What a mess for the Murdochs

By Alex Brummer, February 3, 2011

It has been all but impossible to pick up a newspaper or turn on the television recently without hearing about Rupert Murdoch. The Australian-born media tycoon has built an empire that stretches across the globe. Hardly surprising then that controversy follows him, similar to some modern-day Citizen Kane.

In the United States, his Fox News channel is a constant source of irritation to the left because of its willingness to give a voice to previously silenced views, such as those of the Tea Party. It is currently under fire from an alliance of 400 Rabbis, who wrote to the Wall Street Journal -- another Murdoch publication - complaining that senior commentator Glenn Beck has been trivialising the memory of the Holocaust through over use of the word 'Nazi.'

This is unusual in that most Murdoch titles, including the Wall Street Journal, the Sun and The Times, maintain a pro-Israel stance.

In the UK, Murdoch's grip on the national media is at the source of much of the criticism. Whether the row is over the extensive web of phone hacking by the News of the World (a Murdoch title), sexism on Sky Sports, or the failure to follow through on undertakings of editorial independence at The Times, it makes News Corp a lightning rod for attack.

The assaults have become more ferocious as a result of the bid made by his son - and prospective heir - James Murdoch, for control of the 61 per cent of BskyB, which the holding company News Corporation does not already own. Most people automatically assume that the Murdoch empire already fully owns Sky.

James Murdoch, however, made a fatal mistake in pressing the bid - an error his father would never had made. Instead of using overwhelming force by paying a generous price - as was the case when Murdoch senior bought 20th Century Fox and the Wall Street Journal - he sought to underpay by paying £7-a-share, placing a value of £12bn on the group. The result has been a fight on two fronts.

First, the younger Murdoch alienated the non-executives on the board of BSkyB (where James is non-executive chairman), who did not want to be seen selling the group on the cheap. Secondly, the resistance of the board gave opponents of the Murdoch empire time to organise their campaign against the deal.

As a result, the deal was referred by Vince Cable to the media regulator Ofcom. It in turn recommended that the deal be examined by the Competition Commission grounds of news plurality.

The Ofcom report has already proved politically deadly. One Cabinet Minister, the LibDem Vince Cable, was swiftly removed from any involvement when, in a trap set by the Daily Telegraph, he declared war on Murdoch. The Prime Minister David Cameron has been dragged into events when it was disclosed that he dined at the home of Murdoch executive Rebecca Wade over Christmas in the presence of James. Finally, Cameron's main spin-doctor resigned as the investigations into News of the World phone tapping, in which he looked to have been involved, became toxic.

As if this were not enough political intrigue, the Culture Secretary Jeremy Hunt, who now has the task of handling the competition case, has been advised that he must discuss possible remedies with BskyB before passing the Ofcom report to the Competition Commission or he could be subject to judicial review.

While all this is going on BskyB has been going from strength to strength. Late last year, the company surpassed its target of achieving over 10m subscribers. It has added 140,000 in the last quarter. It has also been moving customers up the value ladder with ever more signing up for expensive services, including HD, broadband and telephony. Revenue and profits are soaring and the company made £477m in the first half of this year. It should exceed its £1bn target for 2011.

It continues to add services and this week Sky Atlantic came on air, adding to a growing portfolio of channels, which has made Sky the most powerful satellite broadcaster outside the US.

News Corps's bid for Sky may get the green light. But the delays almost certainly mean that James Murdoch will have to pay a far higher price than originally offered - anything between £8 and £10-per-share, or up to £14bn. This will drain the Murdoch cash resources but is unlikely to be a bar.

But repairing the reputational damage to the Murdoch empire, after the multiple assaults of recent months, may make it more difficult for son James to succeed his father.

Alex Brummer is City Editor of the Daily Mail

Last updated: 2:08pm, February 3 2011