News Corp. profit hurt by British phone hacking scandal

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The British phone hacking scandal continues to take its toll on News Corp.

The media conglomerate on Wednesday reported a 5% drop in its fiscal first-quarter earnings. It incurred charges associated with shutting down its News of the World tabloid in London, which has been at the center of the scandal, and abandoning its bid to acquire 100% of satellite broadcaster British Sky Broadcasting.

News Corp.’s financial disclosures come as a Vanity Fair magazine article — on newsstands Friday but released to media Wednesday — reveals how the hacking crisis has intensified a rift among members of the Murdoch family, which owns 12% of the company’s shares but controls nearly 40% of their voting power.

It also raises questions about whether Chairman and Chief Executive Rupert Murdoch will be able to fulfill his oft-stated wish of having one of his children succeed him at the helm of the global media colossus.


Vanity Fair reports Murdoch had suggested that his son, James, take a leave of absence in the wake of the furor last summer over allegations that journalists working for News of the World had eavesdropped on voicemail messages left for a 13-year-old murder victim. After a sleepless night, the magazine says, Murdoch changed his mind.

James Murdoch had served as chairman of News International, a group that includes the company’s British newspapers, since 2007.

He was promoted earlier this year to deputy chief operating officer of News Corp., signaling he was being groomed as Rupert Murdoch’s heir apparent. James Murdoch is expected to return to Parliament on Nov. 10 to answer a second round of questions about his knowledge of the alleged illicit practices by the now-shuttered tabloid’s reporters.

News Corp. declined to comment on the Vanity Fair story.

Chief Operating Officer Chase Carey told Wall Street analysts at the onset of the call that he wanted to “shift gears” away from coverage of the hacking scandal to emphasize the company’s operating results.

Carey said News Corp. is not contemplating management changes in the wake of the scandal, which has spawned criminal investigations, civil suits and inquiries by Parliament.

“We have great confidence in James,” Carey said. “James has done a good job.”

However, Carey said News Corp. takes “seriously” the outcome of last month’s shareholder vote, in which one-third of the votes cast opposed the return of James Murdoch and his older brother Lachlan Murdoch to the company’s board.


“The board will, and is, discussing those votes. We continue to, on an ongoing basis, evolve the board,” Carey said, noting that the board is being “more proactive” in seeking feedback from shareholders.

News Corp.’s revenue grew to $7.96 billion for the quarter that ended Sept. 30, up 7% from a year earlier because of double-digit growth from the company’s cable and film groups.

However, a $91-million charge associated with closing News of the World, and $130 million in charges that included costs associated with abandoning its bid for BSkyB, served as a drag on earnings. Net income fell to $738 million, or 28 cents a share, compared with $775 million, or 30 cents a share, for the same period last year.