News of the World Without a Fit Leader

Story first appeared on The Wall Street Journal.

LONDON—A U.K. parliamentary committee report issued Tuesday said that the News Corp. Chairman and Chief Executive is not a fit person to exercise the stewardship of a major international company and found that three former News Corp. executives misled British lawmakers over the depth of the phone-hacking scandal.

The report from Parliament's Culture, Media and Sport Select Committee sketches out details of a coverup the company allegedly carried out as it sought to contain the fallout from revelations that its now-closed News of the World tabloid illegally intercepted cellphone voice mails in pursuit of information.

A U.K. committee investigating the News of the World phone-hacking scandal issued a final report that came down hard on News Corp. chief Rupert Murdoch and accused company executives of misleading parliament.

The report had especially harsh words for the 81-year-old —although the rebuke divided members of the committee along party lines. According to a passage inserted despite the opposition of Conservative members, he did not take steps to become fully informed about phone-hacking. He turned a blind eye and exhibited willful blindness to what was going on in his companies and publications. The corporate culture permeated from the top, it added.

Three former executives from News International, the company's U.K. newspaper unit, were singled out for misleading Parliament during testimonies on phone hacking in 2009. All three men have left News Corp.

The committee said a number of statements News International executives made in 2009 were untrue, including the claim that illegal voice-mail interception was limited to one reporter and the assertion that phone hacking had been investigated thoroughly by the company. The report says News Corp.'s instinct throughout the affair was to cover up rather than seek out wrongdoing and discipline the perpetrators.

During a news conference, the committee said all of its 10 voting members supported the report's conclusions about the executives in question. But a Conservative Member of Parliament said the committee's Conservative MPs voted against the final report largely because of the line saying that the Chairman and Chief Exec. isn't a "fit person" to run a global company.

It passed with the support of six Labour and Liberal Democrat legislators. Four Conservatives opposed it.

In a statement, News Corp. agreed that there had been serious wrongdoing committed at the News of the World, and that their response to that was much too slow and defensive.

The committee plans to submit a motion to the House of Commons, inviting British lawmakers to endorse its conclusion about the misleading behavior of the three former executives. Misleading a parliamentary committee isn't a criminal offense—witnesses generally don't testify under oath—but it can constitute contempt of Parliament, a noncriminal sanction levied against people who somehow impede the governing body's work.

The committee said the House of Commons will make a final decision on whether a contempt has been committed, and if so, what punishment should be imposed. The report didn't say what the punishment would be other than reputational damage and public opprobrium.

British lawmakers haven't meted out a contempt of Parliament sanction to a nonpolitician in more than half a century. The last time it happened, in the late 1950s, Parliament summoned a tabloid editor to the House of Commons to issue a reprimand and hear an apology.

The report didn't accuse the Chief Exec., or his son, News Corp. Deputy Chief Operating Officer—who oversaw News International for four years—of misleading Parliament, but the conclusions did say the father and son had presided over an affair that "demonstrates huge failings of corporate governance."

The committee hit out at the son's claim that he didn't realize the widespread nature of phone hacking until late 2010, calling it simply astonishing given the amount of information in the public domain.

It said his handling of a crucial phone-hacking civil claim in 2008 "raises questions of competence." Roughly £700,000 ($1.1 million) secret settlement was approved in the case without evaluating a key piece of evidence—an email transcript of hacked voice mails—is "astonishing" and indicative of a "lack of curiosity," or "wilful ignorance," the report says.

The report's denunciation could play into the deliberations of Ofcom, the U.K. communications regulator, which is evaluating whether the owners of British Sky Broadcasting Group are "fit and proper" to hold a British broadcasting license.

News Corp. qualifies as an owner because it holds 39.1% of BSkyB, one of News Corp.'s most lucrative properties. It holds a number of the pay-TV giant's board seats.

Ofcom said Tuesday it is considering the report as part of its evaluation of the broadcasting license. The regulator can revoke a broadcasting license if an owner doesn't meet the loosely defined classification, which takes into account criminality, the propriety of directors and other behavior. Ofcom is unlikely to act before the conclusion of the criminal investigations.

The committee generally refrained from making pronouncements on former News International executives who are among roughly 40 people arrested as part of a massive British criminal probe into phone hacking, bribery, obstruction of justice and computer hacking.No one has been charged.

The committee said it would produce a supplementary report when all criminal proceedings finish.

The phone-hacking matter first shot to attention in 2006, when a British court convicted the News of the World's royal correspondent, and a private investigator, for intercepting the voice mails of aides to the British royal family. The following year, the court sentenced the pair to four and six months, respectively.

News Corp. long said the wrongdoing at the News of the World was isolated to those two individuals—a claim the company later admitted was false. The scandal exploded more prominently last July with the revelation that in 2002 the News of the World hacked the phone of a missing 13-year-old girl who turned out to be murdered.

Tuesday's report criticizes News Corp. for throwing money at both perpetrators and victims to "buy silence" and making "misleading and exaggerated claims" about internal company investigations in a deliberate strategy to exaggerate evidence in support of the company's innocence.


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Yahoo taps former News Corp. exec Ross Levinsohn

cNet

 

Yahoo has hired former Fox Interactive Media president Ross Levinsohn, Yahoo company announced yesterday.

Starting in November, Levinsohn will become Yahoo's executive vice president of the Americas. In his new role, Levinsohn will be in charge of the Web giant's "media group, advertising sales, and partnerships," the company said in a statement. He will report directly to Yahoo CEO Carol Bartz.

Levinsohn will leave his current position as co-founder and managing director of equity management firm Fuse Capital.

Although Levinsohn of late has been on the investment side of the digital media business, he has lots of hands-on experience to draw on. He played an integral role in News Corp.'s acquisition of social network MySpace when he was president of Fox Interactive Media. He also oversaw Fox Interactive Media's highly lucrative 2006 advertising deal with Google. Prior to joining Fox, he held management positions at AltaVista, CBS Sportsline, and HBO.

Yahoo currently finds itself in an interesting position. Earlier this month, rumors started surfacing that Yahoo was being courted by several firms, including AOL and News Corp., looking to acquire the company. Those rumors have since died down. And with Levinsohn's arrival at Yahoo, it seems the company might be planning to try its own luck online.

News Corp. Acquires Skiff

Guardian UK

 

News Corporation has made its latest move to look to charge readers for digital content by acquiring e-reader platform Skiff and investing in a company that develops paid content models for publishers.

News Corporation, which is close to charging customers for access to the Times and Sunday Times online, said that the two deals represented "key building blocks" in the company's strategy to transform publishing with pay models.

Rupert Murdoch's company has acquired Skiff, established by magazine publisher Hearst last year to develop an online store and e-reader for its publications, which delivers "visually appealing layouts" of content to tablets, smartphones, e-readers such as Kindle and netbooks.

In addition News Corporation has invested in Journalism Online, which has a multi-faceted e-commerce platform, which develops models to enable newspapers, magazines and online-only publishers to charge for content. Publishers can select their own business models and pricings.

The financial details around the two deals were not disclosed.

John Miller, digital chief at News Corporation, said that "both Skiff and Journalism Online serve as key building blocks in our strategy to transform the publishing industry and ensure consumers will have continued access to the highest quality journalism."

News Corporation also named strategic adviser Jon Houseman to the newly-created role of president of digital journalism initiatives. He will be responsible for "driving and managing new business efforts in premium digital journalism".

News Corp. Makes Bet on Journalism Ventures

Associated Press

 

News Corp. is placing bets on two ideas that it hopes will shore up sagging business models for media companies: electronic reading devices and charging readers for access to websites.

Rupert Murdoch's media conglomerate said Monday that it has acquired Skiff LLC, a company started by magazine and newspaper publisher Hearst Corp. to create a technology platform for e-readers. News Corp. also is making an investment in Journalism Online LLC, which is developing technology to help publishers collect payments from readers for online material.

Financial details were not disclosed.

Both fledgling ventures are seeking ways to support journalism at a time when publishers are struggling to find ways to be as profitable online as they once were in print.

The idea behind Hearst's Skiff business is to boost the value of material offered by newspapers and magazines by delivering them in a more attractive and distinct form than they exist on the Web.

It previewed a Skiff e-reader in January that it plans to start selling later this year. It featured an 11.5-inch, grayscale touch screen with the ability to download material from Skiff's online store.

The company has announced deals to put material on the Skiff reader from The New York Times, The Financial Times, Forbes and Popular Mechanics, along with book publishers Simon & Schuster and Random House. Skiff says the device will also carry advertising, which would make it distinct from Amazon.com Inc.'s Kindle readers.

The technology Skiff has developed could also be used to publish material on separate gadgets made by other manufacturers.

The other business News Corp. is investing in, Journalism Online, is setting itself up as the single cash register for a wide swath of online publishers. About 1,500 have signed up, the company said Monday.

Readers will be able to sign in with their credit card and other information just once and buy material from any publisher using the company's system. Each publisher will set its own prices and terms. Journalism Online, which is backed by Court TV founder Steven Brill and former Wall Street Journal publisher Gordon Crovitz, will take a 20 percent cut of the revenue.

The company said it is in final stages of tweaking the system and expects publishers to be rolling out pay models based on it this summer.

News Corp. is buying a minority stake in Journalism Online and will get a seat on its five-person board, the company said.

Murdoch, News Corp.'s chairman, has been a vocal advocate of the idea that readers should pay something to get news from authoritative sources. The Wall Street Journal, which he bought in 2007, is one of the few major news providers that charges for unfettered access to its website.

Others are following, frustrated that even big online audiences have not translated into enough digital ad revenue to support newsgathering. The Journal's main rival, The New York Times, says it will move to a metered model next year, which means it will charge readers after they view a certain number of articles. Subscribers to the printed edition would maintain free access.

News Corp., Microsoft Discussing Web Deal

Wall Street Journal

News Corp. has held discussions with Microsoft Corp. about a partnership that could result in News Corp. removing its newspaper content from Google Inc.'s search engine while continuing to feature it on Microsoft's online properties, according to people familiar with the matter.

The talks are still at a very early stage and may not result in a deal, according to these people. Among the most thorny issues, one of these people said, are the terms under which Microsoft would compensate News Corp., if at all, to feature its news content, which ranges from The Wall Street Journal to the Sun of the U.K.

It isn't clear whether the talks include News Corp.'s non-newspaper sites, such as its popular MySpace social-network or Fox television properties.

The discussions are another sign of a growing push by news organizations to devise new revenue streams for their online news and information in response to the challenges posed by the Internet.

The Financial Times reported Sunday on its Web site the discussions between News Corp. and Microsoft.

While such a deal with Microsoft would be another way for News Corp. to get paid for its newspaper content, the company would risk losing a huge audience if its stories weren't available to Google users.

News Corp. executives have been among the most vocal proponents of charging consumers to read stories online. The Wall Street Journal already charges for online access to parts of its site, and News Corp. executives have said its other news outlets will follow suit.

Along with the Associated Press and other news organizations, News Corp. also has criticized Google and other big Web sites for using excerpts of their stories to link to the news organizations' sites.

Google and other Web portals say they are within their legal rights to post snippets of news stories, which help point traffic to news sites.

Gabriel Stricker, a Google spokesman, said Google has a "clear policy of respecting the wish of content owners" by allowing them to prevent their material from showing up in Google search results, though he declined to comment directly on the talks between Microsoft and News Corp.

"We believe search engines are of real benefit to newspapers, driving valuable traffic to their Web sites and connecting them with new readers around the world," Mr. Stricker said.

News Corp. and other news outlets have said they want major Web sites to pay directly to use their content, though the news organizations haven't necessarily been specific about how to do so.

Microsoft's efforts to become a bigger player in the search market and its deep financial resources have made it a potentially appealing alternative to Google for publishers looking for ways to charge for content.

The company is battling with Google SEO to better its position in the lucrative search market, and has steadily gained small amounts of market share since its launched a new version of its search engine, called Bing, earlier this year. Microsoft accounted for 9.9% of the U.S. search market in October, while Google had 65.4%, according to comScore.

Microsoft could enhance Bing as an online destination if it features a better selection of news content than Google. According to a person familiar with the matter, News Corp. initiated the conversations with Microsoft. The software giant has held conversations with other publishers as well, this person said.

The talks between the parties have included a possible plan to "delist" News Corp. stories from Google's massive search index, which means they wouldn't appear in search results on Google's site. Any Web site can prevent Google from indexing their site by including special commands in their Web pages.

Yahoo Sees Blue Skies, but Clouds Brew in China
Yahoo Inc. is pressing its case to shareholders this week on why it's worth more than Microsoft Corp.'s bid for it, even as moves by its Chinese partner underscore investor doubts that Yahoo can stay independent. Alibaba Group, the Chinese Internet company that is 39% owned by Yahoo, is in advanced talks with investors to finance Alibaba's purchase of Yahoo's stake in an effort to expand its management independence should Microsoft's bid prevail, according to people close to the situation. While it's not pushing for a Yahoo sale, Alibaba believes that a change in control at Yahoo would trigger an opportunity for it to buy the stake under the companies' agreements, though that could be subject to interpretation. The talks signal Alibaba's belief that Microsoft could still succeed in its quest to buy Yahoo, which owns stakes in Internet companies in Japan, South Korea and China, where Alibaba is the third largest Internet search company. Alibaba's interest in purchasing the Yahoo stake could also represent a new wrinkle in any negotiations. For Microsoft, gaining Yahoo's Asia stakes was a key attraction when it made the bid Jan. 31, an offer now valued at about $42 billion. Alibaba's move coincided with the kickoff of Yahoo's roughly week-long road show at which company executives will meet with major shareholders to make the case that Yahoo's value exceeds Microsoft's offer, which company directors last month rejected as insufficient. Chief Executive Jerry Yang, Chief Financial Officer Blake Jorgensen and President Susan Decker are among those at the meetings, which began yesterday. As part of road-show documents filed with regulators, Yahoo reaffirmed its financial guidance for 2008 and projected strong revenue and cash-flow growth in 2009 and 2010, releasing financial projections first presented to its board in December. Based on the projections, it is easy to calculate a standalone value for Yahoo close to $40 a share, and any additional strategic value to Microsoft could make a deal worth more than that, says a person close to the situation. Microsoft's cash-and-stock offer, valued at $31 a share when first announced, has a value of about $29.49 a share based on Microsoft's price in 4 p.m. trading on the Nasdaq market yesterday. Some major Yahoo shareholders had previously said they expected Microsoft to raise its price and a deal to happen at about $ 35 a share. But it isn't clear whether Microsoft will increase its bid. The Redmond, Wash., technology company declined to comment. Analysts said Yahoo's reaffirmation of its modest guidance for the first quarter and the year means it's less likely to be vulnerable to a Microsoft takeover because it misses its projections. But they said it would be a stretch for Yahoo to hit its estimates for 2009 and 2010, which are well above current analyst expectations. "Those are not easy numbers," says Mark Mahaney, an analyst with Citi Investment Research, whose parent company has done business with Yahoo and makes a market in its shares. "We think it's the most likely outcome that Microsoft buys Yahoo, and at a higher price than $31," he adds. Imran Khan, an analyst at J.P. Morgan, estimates Yahoo's 2009 revenue at $6.4 billion after commissions paid to marketing partners are factored out. That is below Yahoo's guidance of $7.1 billion, in part because he isn't as optimistic as the company about search-related improvements. People familiar with the matter say that Yahoo's strong prospects in display advertising, such as banner ads, are central to the case the company is making to investors. Yahoo's road-show presentation doesn't include any specific mention of scenarios it has discussed with News Corp. and Time Warner Inc. about folding some of their Internet assets into Yahoo in return for significant Yahoo stakes. Such discussions about possible alternative deals -- considered long shots by people close to the situation -- haven't progressed, although as of earlier this week Yahoo and the possible partners were still talking, according to people familiar with the matter. News Corp. Chairman Rupert Murdoch said at a media conference last week that the company wouldn't get in a fight with Microsoft. ( News Corp. owns Dow Jones & Co., publisher of The Wall Street Journal.) If Microsoft's bid goes through, Alibaba aims to exercise a clause in its 2005 deal with Yahoo that exchanged Yahoo's China operation and $1 billion in cash for a stake in Alibaba. Alibaba believes the "right of first offer" clause in the agreement would be triggered by any Microsoft deal for Yahoo, say the people familiar with the matter. Under Alibaba's interpretation of the agreement, if Yahoo decides to transfer its stake in Alibaba to Microsoft as part of a broader deal, Yahoo would first have to offer that stake to other Alibaba shareholders. The Chinese company's other main shareholders include Alibaba management and Japan's Softbank Corp. Alibaba would finance the purchase of the stake with help from two lead investors and a group of others, including large Chinese institutions, the people say. Alibaba has hired Deutsche Bank and Wachtell, Lipton, Rosen & Katz as advisers, people familiar with the matter say. A Wachtell Lipton spokeswoman confirmed that the law firm has been hired as legal counsel. At the core of Alibaba's move is an effort to keep Chinese management control of Alibaba, say people familiar with the plan. Alibaba's management -- led by founder Jack Ma -- controls the company's operations despite Yahoo's stake and one board seat. Alibaba executives are concerned that Microsoft's size and history of hands-on management could jeopardize Alibaba's autonomy and its image as a Chinese company. China's government restricts Internet content and is suspicious of foreign Internet companies -- which, partly as a result, have fared worse than their domestic rivals in China. After Microsoft's bid for Yahoo surfaced, Chinese regulators contacted Alibaba about how it could be affected by a deal. Such concerns are partly driving Alibaba's search for alternative shareholders, the knowledgeable people say. Spokesmen for Alibaba and Microsoft declined to comment. Alibaba's efforts are bad news for Microsoft. While selling off Yahoo's stake would fetch a chunk of cash, the software maker would lose a foothold in an increasingly important market. Alibaba is one of China's biggest Internet companies, with a broad portfolio of businesses. Its flagship unit is Alibaba.com Ltd., a business-to-business trading platform that listed in Hong Kong in November 2007 after raising $1.7 billion in the biggest initial public offering ever by a Chinese Internet company. That unit reported on Tuesday that its profit more than quadrupled in 2007, while revenue jumped nearly 60%. Alibaba also runs Yahoo China, as well as a consumer-auction site, a payment- processing service, a software company and an advertising-trading platform. In Yahoo's road-show presentations to investors this week the company is valuing a portion of its Asian holdings at $12.6 billion, or $8.97 for each Yahoo share, based on Friday's prices. That includes Yahoo's 28% stake in Alibaba.com, which the company values at $3.2 billion, but not its stake in Alibaba Group's other, unlisted operations. Alibaba.com's share price has fallen sharply this week. But putting a value on Yahoo's entire stake could be difficult. Alibaba's nearly 80% stake in Alibaba.com, its Hong Kong-listed unit, is valued close to $ 8 billion based on its current share price. But the valuation of Alibaba's other businesses is tricky: Its Taobao unit is by far the dominant consumer auction site in China, but it is believed to have relatively little revenue because it offers most of its services free. If Microsoft acquires Yahoo, and Alibaba and Microsoft cannot agree on a price for Yahoo's stake in Alibaba, the shareholder agreement stipulates that the matter would then go to arbitration. By Kevin J. Delaney, Rebecca Blumenstein, and Robert A. Guth; Jason Dean, Jessica E. Vascellaro and Sky Canaves also contributed to this article. The Wall Street JournalMarch 19, 2008