News Corp.’s Tabloid Troubles: The Downside of Competition

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The U.K’s phone hacking story is tailor-made for the New York Post: a high-powered celebrity businessman and his top lieutenants caught up in a major scandal involving Hollywood stars, top pols, and royals, with a murder thrown in for grisly good measure. The newspaper loves cutting powerful figures down to size in 120-point type headlines. But since its owner, Rupert Murdoch, CEO of News Corp., is at the center of this outrage, the coverage is restrained, even boring.

That’s too bad because their boss is in huge trouble and because boring does not generally describe News Corp.’s tabloids. Sleazy, pornographic, low-rent, sensationalist, slanted, offensive and reactionary are some of nicer labels applied by critics. Although the Post may have underplayed it (“Executive Decisions” was the snoreline), the hacking imbroglio crashed into the United States over the weekend when Les Hinton, the CEO of Dow Jones and publisher of the Murdoch-owned Wall Street Journal, resigned. Hinton could not distance himself from the scandal, part of which happened when he was CEO of News International. The resignation would come two days before Rebekah Brooks, a successor as News International’s boss, was arrested by police on Sunday in connection with the hacking and with bribing Scotland Yard for information.

Hinton’s exit will not spare News Corp. from getting the tabloid treatment from U.S. authorities and pols on both sides of the aisle. Republican Congressman Peter King has asked the FBI to see whether the News of the World reporters tried to hack the mobile phones of 9/11 victims. The Justice Department is reportedly exploring the possibility that  News Corps. may have violated the Foreign Corrupt Practices Act for paying “backhanders” to the cops. That piece of legislation is really designed to stop American companies from paying off foreign operatives to win lucrative contracts in say, construction or equipment; but a bribe is a bribe. That’s important: if News Corp. is found to be a law-breaker, its licenses for 27 local television stations can then be challenged. Every television station license must be periodically renewed, and companies with criminal records tend to have a difficult time demonstrating why they should be allowed to own television stations, which are considered public trusts.

At the Wall Street Journal, the scandal has not gone beyond  Hinton, a 50-year Murdoch employee. Although the Journal and Dow Jones Newswire competes with Reuters and Bloomberg to break stories, it hardly seems possible that any Journal scribe would resort to phone hacking to get a jump on the price of soybean futures or even a corporate merger. The newspaper isn’t merely across an ocean from the British tabloids, it’s in another journalistic universe: serious, even sedate, although Murdoch’s Journal has also been criticized for a more rightward slant. The Journal is not necessarily profitable, owing mostly to the billions Murdoch spent to buy it in 2007 and how much he’s invested since then to create a rival to the New York Times. As he has done in other media segments including sports, television news, and network television, Murdoch spends to win and plays to win.

That the two former news bosses would first be cashiered and one of them arrested is the down side of News Corp.’s strategy for bringing creativity, innovation and profits to its U.K newspapers. Fleet Street, as the press is called from its early days headquartered on that London turf, is probably the most hyper-aggressive newspaper segment in the world. It has to be. Unlike in the U.S., the U.K. has national newspapers that rely far more on circulation for their profits than they do advertising, so the pressure to generate newsstand sales is relentless. That has led papers such as Murdoch’s Sun and the News of the World to be early adapters of full color pictures—and more color in the stories—than newspapers in other countries.  Royals, pols, sports stars and other celebs are subject to intense scrutiny as the papers forage for scraps of scandalous, or even mildly embarrassing, news. But competitive pressure also led to the kinds of aggressive reporting that evidently pushed journalists over the legal limits. It’s why the hacks were hacking.

By comparison, the U.S. is dominated by wimpy or mediocre local newspapers that enjoyed local monopolies and made pots of money on classified advertising and on must-run ad categories such as automotive and retail. Companies such as Gannett were able to vacuum profits from medium-sized cities like Rochester, N.Y. by being the only newspaper game in town. And it showed in their dreary product. When the Web came along, classified advertising was among the first to get hit, and the response has been to drastically cut staff rather than improve the product. Journalists at Gannett enjoyed another round of layoffs recently, as the company’s management has been unable to figure a winning strategy. In the U.K., the papers had to maintain their circulation or perish.

When Murdoch first began buying newspapers in the U.S., his application of Fleet Street style to Main Street USA journalism raised all kinds of hackles: in San Antonio, in Boston and most importantly in New York, where he bought the then liberal Post and turned it into an over-the-top tabloid with a conservative voice and few inhibitions. He unleashed a circulation war with the New York Daily News that bled both newspapers. The Post is still losing some $50 million a year, according to media analysts. But it has given Murdoch a soapbox and say in both New York and national politics—it has regularly ridiculed Hillary Clinton, for instance. That’s more than worth the cost of the losses, although shareholders have never felt that way.

And maybe it will be the shareholders, rather than the Post, who will write the headline about News Corp. The Murdochs dominate News Corp. and the boardroom, even as Murdoch was heard to say that he isn’t the company. He is. Or at least he has been. As things stand now, it is senior management of the company—Rupert, his son James and Rupert’s favorite lieutenant, Brooks—that is in the middle of the firestorm. To put out that conflagration, most corporate boards would simply remove the fuel.

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