Rupert Murdoch's News Corp. Scandal

04.03.12

James Murdoch Resigns as Chair of BSkyB: The Dynasty Ends

By resigning now as chair of BSkyB, James Murdoch can look like he left with honor. By Peter Jukes.

In a carefully trailed and choreographed move, James Murdoch has stepped down as chair of the British satellite broadcaster BSkyB, which he had run for six years as CEO and in which his father’s company News Corp. holds a controlling 39 percent interest.

The move represents James’s final retreat from the U.K. in the wake of the hacking and corruption scandal that broke last summer when The Guardian revealed that one of News International’s publications, News of the World, had hacked the phone of missing teenager Milly Dowler in 2002, who it later turned out had been murdered.

Hundreds of new hacking victims rapidly came to light, including the families of other child murder victims, war widows, terrorist victims, senior politicians (including both the deputy prime minister and Tony Blair’s wife) and members of the royal family.

Having surrendered all his roles on News International’s publishing subsidiaries and nonexecutive directorships on the boards of Sotheby’s and Glaxo-SmithKline-Beecham, James claimed last month he was returning to News Corp.’s HQ in New York to concentrate on his TV interests.

But BSkyB, the most profitable pay-TV satellite channel in Europe, was his main TV interest. James’s claim to be “heir apparent” was based on his successful launch of Sky Digital and Sky Plus, and the remolding of the channel to a more diverse audience beyond sports, movies, and news, with the establishment of arts, documentary, and comedy channels. By 2011 BSkyB outstripped the BBC in terms of cash revenues, if not audience share.

James’s bid to inherit the lead control of News Corp. over his sibling rivals, Lachlan and Elisabeth, was to land complete ownership of the company. And he very nearly did.

It was never going to be easy. News Corp. already dominated Fleet Street with 40 percent of the readership: complete ownership of the pay-TV satellite monopoly would have to be approved by the broadcasting regulator, OFCOM, which has a strict “plurality” test.

However, in 2009, James then launched a political campaign, arguing for the abolition of Ofcom, complaining of the “chilling” monopoly of the BBC. David Cameron soon agreed with him, and the News International stable switched its support from Gordon Brown to the conservative challenger. Cameron by then had a former News of the World editor, Andy Coulson, as his spin doctor and enforcer, and by the time Cameron was in No. 10 as prime minister, James was a regular guest at social functions with the prime minister, whose senior ministers had more than 60 meetings with News Corp. executives from June 2010 to June 2011.

The BSkyB takeover was within days of approval by the government when the hacking scandal broke. Within days, the Murdochs withdrew their bid.

Though James was not the CEO of the Murdoch’s British publishing arm when the hacking occurred, he was CEO in 2007 when the organization claimed that phone hacking was just the activity of one rogue reporter (Clive Goodman) and his private investigator (Glenn Mulcaire). However, James personally authorized an astonishing pay-out of $1 million (including costs and a nondisclosure order) on another phone-hacking victim, Gordon Taylor of the Footballer’s Association.

With criminal trials and a public inquiry soon bound to shine a laserlike beam on the whole BSkyB takeover, James got out while the going was moderate to good.

He was also sent the famous “For Neville” email, which detailed transcripts of other hacked phone messages to a senior News of the World journalist, Neville Thurlbeck, with annotations from the new editor that the revelation consisted of a “nightmare scenario.” But James claims not to have read the whole email chain because he was on his BlackBerry on the weekend, looking after his two young children.

These damning email chains were bound to influence Parliament’s Culture, Media, and Sport subcommittee that had interrogated James twice over the hacking allegations and apparent failure of corporate governance. The committee is due to make its report after the Easter break. Though there have been some splits over quite how critical of James the report will be, there is also an ongoing Ofcom investigation into the widening claims of hacking, corruption, and now pay-TV piracy against competitors (an allegation strongly denied by News Corp.) as to whether James is a “fit and proper” person to run BSkyB.

The Daily Beast spoke to the highly respected media analyst Clare Enders, who says James's resignation from the chair is "extremely momentous." She doubts James's resignation will have been completely voluntary and thinks it's more likely senior members of the board would have expressed how difficult it would be for James to interface with senior politicians here given the legal cloud he's still under and his invisibility in Britain since his parliamentary appearance in November. However, she notes that James remains on the board as a nonexecutive member, a face-saving measure that suggests—particularly with Nicholas Ferguson's move to replace him—advance planning.

A well-respected source at Westminster who follows News Corp. closely also told The Daily Beast: "What this latest development tells me is that 'the family' are being forced into retreat on almost every front. Rupert will have hated what he'll perceive as a 'symbolic defeat' as further evidence of the apparent 'weakening' of his authority." The politician added that since the BBC1 Panorama documentary last week, that alleged hacking and piracy of rivals by a News Corp. subsidiary, had not yet been met with a serious legal challenge, this could jeopardize the 'fit and proper' status of the whole parent company.

By resigning now, James can look like he left in honor rather than being pushed out in scandal. However, his claim to be the major inheritor of any dynastic power in News Corp. looks completely broken. His older brother, Lachlan, was marginalized by senior News Corp. executives in New York five years ago, and he retreated to Australia. Though James has managed to oust several of the nonfamily board rivals, the whole hacking scandal and alleged corporate cover-up has severely dented his reputation.  

With charges soon to brought among the 40 or so arrested so far in the police investigations into illegal phone hacking and payments to police officers at News of the World and The Sun, events were set to turn nastier. The next two modules of the public Leveson Inquiry are set to focus on relationships between the press and politicians, and then on News International in particular.

With criminal trials and a public inquiry soon bound to shine a laserlike beam on the whole BSkyB takeover, James got out while the going was moderate to good. However, there is now a diminishing chance that a Murdoch will be chair and CEO of News Corp. when its current 81-year-old incumbent, Rupert Murdoch, steps down.

The $60 billion global enterprise that Rupert built up from the inheritance of his father, Keith, in Australia, will not be inherited in the same way by his children. And Rupert’s position now looks possibly vulnerable.

The whole strategy of the News of the World closure was to protect the BSkyB bid. After the resignation of Rebekah Brooks as CEO of News International, the strategy from then on was to protect James. This is the first time the round of resignations of high-level News Corp. executives has touched the Murdoch family directly. An important firewall has gone down.

As a major investor has just filed to strip Rupert of his role of chair of News Corp., how long can Rupert Murdoch himself survive as chair and CEO?