Insight: Murdoch's tough guy Carlucci under pressure

NEW YORK Tue Sep 13, 2011 1:32pm EDT

The News Corporation building is pictured in New York July 15, 2011. REUTERS/Brendan McDermid

The News Corporation building is pictured in New York July 15, 2011.

Credit: Reuters/Brendan McDermid

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NEW YORK (Reuters) - Paul Carlucci's name doesn't appear on any public list of News Corp's power players. As CEO of News America Marketing and publisher of the New York Post, he is the most influential executive you've never heard of inside Rupert Murdoch's empire.

That could change as News America Marketing's alleged bare-knuckle business tactics come under the regulatory spotlight in the United States amid the phone hacking scandal that has rocked News Corp's News of the World in Europe.

"Carlucci is a pretty savvy political operator in that he has been able to wield a lot of power while flying under the radar, but that's not the case anymore," said a former News Corp source.

U.S. regulators and law enforcement officials are taking a close look at the business practices of News America, one of the nation's largest providers of newspaper inserts, the coupon circulars that usually bulk up a Sunday edition.

As part of an investigation which began with so-far unsubstantiated claims that News Corp operatives illegally hacked into the phones of 9/11 victims, federal authorities are reviewing lawsuits brought against News America by several competitors that have cost about $650 million in settlements.

One of the cases that federal authorities are looking at, according to a U.S. law enforcement official, is a 2004 claim by Floorgraphics that accused News America of breaking into its computers and taking corporate data that ultimately caused it to lose some clients. Floorgraphics was a rival of News America for grocery store marketing until the company bought it as a way to settle the lawsuit.

Investigators want to see if this case and other, similar litigation form a pattern of illegal activity at News Corp. The U.S. inquiry is only beginning and may ultimately amount to nothing.

Carlucci, through a representative, declined comment.

WHO IS PAUL CARLUCCI?

Born in New York and of Italian descent, Carlucci started his career in advertising sales at the New York Daily News and rose to high-level ad executive positions at retail stalwarts Macy's and Caldor.

He joined News Corp in 1991 as executive vice president of News America, eventually replacing Les Hinton as the division's chief executive. Hinton resigned from News Corp earlier this year as a result of the UK phone hacking scandal.

In 2005, Carlucci took on the role of publisher of the New York Post after Murdoch's eldest son, Lachlan, quit the position. Rupert Murdoch briefly served as publisher before naming Carlucci.

"He's not Australian or British, and didn't come up in publishing," said a second former News Corp employee who had frequent dealings with Carlucci. "He's an outsider who has managed to become the ultimate insider."

Carlucci, who wears his hair slicked back and usually carries a Montblanc pen, has a penchant for finely tailored suits and a reputation for step-on-your-throat business tactics.

An executive at Sara Lee once said of her dealings with News America that it "feels like they are raping us and they enjoy it."

Carlucci, who turns 64 this year, emphatically peppers his comments with curse words and is known among friends as "Johnny Legit," according to the first ex-News Corp source.

But supporters of Carlucci view his thuggish depiction as little more than an anti-Italian bias.

"Paul is a tough businessman, but he's no different than any other guy who has made a ton of money," said a longtime friend of Carlucci's who asked to remain anonymous because of their relationship.

Just because he screens scenes from "The Untouchables" for employees "doesn't mean he's a mobster," this source added.

John Kimball, the former chief marketing officer for the Newspaper Association of America, who has been friends with Carlucci for nearly three decades, said, "He's always been very perceptive, intelligent, a quick study and a tough, but fair negotiator."

Carlucci, who walks with a confidence that adds several inches to his less than 6-foot frame, is big on one hallmark of the streets: loyalty.

"He treats his people well," said the former News Corp employee. "If you do right by him, he'll move mountains to do right by you." That, in essence, embodies the News Corp credo.

CARLUCCI AND MURDOCH

New York Post Editor-in-Chief Col Allan is widely known to be dismissive of most News Corp executives. There are two, however, whom he treats with utter respect. One is Murdoch, the other is Carlucci.

"I never heard Col badmouth Carlucci and I never saw him try to push Carlucci around," said the second former News Corp employee, who added that he witnessed Allan do both with plenty of other executives.

Though Carlucci is not part of Murdoch's inner circle, the two talk regularly. Brian Tierney, the former owner of the Philadelphia Inquirer and Philadelphia Daily News, recalls that after buying the newspapers in 2006, Carlucci served as guide to the industry newcomer.

"When I first bought the papers, within one month two people reached out to me to welcome me to the club," said Tierney, who now serves as chief executive of marketing firm Real Time Media. "One was (Washington Post Co Chairman) Don Graham and the other one was Carlucci."

After Tierney expressed interest in the Wall Street Journal's pay system, Carlucci quickly brokered a meeting for him with Murdoch.

"I spoke with Paul about possibly using their technology, and within two hours I got a call from Murdoch's office and met with him within a week," said Tierney.

Another newspaper executive recounted a meeting he had with Carlucci that was interrupted by a 30-minute phone call from Murdoch to go over ads for a Sunday edition of the New York Post.

As tough and shrewd as Carlucci is as a publisher, however, the fact remains that the New York Post is an unprofitable newspaper that does not get ad rates that match its influence.

NEWS AMERICA'S LEGAL ISSUES

While profitable, News America has become a low-margin commodity business with high costs because it has to buy the paper, print the inserts and pay newspapers to distribute them at a price that advertisers are willing to pay.

To fight the declining economics, News America has been accused of engaging in a series of less than ethical, and potentially illegal, maneuvers.

As New York Times columnist David Carr put it, "The company has come under scrutiny for a pattern of conduct that includes below-cost pricing, paying customers not to do business with competitors, and accusations of computer hacking."

Floorgraphics co-founder George Rebh said in a deposition that Carlucci, over what was supposed to be a friendly lunch, bluntly told him, "I will destroy you. I work for a man who wants it all, and doesn't understand anybody telling him he can't have it all."

Former News America employee Robert Emmel testified that an angry Carlucci once called his staff "bed-wetting liberals" and he could arrange to have them "out-placed from the company" if they had concerns about doing the right thing.

News America's modus operandi in dealing with lawsuits brought against it has been to either settle or buy the company making the allegations.

Floorgraphics dropped its lawsuit alleging computer hacking against News America after the company agreed to buy it for $29.5 million. Other settlement beneficiaries include Valassis Communications, Insignia Systems and the state of Minnesota.

While some have drawn an analogy between these settlements and News Corp's payment of $1.6 million to the chief executive of England's Professional Footballers' Association, Gordon Taylor, over the phone hacking allegations, Carlucci's friend said they were nothing more than the standard course of business.

"Every CEO has settled major lawsuits; they often prefer to cut deals than go to court," Carlucci's friend said. "I don't think you can draw any conclusions about him from that."

One thing that is indisputable is that Carlucci is more vulnerable than ever before thanks to the hacking scandal.

"He's OK now, but depending on what happens with the U.S. regulators, he could come under a lot more pressure," said the first former News Corp source.

(Disclosure: Peter Lauria worked at the New York Post from 2005 to 2010)

(Reporting by Jennifer Saba, Peter Lauria and Mark Hosenball. Editing by Tiffany Wu and Robert MacMillan)

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