Magnate turns gold into lead

Rhys David believes the consequences of the News of the World scandal for the Murdoch empire will be more profound than those currently exciting most interest

Rhys David is a trustee of the IWA and writes on economic and business affairs. He is a former journalist with the Financial Times.

The Assyrians, the Medes and Persians, the Romans, the Spanish, the British, the Russians and now the Murdochs… all Empires crumble and fall in the end as overweening pride, arrogance and overstretch finally take their toll.

It happens more quickly where the empire is essentially a family concern, as in the case of the Murdochs. In such cases renewal from within is much more difficult and constantly comes up against the conflicting demands of family interests and rivalries. The latter according to some commentators are particularly fierce within the Murdoch clan.

Emperors, like Rupert, himself find it difficult, too, to hand over, even though at 80 it is hard to stay in touch with modern trends or even work at the pace of younger people. That is when mistakes start to happen.

Thus, five years ago the aged magnate authorised the purchase of MySpace, the social networking site, for a staggering $580m. It seemed like a good idea at the time and evidence that the old master could still spot the opportunities even in ‘youth’ markets. Last week it was sold for $35m. A Midas in his early days when he could rescue the worthy but then unloved Sun from oblivion and knock the Daily Mirror off its top tabloid perch, Murdoch seems in this case to have turned gold into lead.

Nor has this been the only mistake in recent time. Project Alesia, an internet platform bringing together the content from his UK newspapers, has been scrapped after initial expenditure, and The Daily, an internet newspaper in the US has also disappointed.

What Murdoch had failed to notice in the case of MySpace, and his advisers had presumably been too timid to point out, was that the momentum was already being seized by another social networking site – Facebook. MySpace was heading in the wrong direction for NewsCorp. The Murdoch acquisition team had not realised it was a bore to have to belong to lots of social networking sites in order to keep up with all your friends. Much better for everyone to be on one site – in this case the one offering the best services, Facebook.

Essentially family businesses such as NewsCorp (even if the shares are quoted on stock exchanges) also feel obliged to create senior positions for the next generation. If NewsCorp were not essentially a family business, it would be amazing if three of the chairman’s children – Elisabeth, James and Lachlan had all been found to be absolutely the best individuals in the world to hold (at various times) senior positions within the company. Each seems to have been tried in those positions to see who should inherit the crown, with James eventually emerging from his tests of fire to become heir apparent. Elisabeth left the company to found her own television production company, Shine, but this has proved to be such a success it has been bought by her father for his business, bringing Elisabeth neatly back of course into the family fold.

With the family taking over central positions, wise old retainers, who with a deep knowledge of the media from the inside were able to provide unpalatable advice even to a dominant figure like Murdoch and not be fired, no longer play such an important role. No doubt this was one factor in the chaos that was allowed to develop at the News of the World. Murdoch’s key British lieutenant, Les Hinton, was moved to the US as head of Dow Jones, owner of Murdoch’s most prized recent capture in 2007, the Wall St. Journal. This created a big hole in his UK operation.

In promoting a former editor of the paper Rebekah Brooks – herself often described as “family” – to a key position in his British empire, Murdoch made it even less likely its culture would be examined and the protagonists of its practices disciplined.

In a fast-moving story of this sort it is difficult to predict what will happen next, leave alone over the course of the next few years. However, News International newspapers – including the two qualities, The Times and Sunday Times, seem unlikely to regain the power and authority or even the credibility they have previously enjoyed now that the spectre of the News of the World hangs over the organisation. Previous targets, including MPs, are less afraid to criticise the empire than they were only a few weeks ago. Attacks on one of the Murdochs’ favourite bêtes noires of recent years, rival television group the BBC, seem unlikely to pose the threat they used to.

And, though money in the end talks, talented individuals and in particular writers are likely to consider the reputational damage they might themselves suffer from appearing in the Murdoch prints. If the best quality writers are reluctant to join – or even more seriously drift away – the papers will suffer.

It would not be surprising if the organisation was now propelled towards break-up internationally and if newspapers ceased to be at the core. Murdoch’s own attraction to the newspaper industry is understandable in a man of his generation. As an ambitious individual he was strongly motivated to build on the print inheritance he received from his father Keith. Murdoch, too, seems to have relished the power his newspapers gave him – even indirectly – to influence the political agenda, especially in Britain.

Yet even if they decide to take personal chunks of a subsequently demerged business, his heirs seem not to have the same interest in working with or influencing politicians. Moreover, they may not have the same undoubtedly emotional attachment that Rupert Murdoch has to Britain, where he received his university education. In particular, his son James Murdoch cuts a very Australo-American figure these days and looks much less likely to be able to summon politicians to his court to give them his views on issues such as UK relations with Europe.

Nor indeed are newspapers as influential as they once were. As is well known, the circulations of the News of the World and the Sun, as well as The Times in Britain were already in decline. A shift to other dissemination platforms over the internet – PCs, mobiles and readers – is well under way. Over the medium term these trends will have an effect on the content and role of news providers.

In the past 20 years the Murdoch organisation has seen newspapers as a valuable element in securing cross-promotion of other and potentially more profitable parts of the empire, such as Sky. But the need for this is now diminishing. The television interests are capable of standing on their own two feet and of finding other ways of promoting themselves. With newspapers struggling to find advertising and circulation revenue and to control costs, television is the real money-spinner. Hence the keenness to secure ownership of the 60 per cent of BSkyB Murdoch’s NewsCorp does not already own – an objective it would now be very surprising to see being achieved.

As Rupert recedes into the background, News International and NewsCorp, its parent, may also end up playing a less significant role in British life. For that many will feel relieved. Sic transit Storia Mundi.

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