Sell up

News Corporation’s proposal to acquire a controlling interest in the satellite broadcaster BSkyB has been swept away by a political storm. Although the News of the World was closed, the contagion effect spread to the US, with allegations of phone hacking of 9/11 victims. At the time of writing, these have yet to be substantiated.

For News Corporation, the focus in the coming weeks will switch to protecting other key assets in the portfolio, including its stake in BSkyB, to ensure that audience and advertising boycotts do not have any opportunity to gain traction. Maintaining value in its portfolio of brands will be of paramount concern.

I believe that the critical step in the immediate aftermath of the hacking scandal may not have been the audacious closure of the News of the World, but rather three related matters of judgement. The first was the failure to recognise the looming difficulties of maintaining James Murdoch’s dual roles as chairman of News Corporation’s Europe and Asia division, and chairman and non-executive director of BSkyB. The second was News Corporation’s “total” support for News International chief executive Rebekah Brooks, editor of the News of the World at the time when the murdered schoolgirl Milly Dowler’s phone is alleged to have been hacked. The third was its failure to recognise its role in recommending another News of the World editor, Andy Coulson, as director of communications for the Conservative party.

Even as the allegations regarding phone-hacking shifted from those of celebrities and public figures to crime victims, it still seemed absolutely correct to say that the criminal investigations taking place at News International were irrelevant to News Corporation’s acquisition of BSkyB. But the statement on Thursday 7th July by James Murdoch and the subsequent arrest on Friday of Andy Coulson created a decisive and—we believe—permanent shift in both public and political sentiment. We believe that News Corporation’s effort to contain the problem by closing the News of the World, its tarnished brand, failed precisely because political trust had been lost, thus derailing News Corporation’s bid for the rest of BSkyB.

Now that News Corp has withdrawn the bid for BSkyB, it has time to stand back and reflect on its long-term ambitions for the British newspaper market, the future of News International, and proceed to an orderly disposal, if that is the option chosen. Importantly, a sale of the News International portfolio of titles might insulate any future bid for BSkyB from regulatory scrutiny on the basis of “media public interest considerations.” This was the subject of the inquiry handled by Jeremy Hunt, the minister for culture, media and sport, to the Competition Commission. Now, that inquiry has been cancelled.

In addition, a sale would fit strategically with the long-term narrative for News Corporation of moving away from print to screen-based media. Newspapers are a traditional media business, in long-term decline. However, BSkyB remains a highly desirable asset, and one that is insulated from the undermining effects of the internet. Keeping its eyes on the prize, and carefully removing barriers to attaining it: these strike us as the most likely strategic choices for News Corporation.