The Sun King’s long goodbye

Rupert Murdoch is the last great press baron, with an irrational attachment to print. But is his love affair with his tabloids over?

Rupert Murdoch
Rupert Murdoch. Photograph: Getty Images

Once more, Rupert Murdoch is seen in the canteen at Wapping, east London, headquarters of his British newspapers, and heard at editorial conferences offering his views on the issues of the day. Over the past three years, Murdoch had become a remote and almost irrelevant personage, only occasionally seen in London.

He was once a presence feared by his executives even when he was absent - in Murdoch's News Corporation, wrote the former Sunday Times editor Andrew Neil, "you are not a director or a manager or an editor: you are a courtier". Then it seemed he had taken the role of a constitutional monarch, rather than an active ruler. East of New York, authority had been delegated to his son James Murdoch, who was made chairman and chief executive of News Corp Europe and Asia in 2007.

The London operation, green and internet-savvy, increasingly bore James's stamp, not his father's. Murdoch Jr, by general consent, had won the dynastic battle over his siblings and, once death or senility forced his father from the stage, would take full command of the world's third-largest news and media company.

But, weeks from his 80th birthday, Murdoch Sr returned to take command. As his most recent biographer, Michael Wolff, has written: "He's not going to give up - is not capable of giving up - an iota of real control. And what control he does give up, he'll take back as soon as he needs it." Murdoch has never needed to take control more than he does now, in what could be his biggest crisis in 20 years.

The News of the World phone-hacking scandal - which, James Murdoch and his London executives insisted, was confined to a single, rogue reporter who had served his time in jail - threatens to spin out of control, with names of possible "victims" emerging almost daily.

In the past fortnight, most likely under orders from Murdoch Sr, News International, the holding company for his British newspaper titles, has at last acted decisively, sacking a senior executive and admitting that crucial internal emails from 2005 to 2006 - previously said to have been "misdirected" and lost in India - have been found after all. But it may be too late. Already, out-of-court payments to Gordon Taylor, chief executive of the Professional Footballers' Association, and to the publicist Max Clifford have cost £1.7m.

If all the alleged "victims" - and Scotland Yard has revealed that the mobile-phone PINs of 91 people were among material seized from a private detective working for the NoW - have to be paid off as Taylor and Clifford were, the effect on the company's bottom line would be horrendous. Renewed police investigations, not only into the extent of the original hacking, but also into any subsequent cover-up, could lead to more criminal charges against journalists and even senior executives.

Perhaps worst of all, the fallout from the affair threatens the biggest business deal in News Corp's history: the £7.8bn bid to take full control of BSkyB. Given that News Corp already controls nearly 40 per cent of the company and as the Murdochs had swung their newspapers behind the Conservatives in the 2010 election campaign, the takeover ought to have been straightforward.

David Cameron would surely, it was said, do everything possible to stop his ministers referring the bid to the Competition Commission, just as Margaret Thatcher, also brought to power with help from Murdoch's papers, allowed him to circumvent regulatory approval for his purchase of the Times and Sunday Times 30 years ago. That is how things have always worked for Murdoch, in the US and his native Australia, as well as in Britain. If he delivered for those in office, they would deliver for him.

But the phone-hacking scandal has gained such political traction that it is increasingly difficult to see how a referral can be avoided. Murdoch - again, one may assume the father not the son has been at work - has at least got a breathing space, as Jeremy Hunt, the Culture and Media Secretary, has delayed a decision, giving the company time to frame "undertakings". But even if the takeover then gets the nod, it is likely to cost considerably more than £7.8bn to buy out the BSkyB shareholders, because the value of the company's shares - held by Goldman Sachs, Invesco and the Saudi Prince Alwaleed Bin Talal's Kingdom Holdings, among others - has already risen more than 25 per cent since the initial bid.

Though the phone-hacking - or at least the instances we know about - happened before James Murdoch took over, the secret pay-offs to Taylor and Clifford and the failure to defuse the affair happened on his watch. The humiliation he feels as his father comes to his rescue can only be imagined. "There's something of a Greek tragedy about this," said a close observer. "Euripides would have done a good job on it."

The BSkyB takeover was to be the crowning moment of James's career, following his success in taking the satellite TV company to ten million subscribers and, with an audacity characteristic of his father, snatching 17.9 per cent of ITV from under the nose of Richard Branson's rival Virgin Media in 2006. The prize, some thought, would be an even bigger role in News Corp, matching if not overshadowing his father's. But Murdoch Sr can now hardly avoid the truth: whatever his talents, James, the anointed heir, lacks his father's sure touch and particularly his political antennae.

Rupert's style is controlled, quiet (often to the point of inaudibility), down-to-earth and nearly always polite. James, who talks in what Wolff describes as "super-abstracted business-speak", is emphatic, contrarian and not entirely in control of his temper. During the election campaign, he burst unannounced into the offices of the Independent in Kensington to berate its editor, Simon Kelner, in front of the newsroom about an anti-Murdoch ad campaign.

“His father would never have done anything like that," said a source who until recently held a senior position in Wapping. "And if Rupert were still in charge, he would have recognised the potential toxicity of the phone-hacking issue much earlier. But James doesn't have that ability to read a situation. Rupert plays a sort of instant chess in his head; the speed with which he can outsmart an entire room of people is quite something to watch. James is smart, but not smart like that."

The stage is therefore set for a new episode in the Murdoch family drama, which, like King Lear, involves three adult children - a drama complicated by their father's abrupt desertion of their mother, Anna, for a woman 37 years his junior, Wendi Deng, in 1999. James's elder brother, Lachlan, long regarded as the dauphin, resigned his positions at News Corp and retreated to Australia in 2005. The reasons were never fully explained, though there were rumours of family rows. In Wolff's biography, Rupert is quoted as saying, "He's a very, very good executive" but "not a deal person". Since the Murdoch empire has got where it is through its owner's skill at making deals, that suggests Lachlan has no early route back to corporate and paternal favour.

His daughter Elisabeth is a different matter. Married to the PR consultant Matthew Freud, she left News Corp a decade ago to start Shine, her own independent TV production company. News Corp is now likely to take at least a stake in Shine, and so Elisabeth, insiders say, may return to a leading role in her father's empire and may yet usurp her brother.

But beyond the question of dynastic succession - and whether News Corp could survive the death of its founder - lies another, more immediate issue. Can Rupert Murdoch's leading executives at last convince him of what they have been saying for years: that it's no longer worth owning newspapers; that they're more trouble than they're worth? If they threaten to scupper the BSkyB takeover and to pollute the News Corp brand, isn't the simple solution to get rid of them?

The takeover is important for News Corp. Murdoch's empire is built on debt. Before almost anyone else, he discovered in the 1980s that the best way to grow a business, while keeping control of it, was to raise money through borrowing rather than through issuing shares. That explains why News Corp is run more like the 17th-century French monarchy than a modern multinational company. Murdoch depends for new capital on bankers, not shareholders, and they will tolerate his debts - even though they exceed his assets by several billion pounds - provided he has the cash flow to service them.

Until recently, newspapers, with their steady sales and advertising revenues, were good sources of cash. Now they are in decline, while cable and satellite revenues continue to rise. For the last six months of 2010, BSkyB's revenues were £3.2bn, more than 10 per cent up on the comparable period in 2009. Because News Corp doesn't fully own the company, Murdoch's access to that stream of cash is at present limited.

There are other things that Murdoch could do if he had full control and they form the basis of the objectors' case. He could bundle up subscriptions to Sky TV channels with subscriptions on favourable terms to the Times and Sunday Times and their websites or, intriguingly, to any new product he cared to launch, such as his iPad-only US newspaper, first published on 3 February. He could offer advertisers the best placements during televised football matches provided they took space in his newspapers. While he owns only a minority of BSkyB, all such offers would have to be deemed against the interests of other shareholders.

Whether or not Murdoch has such plans in mind - and his form suggests he will do anything if he can get away with it - the phone-hacking scandal highlights wider objections to his takeover. Chris Goodall of Enders Analysis (a company that conducts research on media industries), who wrote a 33-page submission to the Ofcom inquiry into whether the BSkyB bid should go to the Competition Commission, says: "There's always a danger when you get a concentration of ownership in an industry that the people involved think they can operate outside normal laws and ethical standards. The rewards are so very high. We saw that with banking. The larger an organisation becomes, the more you get untoward behaviour."

Nearly all the concerns about concentration of ownership and cross-subsidy between the owner's interests would remain even if, as has been suggested, Murdoch were to sell Sky News or, in a now familiar manoeuvre, issue "guarantees" of its editorial independence. Sky News, as the sole provider of news to commercial radio as well as Channel 5, may be important in the journalistic landscape - and there is a danger that Murdoch would remodel it on the lines of the poisonously right-wing Fox News in the US - but it is a small, loss-making segment of the BSkyB behemoth. Murdoch could manage without it and still, through his ownership of other Sky channels, damage his commercial rivals in the newspaper sector.

If he were to divest himself of his newspapers, however, that concern would disappear. But for Murdoch, this would be an enormous leap. "He personally," said a Wapping source, "would consider the sale of any of his British papers as a loss of face." Murdoch, whose father was a newspaperman, loves print and, as Wolff puts it, "probably knows as much about the various aspects of putting out a newspaper . . . as anyone in the world". He paid an astonishing £4bn, far above the market value, to take control of Dow Jones, publisher of the Wall Street Journal, in 2008 and still harbours ambitions to own the troubled New York Times.

It isn't entirely sentiment. Murdoch recognises that, in political influence, newspapers still carry a clout that other media lack. And influence, to Murdoch's mind, is part of a company's balance sheet; its most precious, if intangible, asset. If nothing else, his newspapers are a sort of nuclear deterrent: they protect him, his businesses and his family from the kind of scrutiny that has become routine for other large organisations and public figures. The point is illustrated by the reluctance of most British papers to delve into the phone-hacking scandal or of politicians to complain about being targeted - or even of the Metropolitan Police to investigate.

News Corp shareholders, however, regard Murdoch's love affair with newspapers as dangerous self-indulgence. "The shares are undervalued," says Goodall, "because Murdoch is prone to irrational decisions about print."

The Times of London and the New York Post are chronic loss-makers - according to some estimates, the latter loses more money than any other media enterprise in history - and the prospects for growth in print are virtually zero. Even newspapers' influence is palpably declining: the Sun, with a circulation today of well under three million, against more than four million in its heyday, could not swing the 2010 election for Cameron as decisively as it had swung previous elections for Thatcher, John Major and Tony Blair.

The benefits of selling the British papers are clear. News Corp would be free of the £50m annual losses of the Times and Sunday Times, and while it would lose its Sun and News of the World cash cows, it would get a good price for them, helping to pay down debt. It need no longer worry about the fallout from NoW journalists' antics. Above all, objections to the BSkyB takeover - based on News Corp scooping up to 40 per cent of all UK TV and newspaper revenue by 2015 - would largely disappear. "Selling the papers," says Goodall, "would be the economically rational thing to do."

A British newspaper industry without Murdoch is almost inconceivable, not least to him. Nor would it necessarily be cause for celebration. For all his faults, Murdoch is, to most journalists, a less obnoxious proprietor than the Express owner, Richard Desmond, or even than Trinity Mirror, owner of the Daily Mirror, which cares for little except the profit margin. Murdoch, it has been said, is the last of the great newspaper barons, one who, despite his contentious views of its purposes, genuinely cares about journalism.

But as he enters his ninth decade, he may be forced to face the truth. If he doesn't offload the papers, whoever succeeds him almost certainly will. None of his children shares his enthusiasm for print, or his instincts for how to run successful newspapers. None of the executives who run his film studios on the American West Coast, now the true heart of his empire, begins to comprehend why he maintains these quaint products on what, to them, is the edge of the universe: "an act of conservation" is how one insider describes it. And if it were a choice between the papers and the long-term security of News Corp - and control of BSkyB may eventually come to that - he, too, would sell.

Rupert Murdoch has been the most successful, innovative, daring, feared and hated figure in British newspapers since he took over the News of the World in 1969. But nothing, not even a Sun King, is for ever.

Peter Wilby was editor of the New Statesman from 1999 to 2005