Monday, October 17, 2011

Can investors get News Corp. under control?

At long last, some of the public shareholders of News Corp. this week will try to put some discipline into the management of the scandal-ridden company that Rupert Murdoch built.

Regardless of what the investors achieve – if they get anywhere at all – a lot of damage already has been done by the slipshod way Murdoch runs his sprawling media empire.

The California Public Employees Retirement System, which is the nation’s largest pension fund, on Friday became the latest investor to say it would vote against the re-election of Murdoch and his sons, James and Lachlan, to company’s board of directors.
 Cal-PERS is joining several other institutional investors who are opposed to the continued tenure of not only the Murdoch trio but also most of the rest of the leader’s hand-picked board.

It’s not clear whether the outside shareholders have the votes to change anything at a corporation where Murdoch effectively controls 40% of the shares. But adult supervision most certainly is in order, because News Corp. seems to be operating with only the sketchiest of business plans and no effective executive oversight of his many far-flung initiatives.

As a consequence of this stunning inattention to discipline and detail, the company appears to have devolved into a free-wheeling, cut-throat and paranoid culture that reached its logical conclusion in the phone-hacking scandal at The News of the World, where deceit and naked ambition trumped common decency, good judgment and even simple compliance with the law.

Further proof of the anything-goes atmosphere at News Corp. was supplied last week when the Guardian (which first revealed the NOWT scandal) reported that the folks running the European edition of the Wall Street Journal evidently sold access to its news columns and created back-channel payment networks to lift the otherwise sagging circulation of the paper by some 16%.

Absent investor intervention, these embarrassments are unlikely to modify the modus operandi of the spoiled and self-indulgent Murdoch, who has shrugged off numerous costly missteps over the years because his voting control is so absolute that he effectively answers to no one.

Giving credit where it is due, Murdoch built his late father’s newspaper in Adelaide, Australia, into a world media colossus now valued at $44 billion. But he was more lucky than smart to stumble into satellite TV in Europe and build the Fox broadcast network in the United States as broadband television accelerated in the latter part of the last century.

In recent years, the magic vanished. After paying $5.6 billion for Dow Jones in 2007, Murdoch was forced to write off $2.8 billion of the value of the transaction within two years. Apart from Murdoch'
s lust to own the Wall Street Journal, what was the business rationale for paying aggressively for a newspaper at a time of secular decline in the industry? What financial logic, if any, supported the hefty price that Murdoch shelled out?

In June of this year, News Corp. took a $545 million bath when it sold MySpace, the social networking site, for $35 million after acquiring it for $580 million in 2005 – when Facebook was but a gleam in Mark Zuckerberg’s eye. How did News Corp. run into the ground the market leader in the hottest media space since the Internet emerged in the mid-1990s? Was there ever a thoughtful plan to leverage the MySpace investment? When the plan – if there was one – faltered, did anyone do anything about it?

Although Murdoch reportedly plunked as much as $30 million into the high-profile launch of The Daily, a clunker that was billed as the first iPad news product, Bloomberg News revealed last month that paid circulation averages about 120,000 a week, or a quarter of what the company has said it needs to break even. Anyone at News Corp. who tried to download the balky app prior to launch would know it technically wasn't ready for prime time. Anyone at News Corp. who took five minutes to page through the editorial product could see it was abysmally thin gruel. How did it get out the door? And what, if anything, is being done to fix it?

With the embarrassing NOWT and Euro-Journal scandals representing not only considerable financial loss but also significant potential legal exposure, it’s no wonder that the public shareholders are worried about the haphazard management of the company. The mystery is why no one ever acted sooner.


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