News Corp. got real Wednesday morning about the depth of its business problems, withdrawing a bid to expand its British television presence by acquiring full ownership of British Sky Broadcasting. And more business troubles may lie ahead.

I'll stand by my earlier post that News Corp. had hoped to rescue the deal, critical to its ambitions to dominate pay TV in England, by abruptly closing the ethically-challenged News of the World. It didn't work, however. Regulators and parliament were cranking up new looks at anti-trust issues and whether the company would be a "fit owner."

Earlier this week, News Corp said it would delay the BSkyB transaction, hoping a cooling off period would help. That didn't work either.

The stakes are huge for News Corp. The News of the World was a fraction of the company's newspaper divisions, themselves only 17 percent of company revenues.

But television -- including the Fox networks in the U.S. and others in Asia and Europe -- is News Corp.'s biggest and fastest-growing line of business.

File photo from Oct. 20, 2006, taken following a shareholders meeting. (Mark Lennihan/AP)

BSkyB is a highly profitable company with annual revenues above $8.5 billion and growing. Getting all of the company would allow News Corp. to dominate pay and digital TV in Britain and bolster its global satellite system. Analysts also speculated that under News Corp. control, it could sell discounted combination digital subscriptions to The Times of London or other newspaper holdings.

The withdrawal of the bid comes with a couple of qualifiers. News Corp.'s regulatory filing reserved the option to make a new bid if another company attempts to buy the 60.9  percent stake it was after or if BSkyB tries to acquire News. Corp's 39.1 percent share of the network.

News Corp, a publicly-traded U.S. company, which lost roughly 14 percent of its value in the last week, was up slightly in early trading. That seems to indicate that investors had already marked down the stock and were pleased News Corp. chose not to dig in for a fruitless fight to do the deal.

Coverage of the expanding scandal has rightly focused on profoundly unethical, possibly criminal news-gathering and on the level of involvement and political entanglements of News Corp. chairman Rupert Murdoch and the top editor of his British papers, Rebekah Brooks. Prime Minister David Cameron is scrambling to distance himself from both.

But I also see a chance that the affair will surface a host of standing business objections to how the company has been run.

The bill of particulars includes these.

  • News Corp.'s high-profile flop purchase of My Space for $580 million in 2005 and liquidation of it at a fire-sale $35 million earlier this year after the once dominant social media site was eclipsed by Facebook. Not too big a loss for News Corp. to absorb financially, but some analysts say it is evidence that Murdoch and the company want to play in the cutting-edge digital ventures but don't get new media. (The jury is still out on The Daily.)
  • Nepotism. Since News Corp. is controlled by family shares, it is not shocking that Murdoch's son James has been installed as CEO of European and Asian publishing operations and heir apparent. More questionable was News Corp.'s acquisition earlier of Murdoch's daughter Elisabeth's business, Shine Group, for a generous $674 million.
  • Succession and Murdoch's age. Any armchair Murdoch-watcher knows he is not planning to leave the company anytime soon, barring death or disability. But biographer  Michael Wolff points out that his four adult children own equal shares of the company and are split 2-2 against each other. Murdoch also heavily involves his wife in business decisions. Hardly a formula for stability.
  • Over-commitment to newspapers. Recall that Murdoch paid a 60 percent premium over the share trading price to acquire Dow Jones and The Wall Street Journal from the Bancroft family. He has poured additional money into expanding the Journal's circulation and coverage -- though the financial results are uncertain, since they are not broken out in News Corp.'s financials. Murdoch has operated both the New York Post and the Times of London at a loss over a period of years.

So pressure may mount to sell some of the newspaper holdings, at least those in England.

Murdoch defenders, most recently New York Times columnist Roger Cohen, argue that he is a sort of benevolent patron of newspaper journalism. Those rooting for him to fail might want to contemplate The Wall Street Journal or The Times in the hands of penny-pinching private equity investors.

Whether the escalating scandal will force changes in the structure of News Corp. and its control by Murdoch and his family remains to be seen. Remember, he votes the controlling shares.

But the depth and breadth of the debacle seem to metastasize day by day, if not hour by hour. Keep in mind, too, that in her farewell speech to the News of the World staff, Ms. Brooks said that much worse revelations lie ahead.