Why shutting down News of the World was a good business decision

I can't offhand think of an instance of ethical transgressions so severe that a publication was forced to close -- until this week. But the News of the World, which News Corp. announced it will fold after this Sunday's edition, is a special case in several ways, and the decision to shut it down may reflect business sense more than conscience.

News Corp. is not making a big business sacrifice with this action. News of the World's audited circulation is 2,657,000, the biggest of any English-language paper, the company claims, though its readership was declining. Though News Corp. does not break out the profitability of individual publications, I believe the paper operates in the black. Still, the paper is a fraction of a fraction of News Corp.'s business. Publications in the U.K., U.S. and Australia provide only 17 percent of the company's revenues and some of the big money of the publishing division is in low-profile ventures like Dow Jones' professional financial information.

News Corp. is essentially a cable and network television business -- and that is where the financial stakes for the company could be high. For more than a year News Corp. has been trying to acquire all the stock of British Sky Broadcasting, of which it currently owns roughly 40 percent.  The proposed transaction is receiving detailed regulatory scrutiny, which has been extended this week in reaction to the scandal. BSkyB is valued at $23.3 billion, The Wall Street Journal reported Thursday. The decision to close News of the World could help stabilize the situation. Should the deal fall apart, that would be a huge negative for News Corp.

In addition, with News of the World closed, News Corp. could choose to take its other British tabloid, the Sun, to seven days a week (and earlier this week it registered the thesunonsunday.com domain name). Assuming the Sun has operated more soundly, that would make ethical and business sense.

News Corp. has already paid out settlements to some of those whose phones were hacked. The company may need to do the same to many others, but I doubt that would add up to a material financial impact.

Keep in mind that News Corp. is a publicly-traded United States-based company, and Rupert Murdoch is a U.S. citizen. It is hard, however, to see the scandal impacting its major U.S. holdings, which include The Wall Street Journal and Fox Broadcasting Company.

Media tycoon Rupert Murdoch poses with a sky television camera during the launch of his multi-channel package in central London on Wednesday, Sept. 1, 1993. Sky launched its new sky Multi-Channels package giving viewers a choice of more than 20 channels, including six new ones. Murdoch is chairman and chief executive of News Corporation which owns 50 percent of Sky. (AP Photo/Martin Cleaver)

Surprise and bold decisiveness are part of the Murdoch modus operandi. I have met Murdoch twice, though never interviewed him, and I covered his successful takeover of Dow Jones and the Journal with a bid so inflated that Bancroft family members, who owned a controlling share of the stock, could hardly refuse. This decision fits the pattern. Yes, shutting down the News of the World is a drastic action, unexpected when viewed from afar, but commensurate with drastic circumstances that had been getting worse by the hour.

The News of the World's repeated hacking into phones is an order of magnitude worse than the typical newspaper scandal. Plagiarism and fabrication may be journalistic crimes (and often a firing offense). But the News of the World's reporters, editors and special investigators were breaking actual laws not ethics codes, repeatedly, over a number of years.

Analogous ethical horrors might include the Cincinnati Enquirer's Chiquita Brands investigation of 1998, built in part on hacked voice mail messages. Or those with long memories may recall Harry Karafin, the ace Philadelphia Inquirer investigative reporter of the 1950s and '60s, who extorted payments from his targets to suppress embarrassing stories he had developed. In each of those cases, however, the practice and damage could be isolated.

Salacious scoops about crime and celebrities are part of the core content of the News of the World. With more instances of hacking and payoffs to police for information likely to emerge, it is not much of a stretch to find the whole enterprise morally bankrupt, as News Corp. executives effectively have.

The political entanglements are also significant. The corporation's top news executive, Rebekah Brooks, former News of the World editor, is a social friend of Prime Minister David Cameron. Another former News of the World editor, Andy Coulson, served as Cameron's press secretary and will be arrested Friday for his role in the scandal. Political enemies of Cameron's and Rupert Murdoch's -- as well as media competitors -- can be counted on to draw out and play up every detail of the scandal. Cameron has announced he will formally convene two inquiries, one into the News of the World and the other into "culture and ethics" of the British press.

So will the mercy killing of the News of the World pay off in the long-term the way the Murdochs hope, clearing the air and getting the BSkyB deal done? Quite possibly. But that depends on how much more bad or worse stuff comes out and how high in the organization evidence of poor oversight reaches.

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