Why the News Corp scandal could lead Rupert to sell his Australian newspapers: Gottliebsen

I think there is a strong chance that down the track one of the fall-outs from the UK News Corporation crisis will be that the Australian newspaper operation will be separated from the group.

The Australian newspapers could be simply spun into a new listed company but, if they are sold, the most likely buyer of the Australian operation – which includes the highly profitable Herald Sun in Melbourne, Sydney’s Daily Telegraph and The Australian – would be private equity. Either way, there will be a much greater concentration on profits or the old family traditions might not survive.

Let me take you through the logic that leads to this conclusion.

Rupert Murdoch and his son James are preparing to address the British Parliament and while the ultimate fate of their newspapers would not be at the top of their minds, both know that News Corporation is headed for fundamental change.

Rupert would not admit to anyone that part of the reason they have to go through this ordeal is that he stayed on as chief executive too long. But as I wrote last week in The Eureka Report, that’s the truth.

Before the Parliament, my guess is that Rupert Murdoch will perform well despite his 80 years. His son James is very talented but is prone to arrogance and does not like to have his judgements questioned, which is one reason he missed the scandal. People were afraid to talk to him. If James makes a mistake under pressure from Parliament it could be personally very serious for him.

Even if they both do well, any affair which sees two top members of the police force resign and the Prime Minister cut short an African trip makes it clearly possible that the two Murdochs will not be allowed to have a role in the management of a UK company for a long time.

Given that senior News Corp executives are being charged with criminal offences, James will need to fight hard to avoid a similar fate.

The future role of the Murdoch family in the company will never be the same again. The British Parliamentary questioning will override any of the rules and non-executive director constraints that were put in place. If Rupert cannot manage the UK, he cannot manage the group.

But whatever happens, the professional managers of News Corp – led by president, deputy chairman and chief operating officer Chase Carey – are going to be a lot more powerful. And there is one thing that unites Carey and his colleagues – they see no reason why News Corporation should own newspapers and they question the sweetheart deals that pervade News Corporation as employees loyal to the Murdoch family stay on beyond their “use-by-dates”.
Today’s Liddington-Cox graph shows just how irrelevant newspapers have become to the group.

The newspaper profits share of the total has plunged from 36% in 2004 to 13% in the latest profit report, reflecting an earnings decline from $831 million in 2004 to $530 million. Carey would have great frustration that this small part of News Corporation has all but destroyed the BSkyB strategies of the group. More seriously, if it happens that in the US there has been phone hacking of 9/11 victims then the whole US operation of News Corporation could be put in jeopardy.

Chase Carey will want to either sell the US or UK newspaper operations or offer them to shareholders as a separate public company – anything to get them out of the base business of the company. It would therefore make no operational sense to keep the Australian newspaper group.

Rupert Murdoch may oppose the move but he is simply not going to have the same power. Murdoch might get through the Parliamentary inquisition but the ordeal will sap the 80-year-old’s strength to fight.

This article first appeared on Business Spectator.