News of the World closure won't hurt Murdoch financially

@CNNMoney July 7, 2011: 5:38 PM ET
Rupert Murdoch's flagship tabloid News of the World is shutting down over allegations that reporters hacked into phone accounts.

Rupert Murdoch's flagship tabloid News of the World is shutting down over allegations that reporters hacked into phone accounts.

NEW YORK (CNNMoney) -- News of the World, the most widely-read English language newspaper in the world, is shutting down because of allegations that it hacked into phone accounts, according to News Corp. leadership.

But the loss of the tabloid will have little impact on News Corp., (NWS) as it makes up only a sliver of the global publisher's profits, said Laura Martin, an analyst for Needham & Co.

Martin estimates that the paper provides only about 3% of the parent company's annual earnings. That's why News Corp.'s stock barely budged on Thursday, despite the bombshell announcement that the168-year-old paper will close.

News Corp. doesn't break out numbers in its earnings reports for specific businesses. But in its most recent quarterly report, it said that publishing accounted for about $6.5 billion in revenue in the first nine months of 2011, around one-fourth of its overall corporate revenue of $24.4 billion. The rest of the company's sales come from cable programming, satellite television and film.

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News Corp. is in the process of trying to acquire BSkyB, a pay-TV broadcaster serving the United Kingdom and Ireland. Getting rid of the paper will actually help News Corp. in its ongoing bid to acquire BSkyB, Martin said, by distancing the company from the scandal.

"We see the newspaper closing as an important sacrifice in an effort to reduce additional delay in the (BSkyB deal) approval process," said Collins Stewart media analyst Tom Eagan in a research note today.

Charles Bedouelle, media equity research analyst at Exane BNP Paribas, added that BSkyB is more important to Murdoch. He described the paper's shutdown as an "extreme but pragmatic decision to get the problem out of the way."

Bedouelle also said that the recent advertiser exodus from News of the World could be painful for the short term, but that the longer term gloom hanging over the newspaper industry probably influenced the decision to close the paper.

BSkyB wasn't immediately available to comment on the issue.

The last issue of the Sunday tabloid will be on July 10, according to James Murdoch, deputy chief operating officer of the parent company News Corp. and son of media mogul Rupert.

"The News of the World is in the business of holding others to account. But it failed when it came to itself," said James Murdoch in a prepared statement. "Indeed, if recent allegations are true, it was inhuman and has no place in our company."

Some of the most recent allegations accuse newspaper reporters of hacking into the phone accounts of British soldiers. A spokeswoman at News Corp. would not comment on whether those latest allegations were the tipping point for the paper's closure.

This is in addition to earlier accusations that reporters hacked into the voice mails of a missing teenage girl who was eventually found murdered, as well as the father of a victim of the so-called "7/7" terrorist attack in London on July 7, 2005.

"We are urgently trying to establish the truth of these allegations which, if proved, would amount to the most unimaginable breach of journalistic ethics," News of the World editor Colin Myler wrote in an open letter on his paper's Web site.

"Understandably, there is a great deal of anger directed towards this newspaper as a result of what happened in some cases as far back as nine years ago," he wrote.

Rupert Murdoch himself slammed the allegations of editorial misconduct as "deplorable and unacceptable," in a press release on Wednesday.

Despite the imminent closure of its flagship paper, News Corp.'s stock price was up more than 1% for most of the day before closing flat. Shares recovered part of their losses from the prior session, when it was first dogged by these allegations.

News Corp., which recently dumped MySpace, still has three other U.K. newspapers: The Sun, The Times and the Sunday Times. News of the World serves as the Sunday edition of The Sun.

News of the World has cultivated an intense focus on celebrities, particularly soccer players and the royal family, and is typically plastered with photos of scantily-clad starlets. In May, the paper displayed front page topless photos of Pippa Middleton, sister-in-law to Prince William, sunbathing on a boat off a Spanish island.

Media lawyer Geoffrey Robertson said that getting rid of the News of the World was "a master stroke that took everyone by surprise," since it shows an element of remorse that might assist in getting the BSkyB bid.

Robertson also suggested that the paper could be reborn in the future.

"British people will miss it," he said.

In the U.S., News Corp. owns the Wall Street Journal and the New York Post.

--Irene Chapple of CNN.com International contributed to this story. To top of page

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