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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Murdoch Banks on Rooney Hooker, Coke Binge to Push Paywall Plans‏

Bloomberg

James Murdoch’s plan to charge for online access to U.K. tabloid News of the World shows he’s extending his paywall model even as advertisers flee websites of two of his other newspapers where Internet readers have to pay.

News of the World, which this month featured a video of boxer Ricky Hatton purportedly snorting cocaine and published an interview with a prostitute who said she had sex with Manchester United footballer Wayne Rooney while his wife was pregnant, will seek payment from Web readers from next month. The move follows Murdoch-controlled News Corp.’s July push to get London papers The Times and The Sunday Times into the online-pay arena.

With more people getting their news from the Internet, newspapers are increasingly charging for online access to make up for lost revenue from print advertising. Murdoch’s strategy to put all stories of his U.K. newspapers behind an online paywall differs from the approach of some other newspapers such as the Financial Times which first gives access to some stories online before it starts charging.

So far, The Times and The Sunday Times have seen readers leave to access free news elsewhere, with advertisers following suit. “I can go to the Guardian or CNN and get an audience,” said Chris Bailes, digital trading manager at Starcom MediaVest Group, a media buyer owned by Publicis Groupe SA. “No one is indispensable.”

Starcom MediaVest, which has placed ads for the Emirates airline and Continental Airlines Inc., has cut its advertising on the Times and Sunday Times by more than 50 percent, Bailes said. News Corp.’s international unit hasn’t communicated with media buyers about its online figures, he said.

“We wouldn’t put our money where we don’t know the numbers, just as you wouldn’t invest in a stock,” Bailes said.

Fewer Visitors

James, Rupert Murdoch’s son, is the chairman and chief executive officer of News Corp.’s European and Asian operations that oversee the U.K. news titles. A News Corp. spokeswoman declined to comment on Times readership or advertising since the paywall was installed.

Visits to the website of The Times fell to a third as of July 20, several weeks after the paywall was put up, data compiled by Experian Hitwise showed. Murdoch has not publicly commented on the traffic.

The News of the World might be able to turn the paywall model into more of a success, some analysts said.

News of the World will re-launch its site in October and make it available for 1 pound ($1.6) a day or 1.99 pounds for four weeks, News Corp.’s international unit, News International said in a statement yesterday. An Apple Inc. iPad application will follow for 1.19 pounds a week. Access to the site of “Fabulous” magazine will be included in the pricing, it said.

Tabloid Model

The News of the World website “will be the third of our titles to launch a paid-for digital proposition in under four months,” News International Chief Executive Officer Rebekah Brooks said in the statement.

“News of the World has a lot of content and videos and it could be easier to attract paying readers,” said Benedict Evans, a media analyst at Enders Analysis in London. “People buy the paper to read about a footballer having sex, so why not do the same online?”

The Financial Times and Murdoch’s Wall Street Journal already charge for online access, and have enjoyed a degree of success because they offer premium content for a niche group of readers, analysts said.

Paper Paywalls

“I couldn’t imagine the same would happen for the New York Post or even Bild in Germany because they are general,” said Karsten Weide, a research vice president for digital media and entertainment at Interactive Data Corp. Bild is Germany’s biggest tabloid and the New York Post is an U.S. tabloid owned by News Corp.

Paid-for online versions of The New York Times and Washington Post could also do well because their readers are typically wealthy and better educated, Weide said. The paid-for online model could also work at local newspapers, where the content isn’t widely available, he said.

The New York Times plans to erect an Internet paywall next year. The newspaper will see “some effect” on readership after it implements a paywall next year, New York Times Co. Chief Executive Officer Janet Robinson said in June. “We feel that we will protect as much of the audience as possible” with a “metering” approach, that allows free access to a limited number of stories, she said at the time.

Different Approaches

The difficulty for general titles such as The Times is that similar news is available free from many more websites, including those of competing U.K. newspapers the Guardian, the Independent and the Daily Telegraph.

Stories from The Times online aren’t even available on the Google search engine so readers have no idea what the Times’ journalists are writing about, according to Enders’s Evans.

“The Financial Times paywall approach is better because it allows you several free articles a month and you can at least see what the stories are and share the content with your friends even if you cannot open all the stories,” he said.

Rupert and James Murdoch have both lobbied in the past for governments to do more to protect copyright online and prevent people from taking online content without paying for it.

The money an online reader generates is about a third or quarter that of a print reader. That’s because online ad rates are lower and the average online reader skims through about five pages, while an offline print reader averages 70 to 80 pages, Enders’s Evans said, citing figures by researcher ComScore.

IPad Effect

With contact details on a small base of loyal, paying online readers, marketers target users. Also, News Corp. could bundle newspaper subscriptions with TV offerings from pay-TV operator British Sky Broadcasting Group Plc, which it controls.

Paywalls are about developing a closer relationship with readers, said Alan Brydon, head of trading at the MPG media buying agency, owned by France’s Havas SA. The paywall allows marketers to target more effectively and send tailored messages to users to start a dialog, he said.

“I thought a year ago that paywalls were rubbish, but then you see the iPad and that’s how people will read a paper,” said Brydon. “In three to five years when iPads are as ubiquitous as iPods you will see people subscribing.”

MPG has probably cut its ads on the Times and Sunday Times by 90 percent, from advertisers including Air France-KLM and Sporting Index, Brydon said.

“There’s no shortage of places to go online to advertise, but if you have a database of 10,000 people with their details then that becomes very interesting,” he said.