• by Diane Mermigas , July 15, 2011

News Corp.'s intense focus throughout the hacking scandal is on salvaging the Murdoch empire, the family succession plan, advertising relationships and a second pass at acquiring the 61% of BSkyB it doesn't own when things cool down. The tattered Fifth Estate is being treated like mere collateral damage.

There are business reasons -- much less ethical reasons -- why that is a strategic mistake. That's not just for News Corp.'s asset stable, but all players in the unwieldy digital news and information space.

The unraveling scandal, coupled with troublesome trends and uncertain economics, will shape digital newsgathering and filtering standards, business expectations and media profits far into the future.  Separating the sensational rapid-fire developments from the substance while convoluted events are sorted out can provide perspective on the long-range impact. Here are a few such reflections:

*The abrupt resignation Friday of News International chief executive Rebecca Brooks and closing News of the World last week do not change the infraction equation. It only fuels the rage over who knew what when and how information was gathered. Ultimately, both moves primarily serve to protect News Corp. interests.

Closing the century-old tabloid may protect News Corp. from having to retain and produce incriminating documents related to criminal claims the paper illegally hacked into private phone voicemail and email of rich, famous and private citizens. Chances are NOTW will struggle for years with criminal and civil legal action against it, which will cost the company money and credibility.

*Recovering the support of advertisers and other constituents will be painful, but the rift will be temporary -- as it almost always is in media controversies. News Corp. continues its international efforts to recoup the trust of readers and advertisers with full-page, apologetic newspaper ads, personal letters to key clients, and other communications about actions being taken to address the wrongdoing.
The timing couldn't be worse.

Advertising, which is the company's primary source of revenues, generally is facing a new crisis of confidence and broad spending reductions especially in print, according to sources such as the IPA/BDO Bellwether survey and revised ZenithOptimedia growth forecast.

*The once revered all-business Wall Street Journal, now more prone to general interest news, is the crown jewel in Murdoch's diminished newspaper fiefdom -- and suffering the pains of being the newly adopted sibling of at least one News Corp. publication that allegedly pays police for private information, provides large payoffs to silence phone-hacking victims and other questionable practices.  

The late Friday resignation of WSJ publisher Les Hinton, who dismissed any concerns of wrong doing, while heading an internal examination of charges several years ago, will not insulate the U.S. paper from the unwieldy scandal. Protecting the WSJ's business brand is critical and, perhaps, impossible as the intensely competitive digital news and information vortex increasingly makes little differentiation between legitimate and unsubstantiated sources.
WSJ's annual $458 million from circulation and nearly $1 billion from advertising in 2010, according to Credit Suisse, may be the best it gets.

*While Murdoch is being advised to cut and run from his beloved publishing business to control the contagion, the group only represents about one-quarter of News Corp.'s overall revenues and much less in earnings. The scandal's threat to the licenses of its Fox TV stations and cable networks would be a more serious mater.
Still, CitiGroup analyst Jason Bazinet says he sees few scenarios that would result in permanent damage to News Corp.'s existing assets.  

The company's newspapers in the U.S., UK and Australia generated about $6 billion in revenues in fiscal 2010. Overall, the publishing group that also includes HaperCollins and newspaper inserts, generated just over $1 billion in earnings on $8.5 billion in revenues.

A bigger financial issue is the $5 billion share repurchase just announced to appease disgruntled shareholders, which will leave News Corp. with about $2 billion in debt at the end of 2013 despite its $12 billion in cash it now has on its balance sheet.

*Despite political uproar on both sides of the pond, enough of the general public appears to reluctantly accept some degree of sordid tactics as fair game in an era of streaming high stakes news and information-from The New York Times and the New York Post to The Daily Beast and Huffington Post.  Getting caught is the price paid for differentiation. Legendary journalist Carl Bernstein this week lamented that varying degrees of ethical breeches that have become the hallmark of News Corp. newspapers have sadly become expected behavior for the desperate and damned in news.

Pew's annual State of the Media report frames it this way: "That data may be the most important commodity of all. In a media world where consumers decide what news they want to get and how they want to get it, the future will belong to those who understand the public's changing behavior and can target content and advertising to snugly fit the interests of each user. That knowledge -- and the expertise in gathering it -- increasingly resides with technology companies outside journalism."

With the News Corp. scandal dominating Twitter feeds, blogs and mainstream press, according to Pew's weekly News Coverage Index, the issue of how far news organizations go to compete and profit clearly attracts audiences. The dilemma and drama surrounding the News Corp. scandal begs the question: If found guilty of criminal charges, will it permanently diminish the brand integrity and profits of other News Corp. properties, such as the WSJ and the Sunday Times of London. Moreover, what deep-reaching ramifications will that have for the entire news business?