News Corp.’s $2.74B Profit Distracts From Phone-Hacking Scandal

What scandal? Rupert Murdoch announces $2.74 billion in profit for News Corp. By Nick Summers.

Justin Lane, EPA / Corbis

News Corp. chairman and CEO Rupert Murdoch defended his response to the phone-hacking scandal that has overtaken his company, speaking on a conference call Wednesday with analysts and reporters after announcing an annual profit of $2.74 billion. He name-checked deputy chairman Chase Carey as his partner in running the media empire, not mentioning in his opening remarks his son James Murdoch, who has been implicated in the crisis.

For the quarter ending in June, News Corp. had a net income of $683 million, down from $875 million one year ago. Its earnings of 35 cents per share beat analysts’ expectations handily. The figures reminded anyone who had forgotten that Murdoch has lucrative film and broadcasting segments to offset the newspaper properties that have lately brought him little profit but much trouble.

Murdoch sought to shift attention from phone hacking to financials on the earnings call, calling News Corp.’s year “exceptional” and touting “the most robust balance sheet in our history.” But he was quick to apologize for the shady practices of his News of the World tabloid, and insisted he would retain his role at the top of the company. “But make no mistake,” Murdoch said, “Chase Carey and I run this company as a team. And the strength of that partnership is reflected in our improved results.”

Deputy COO James Murdoch has for years been the frontrunner to follow his father as chairman, but his involvement in the hacking scandal—it came out of the division he leads—has threatened that scenario. Two former executives have publicly challenged testimony that James Murdoch gave to Britain’s Parliament in mid-July, saying that he knew more about the illegal practices than he let on. On the earnings call Wednesday, in response to a question, Rupert Murdoch said, “Chase and I have full confidence in James. I think that’s all I need to say about it.”News Corp.’s stock was down 4.69 percent Wednesday ahead of the earnings release, and also fell in after-hours trading. It has lost roughly 20 percent of its value since July 5, the first trading day after the ethics scandal erupted in earnest.

“While it has been a good quarter from a financial point of view, our company has faced challenges in recent weeks relating to our London tabloid, News of the World. We are acting decisively in the matter and will do whatever is necessary to prevent something like this from ever occurring again. It is important to note that there has been no material impact on our other operations,” Murdoch said in a statement.

One issue facing the company is what to do with the money that had been set aside for a bid to buy the 61 percent of British Sky Broadcasting that News Corp. did not already own—a roughly $12 billion deal that was scuttled when the U.K. political establishment turned hostile. Murdoch said the company would now aggressively pursue “compelling” opportunities.

Murdoch himself was aggressive on the earnings call, interrupting his deputies and peppering his answers with facts and figures—a marked contrast to his hesitant performance when testifying before Parliament in July. Analysts questioned Murdoch, Carey, and CFO David DeVoe about seemingly all aspects of the company except phone hacking, while reporters on the call immediately focused on the scandal.

Earlier in the day, London police arrested Greg Miskiw, a former News of the World editor suspected of deep involvement in phone hacking—not just the infiltration of voicemail inboxes but the more invasive practice of “pinging,” in which police are bribed to use cell-tower data to locate a person in real time. The arrest of Miskiw, who had been living in Delray Beach, Fla., before returning to Britain, is the 12th arrest so far in the hacking investigation, and makes clear that News Corp. cannot predict the course the scandal will take.

News Corp.’s board of directors met Tuesday in Los Angeles, their first face-to-face meeting since the phone-hacking scandal erupted in earnest. Reports of what was said have not emerged. The 16 board members have been deeply criticized for their close ties to Murdoch. Most publicly traded companies invite independent directors to serve on their boards as a guard against insularity, but at News Corp., whose unusual structure blocks most shareholders from having any voting influence, Murdoch hand-picks even the outside directors. The result is a board heavily beholden to him.

Viet Dinh, an independent director and Georgetown law professor whom Murdoch named to lead an internal investigation into the scandal, is the godfather of Murdoch’s grandson. On Friday he announced that Elisabeth Murdoch, Rupert’s daughter, would not join the board, as had been expected. News Corp. purchased her production company for $674 million, triggering a lawsuit from shareholders that accuses Rupert Murdoch of treating the company like a “family candy jar.”

News Corp. also announced it lost $254 million on MySpace, the declining social network that it purchased for $580 million in 2005 and sold this year.