Rupert Murdoch Moves to Protect His Empire and a Favored Editor

July 8, 2011 -- The stunning decision to shut the British tabloid the News of the World while standing by its beleaguered editor is vintage Rupert Murdoch, longtime observers say—a bold move by a magnate who ruthlessly protects his media empire, yet has a soft spot for loyal henchmen.

Murdoch, 80, who began his career in the family newspaper business in Australia in the 1950s, still loves print. But he is sacrificing the News of the World, a 168-year-old title that is a loved and loathed institution in Britain, because the brand has become bad for his global business, News Corp.

The tabloid became the focus of a phone-hacking scandal when it was revealed that reporters had hacked into the voicemail messages of celebrities and royals and even hacked the messages of a murdered schoolgirl before her body was found.

"By cutting the cancer out, he's stopping it from spreading to News Corp.," said Max Clifford, a British public-relations czar who himself was one of the targets of the phone-hacking scandal that brought down the newspaper. "It's a damage-limitation exercise."

Murdoch has no shortage of media properties left in his stable. He owns the Wall Street Journal, Fox News, the New York Post and British and Australian newspapers including The Sun and the Times of London. But the phone-hacking scandal threatened a huge and controversial deal that is pending, his total acquisition of British broadcaster BSkyB. The broadcaster's stock has dropped 7 percent this week as investors fear the deal may be halted by government regulators.

Hacking Scandal Dooms News of the World But Not Its Editor

The three-times-married father of six has shown in the past that he can be determined when protecting his interests. He provoked controversy in the late 1990s when he stopped HarperCollins, which he owns, from publishing a book about the British handover of Hong Kong to protect his interests in China. When his son-in-law, Matthew Freud, said last year that he was "sickened" by the journalistic standards of Fox News head Roger Ailes, Murdoch stood by Ailes rather than his family.

The phone-hacking scandal was proving to be bad for business in a way that dwarfed those prior flaps. Shareholders ditched News Corp. stock earlier this week, and the arrest today of Andy Coulson, former editor of the News of the World and former press spokesman for British Prime Minister David Cameron, will bring further damage to the News Corp. brand.

"It's under siege like many traditional media companies," says Sarah Ellison, former reporter for the Wall Street Journal and the author of "War at the Wall Street Journal" about Murdoch's fight to gain control of the newspaper. "The major crisis for that company is how to survive in the digital age when their traditional revenue streams are being eroded."

Murdoch moves are rarely predictable, typified by his towering $5 billion bid for Dow Jones to acquire the Wall Street Journal. He surprised again Thursday by sticking with the editor of the News of the World, Rebekah Brooks, despite widespread calls for her resignation.

The prime minister himself questioned that stance today, saying of reports that Brooks had offered her resignation: "In this situation I would have taken it."

Murdoch backed Brooks in a statement he issued Wednesday and his son James, chairman of News International, the company's British arm, said in a British TV interview: "She's doing the right thing for the company. I'm satisfied that she neither had knowledge of nor directed these acts."

Brooks spoke to staff in a meeting Thursday and sent them a mass email, reproduced in The Guardian, in which she said: "We are working hard to put our own house in order and do the right thing."

Rebekah Brooks Survives Hacking Scandal With Murdoch's Blessing

"In any other company, Rebekah Brooks would be fired," said Ellison. "He was willing to sacrifice an entire newspaper of jobs for one job—her job. Rupert Murdoch is incredibly loyal to people who are loyal to him." She added that Murdoch "talks about Rebekah as the daughter he never had—although he has four daughters."

Murdoch's legendary acumen may be reflected in the anonymous acquisition earlier this week of the domain name Sun on Sunday, suggesting a scenario of The News of the World is Dead, Long Live the Sun on Sunday. "It's more a rebranding of the News of the World than a closure of the News of the World," said Ellison.

"It's a huge market that you won't want to lose," said Clifford. Salvaging the Sunday news empire and warding off harm to his global media empire will be Murdoch's "biggest battle yet," he said. "But if anyone was going to come through something like this, he's the one you would pick."