abide by a tacit code that forbade attacks on fellow proprietors – is pressing its advantage as aggressively as they dare (for some of them may have skeletons of their own).

The fact that one of the chief purported culprits in the illegal phone hacking served as spokesman for the Prime Minister after being editor of the News of the World may yet bring down David Cameron’s fragile coalition government. Cameron will need to do everything he can to distance himself from the Murdochs. Realizing that in the present climate News Corp’s bid for the 61% of BSkyB that it does not already own would likely be rejected upon whatever pretext the Media and Culture Secretary Jeremy Hunt could find, News cleverly forced a referral to the Competition Commission as a delaying tactic. The move took Hunt by surprise, as he was poised to tell the House of Commons that he was looking for an excuse to scupper the bid by seeking the advice of two other regulators (Ofcom, the communications regulator, and the Office of Fair Trading, the consumer protection agency). Perhaps with the passage of time afforded by the Competition Commission referral (a minimum of six months), tempers will have cooled and News may be allowed to buy in the 61% of Sky, which is a marvelous and valuable company. But I doubt it. I do not think that any government for the foreseeable future will want to be seen to be doing any kind of favor to the Murdochs.

In fact, the atmosphere in Britain may be so poisonous to Murdoch’s interests (after James’ decision to close the News of the World failed to defuse tensions, and seems like many of his decisions – taking stakes in ITV and Premiere, for example – to have been too clever and too little thought-through) that selling up is the only viable solution. At least that would dampen the furor that can be heard even this side of the Atlantic and threatens advertising at News Corp. properties including Fox and the Wall Street Journal.

Just as Murdoch himself snatched control of the News of the World from Robert Maxwell in 1969 by presenting himself as a harmless antipodean alternative to the then better-known and more-reviled quantity of the “bouncing Czech”, there are plenty of would-be newspaper magnates who could step in to buy News International to give the impression of a new broom. Chief among them is Russian oligarch and former KGB man Alexander Lebedev, who with his son Evgeny bought both the Evening Standard and The Independent in the UK, and has said that he wants to divest all his interests (including his one-third stake in Aeroflot) except media, of which he wants to acquire more. There may be other of his countrymen who are similarly-minded, including Chelsea Football Club-owner and avid yachtsman Roman Abramovich and the aluminum magnate Oleg Deripaska  (#9 on the Forbes list), who seems to like to dabble in British politics. Inevitably there are sheikhs and Chinese who might also fancy ownership of The Times, Britain’s oldest daily paper, and The Sun, its highest-selling.

In the US, News Corp. shareholders have already launched a lawsuit against the management (the Murdochs) in response to the damage that the hacking episode has done to the company and its stock price (down more than 7% on Monday alone). As attached as Rupert may be to his beloved UK papers, the best thing for shareholders may be to find a buyer as quickly as possible, and get out before the Sun or the Sunday Times is forced to follow the News of the World into oblivion.

And ironically, this might be a brilliant “lemonade moment” for News, where the CEO is about the only stakeholder who is comfortable with the substantial exposure the company still has to newspapers. Getting a reasonable price in an auction for News International might be smartest thing News Corporation could do. Does anyone really think that the value of newspapers in general will be higher in a year or five years or ten? Almost exactly 7 years ago the Barclay brothers paid over $1 billion for the Telegraph newspapers, which, like the Murdoch papers, were solidly profitable. No newspaper is ever likely to fetch such a price multiple – more than 20x operating profits – again. Over the past two years, by contrast, Lebedev paid £1 for each of the Evening Standard and The Independent, both loss-making.

But selling the British papers altogether would also neuter the “media concentration” competition complaint against a full News Corp bid for Sky, which is an asset with brighter prospects than the newspapers anyway. Shareholders have still not quite forgiven Murdoch for overpaying for the Wall Street Journal (almost 15x profits) 4 years ago but he might redeem himself if he managed to find a vanity buyer for the UK papers and in the process save the Sky bid.