‘News of the World’ Fallout, Next Stop: The U.S.

Most see the scandal as a British story—but it could have a major impact here

Americans are, by and large, a self-centered people. We just don’t pay much attention to other countries, or to their media. That’s true of the British media as well—the little knowledge of it that we do have here only deepens our confusion about it. We know it’s odd by our standards, that it plays by its own set of rules. But we don’t really understand it.

We should, though, because thanks to globalization and the Internet, the British media has had a real impact here. The country’s newspapers have become important outlets in the U.S. thanks to their websites, which get heavy traffic and have been injecting significant news stories about our own politics into the U.S. media lately, with the help of Internet news pioneer Matt Drudge and his Drudge Report.

Then there’s the News of the World phone hacking scandal, which suddenly exploded in all of its horrifying detail last week, culminating in News Corp. subsidiary News International’s decision to shutter the tabloid. Though the scandal has been going on for years, Americans haven’t really cared about it until now. That includes people with a financial stake in News Corp.’s business, like investors and print media buyers. Asked last week what they thought of the scandal, some knew little or nothing about it until it was explained to them. Those who have followed it see it as an anomaly.

“Murdoch’s untouchable,” declared Ed Atorino, a publishing analyst with Benchmark Co. “There’s unbelievably tough competition in the U.K., and they hate him. He beat the unions and changed the way they do business.” But Atorino believes News Corp. faces an entirely different political climate in the U.S., where its footprint is relatively small. “I just can’t see this reaching across the ocean,” he said.

Atorino may end up being proven right about that. Then again, maybe not: If this scandal continues to grow as it has, it could have a real impact on News Corp., including its properties in the U.S., where it owns, among other things, Fox, Fox News, The Wall Street Journal and the New York Post.

There’s certainly going to be a financial impact on the company—News of the World was a real moneymaker, the largest circulation English-language newspaper in the world. And News Corp.’s proposed takeover of satellite company BSkyB, which had seemed like a fait accompli, is suddenly threatened. Plus, at least one advertiser, Renault, has decided to pull out of all of News International’s papers.

And there are major political—and legal—implications. British Prime Minister David Cameron, who’s been tainted by the hacking, will now be feeling even more pressure to get tough: Andy Coulson, the former News of the World editor who was arrested on Friday, worked as his director of communications until January. Anti-Murdoch members of Parliament aren’t likely to let him forget about that any time soon.

The effects of that could stretch overseas; Rupert Murdoch tends to shuffle his key people from country to country, and some of the key figures in the scandal are now in the U.S. Les Hinton, who has been questioned about his role in the affair while running News International, and who’s facing new scrutiny, is now the CEO of Dow Jones, publisher of The Wall Street Journal. And Murdoch son and heir apparent James, who has been at the center of the scandal—he approved payouts and was the face of the decision to close the tabloid—was recently moved to New York. Both men could face trouble back in England.

Even if the ad fallout is limited to the U.K., the scandal could speed News Corp.’s move away from newspapers, which seemed inevitable as the next generation takes over, but could now be accelerated, argues Outsell analyst Ken Doctor. That change of heart could lead to a sell-off of the money-losing Post and a tamping down of Murdoch’s ambition to use the Journal to bury The New York Times. Doctor believes that News Corp.’s next leaders will see that “this mix of politics and business is not good for the company.”