Analysis: Rupert Murdoch Sacrificed News Of The World For BSkyB Deal

UPDATE, 11:35 AM: Ofcom, the UK communications regulator, says it has concerns as to whether News Corp is a fit-and-proper owner for BSkyB in light of the worsening News of the World scandal. James Murdoch has admitted News International effectively misled the UK Parliament while he approved secret out-of-court settlements for illegal activity. Ofcom says it is monitoring the situation closely. If the regulator does launch an enquiry, it would further delay News Corp’s 100% takeover of BSkyB. The UK government has already delayed this until fall. BSkyB’s shares fell by 8% this afternoon as the City absorbed Ofcom’s concerns. Ed Miliband, leader of the opposition Labour Party, has called for the UK government to put the deal on hold. The £9 billion ($14 billion) takeover of BSkyB is the biggest deal of Rupert Murdoch’s career.

In what has been a disastrous day for News Corp, even Prime Minister David Cameron has distanced himself from his friend Rebekah Brooks — the CEO of newspaper arm News International, who was editor of News of the World when the alleged phone hacking of murdered schoolgirl Milly Dowler and families of London bombing victims took place. At an emergency press conference this morning, Cameron said that if Rebekah Brooks offered her resignation to him, he would have taken it. Brooks again addressed News of the World staff this afternoon, although she has not resigned.

One News International insider called the decision to close the News of the World “not so much a master plan as a disaster plan.” The paper generates £160 million a year for News International — 15% of turnover — and £10 million-£15 million profit. That’s partly why James and Rupert Murdoch decided to sacrifice it to try and keep their takeover of BSkyB on track. BSkyB by comparison earns £5.7 billion a year. However, News International appears set to replace NOW with a new Sunday version of its Sun tabloid. James Murdoch has tried to generate good PR by saying this Sunday’s final edition would give free ads to charities and all revenue would go to good causes. But charities are shunning News International’s offer. One charity called it a “cynical ploy” to protect the BSkyB bid.

The question people are asking here is what is that Brooks knows that makes her so dangerous for the Murdochs to jettison her? Why aren’t they taking the hint from even her close friend Cameron that Brooks must go? One of the problems of living on such a tight island is that everybody in a position of power is connected. So if one corner begins to unravel, soon everything starts falling apart. When it comes to elections, it’s always the economy (stupid) which brings down a government, but I suspect this deepening scandal -– with Cameron’s close links to both Brooks and his disgraced ex-PR chief Andy Coulson, who was arrested this morning on suspicion of corruption and phone hacking — could ultimately bring down his power coalition.

PREVIOUS, 5 AM: Fallout from the News Of The World phone-hacking scandal continues to spread despite Rupert Murdoch’s decision to close the tabloid. UK Prime Minister David Cameron announced today that the government would launch a major inquiry into the paper’s newsgathering practices once police have completed their investigation. He also said the government would examine the close relationships there between officials and the press. Shortly after his press conference, police arrested former News Of the World editor Andy Coulson — who had become Cameron’s press aide. Those developments followed the government’s announcement that it would take its time to review Murdoch’s $14 billion plan to buy UK satellilte company BSkyB. Although Cameron had said that the scandal and the business deal were not linked, the government’s Department for Culture, Media and Sport said that it now “will take some time” to decide on the BSkyB arrangement as it considers whether the decision to close News Of The World “has any impact on the question of media plurality.” It adds: “The Secretary of State has always been clear that he will take as long as is needed to make a decision.” BSkyB shares fell on the news even though Jeremy Hunt, the UK culture secretary in charge of approving the BSkyB deal, indicated yesterday that any decision would be delayed until the fall. It was originally due to be approved today. News Corp said that “our priority is to continue to cooperate with the Secretary of State for Culture, Olympics, Media and Sport and the existing regulatory process.” Owning BSkyB outright would mean News Corp getting its hands on its swelling £5.7 billion ($9 billion) revenues. It would also cement Rupert Murdoch’s position as the most powerful media magnate in Britain.