July 13, 2011 / 11:28 PM / 6 years ago

Analysis: Murdoch's newspaper crisis causes jitters in U.S.

<p>News Corporation Chairman and CEO Rupert Murdoch speaks during the Wall St. Journal CEO Council on "Rebuilding Global Prosperity" in Washington November 16, 2009.Kevin Lamarque</p>

NEW YORK/WASHINGTON (Reuters) - When Rupert Murdoch swooped in to buy the Wall Street Journal in 2007, it sparked fears that the venerable newspaper brand would suffer by being housed under the same roof as News Corp's tabloids.

Those concerns have again arisen as the widening scandal over phone-hacking at Murdoch's British newspapers threatens to spill over to U.S. shores.

"I think the UK hacking scandal has the potential to damage the Wall Street Journal's reputation," said Jay Ottaway, whose family owned 6.2 percent of Wall Street Journal publisher Dow Jones & Co before it was sold to News Corp.

"However, I think it would be unfair since the quality of the people and reporting at the Wall Street Journal is much higher then at other News Corp newspapers and television properties," he told Reuters by email.

Beyond fears about contaminating the brand of one of the most-respected newspapers in the United States, the controversy could also taint Murdoch's broader media business in the United States, which ranges from print to television to films.

Already, three U.S. lawmakers on Wednesday urged the Department of Justice and the Securities and Exchange Commission to look into whether News Corp broke a U.S. law banning payment of bribes to foreign officials.

And some media pundits, including CourtTV founder Steve Brill, have raised questions over whether News Corp's U.S. broadcast license could be revoked, given that federal communications law requires owners of TV stations to be "of good character."

News Corp owns the Fox television stations and cable network Fox News.

Analysts say it's too early to tell if there will be serious damage to Murdoch's U.S. business, but these calls raise the specter that his smeared reputation in Britain could have ramifications stateside.

"It wouldn't surprise me at all if others call for hearings and investigations, and perhaps they may even be held. There's going to be a lot of activity around this issue," said Jeffrey Silva, analyst with Medley Global Advisors.

"Because News Corp's Fox network is associated with the political right, any sort of revocation proceedings would be presented by Republicans as politically motivated and an attack on free speech," he said, noting the issue is particularly sensitive ahead of the 2012 U.S. presidential race as Democratic President Barack Obama seeks re-election.

"It will continue to be controversial and it will fuel existing partisan fire fights, but I don't think it will lead to revocation hearings. I don't think it will go that far," he said.

Serious Allegations

News Corp's British newspaper arm has been the focus of a widening investigation into phone-hacking that has roiled the British political establishment.

The scandal began at the 168-year-old News of the World, which News Corp shuttered on Sunday, after allegations that it bribed police officers for information and its journalists hacked into the voicemail of thousands of people, including a murdered teenage girl and families of British soldiers killed in combat.

News Corp on Wednesday pulled its bid to buy the 61 percent of British broadcaster BSkyB it didn't already own, as outrage grew.

Fresh allegations have surfaced that the hacking extended to the phones of the families of the victims of the September 11 attacks on the United States, prompting an outcry from U.S. Senators Barbara Boxer, John Rockefeller and Frank Lautenberg.

"The reported allegations against News Corporation are very serious and indicate potentially thousands of victims and a pattern of illegal activity," Rockefeller and Boxer wrote in a letter to the Justice Department and SEC.

News Corp did not immediately comment. Dow Jones declined comment.

Analysts said the U.S. Federal Communications Commission was unlikely to revoke News Corp's licenses for now.

"It's possible that more facts could surface. For example, someone could bring a complaint to the FCC that News Corp management knew about the campaign, but even so, it would likely just be a sideshow," said Rebecca Arbogast, analyst with Stifel Nicolaus and a former division chief at the FCC.

Arbogast said the standard for revoking a license on character grounds is high and rarely invoked. "There's no precedent whether a British conviction would count."

Tarred With the Same Brush

Most of the spotlight has been on Rebekah Brooks, who was editor of News of the World between 2000 and 2003, when some of the most high-profile hacking occurred.

While some companies are contemplating pulling advertising from Murdoch's British papers, there is little proof that they are doing the same in the United States. The Wall Street Journal is the top U.S. paper by circulation and one of the most respected.

But attention is now turning to Les Hinton, who headed up Murdoch's British newspapers during the scandal, and is now chief executive of Dow Jones.

"How could it not be a concern?" asked Doug Arthur, a long time newspaper analyst now with Evercore Partners, about the potential impact to the Wall Street Journal brand.

"I think the benefit of the Journal is it's above the fray. It's carved out such a strong reputation for so long," he said, but added, "You cannot completely separate it from the muck."

Reporting by Jennifer Saba and Jasmin Melvin; Editing by Tiffany Wu

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