http://www.nytimes.com/2011/07/14/wo...lines&emc=tha2
Father and Son Split on Tactics in Murdoch Family Drama
By JEREMY W. PETERS and JOHN F. BURNS
Published: July 13, 2011
Rupert Murdoch’s News Corporation announced Wednesday that it was withdrawing its $12 billion bid to buy complete control of the satellite giant British Sky Broadcasting, a move intended to calm the torrent of derision directed at the company since journalists at its British newspapers were implicated in a widespread phone-hacking scheme.
Whether or not the announcement will give the company any respite from the growing indignation and official investigations, it seems to have already altered not only the dynamics within one of the world’s most powerful and profitable media companies but also, possibly, the future of the newspaper business within the News Corporation.
The decision to withdraw the bid for BSkyB, as the satellite broadcaster is known, was made as a contentious family drama played out in recent days. James Murdoch, a leading contender to replace his father as chairman and the driving force behind the News Corporation’s bid to take over BSkyB, argued that the company should press for regulatory approval of the deal, said three people with knowledge of the discussions who declined to be identified because they were revealing confidential company deliberations.
But Rupert Murdoch and the News Corporation’s chief operating officer, Chase Carey, overruled the younger Mr. Murdoch, consulting him only after the decision was all but final.
The deal to buy the remaining 61 percent of BSkyB that it did not own was the single biggest ever attempted in the long history of the News Corporation, and the withdrawal is perhaps the most significant setback of Rupert Murdoch’s career. Yet Mr. Murdoch is said to remain hopeful that the transaction is salvageable. One person involved in the discussions said that the News Corporation chairman saw the withdrawal as a way to mollify his critics while waiting for the anger to die down.
“Rupert is thinking long term here, I don’t think he believes this deal is dead,” said this person, who did not want to be named while discussing confidential matters. “He’s just looking for ways to relieve pressure for the moment, to give this some breathing room. He fundamentally believes News Corp. can bounce back.”
In a statement released Wednesday, the News Corporation acknowledged that the mood in Britain had become too hostile to pursue the BSkyB purchase. “We believed that the proposed acquisition of BSkyB by News Corporation would benefit both companies, but it has become clear that it is too difficult to progress in this climate,” Mr. Carey said. But in its statement, the company said it reserved the right to make another bid.
The announcement is particularly fraught for James Murdoch, who ran BSkyB from 2003 to 2007. He has been the principal champion of the BSkyB purchase within the News Corporation, pressing both his father and the company’s board to go along with the deal. With BSkyB reporting to James, who runs the News Corporation’s European and Asian operations, the businesses in his portfolio would account for half of all the News Corporation’s revenue.
But the revelations of phone hacking in Britain have pulled James Murdoch in deeper by the day, with questions swirling in Parliament and the British press over his role in paying settlements to victims of the hacking.
Only a week ago, the News Corporation hoped to contain the damage by taking another dramatic and once unthinkable step: shutting down the 168-year-old News of the World, which Mr. Murdoch purchased in 1969 to form the foundation for his British media empire. But a series of disclosures badly damaged the newspaper, most notably its acknowledgment that it had illegally intercepted the voice mail of Milly Dowler, a 13-year-old girl abducted and murdered in 2002.
Since then, virtually every day has brought dizzying new disclosures and speculation, culminating in the News Corporation’s announcement on Wednesday. Allegations of hacking and other journalistic dirty tricks have spread to other Murdoch papers in Britain, including The Sun and The Sunday Times.
Rupert Murdoch, who had flown to London to deal with the crisis, arrived at the company’s offices around 11 a.m., looking grim. Mr. Carey was also seen entering the building.
When Rupert Murdoch left nearly seven hours later, in a silver Range Rover, he looked more relaxed, and even briefly cracked a smile. Outside his London apartment, in the upscale Mayfair neighborhood minutes from Buckingham Palace, a squad of photographers and reporters eagerly awaited his return, a demonstration of how the crisis has transfixed Britain.
It remains unclear just how much the public relations disaster, coupled with a 12 percent drop in the company’s share price in the past week, may force other significant changes. Shares of the News Corporation rose on news of the BSkyB pullout, closing up 4 percent at $15.93.
Already, two separate proposals have been floated inside the corporation to split off the its newspaper assets, which represent less than 17 percent of its revenue, into a separate entity. This new company, which would own the remaining British newspapers along with newspapers in Australia and the United States, including The Wall Street Journal and The New York Post, would then be run by new management.
Such a move, which has been discussed previously inside the company, would allow the News Corporation to pursue ventures like BSkyB without having to repeatedly answer for its journalists’ behavior, and it would please many shareholders and analysts who argue that the newspapers are a drag on the parent’s company’s profitability.
This is a move that Rupert Murdoch, 80, is certain to resist fiercely. Though Fox News has of late become the thrust of his political power in the United States, as well as a major source of revenue, his newspapers were the seedlings of his vast media enterprise. His emotional attachment to them runs deep, and they remain influential platforms not just in this country but in Britain.
James Murdoch, 38, is said to share none of his father’s romantic notions about newspapers.
Analysts said the crisis could leave the News Corporation with little choice but to spin off the newspapers.
“I think they might have to, because they’re facing some major political problems,” said Tim Westcott, a senior television analyst at the British media research company IHS Screen Digest. “News Corporation’s political influence has always been a protection over its business interests. And obviously a lot of that has gone.”
The scandal also claimed its first senior executive in Britain. As the BSkyB announcement was made, the chief lawyer for News International, the British subsidiary of the News Corporation, confirmed reports that he was quitting after 26 years with the company. Officials at the company said that the lawyer, Tom Crone, had been chiefly responsible for clearing controversial stories published in The News of the World and The Sun.
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