Wednesday, July 20, 2011

Why I Think News Corp Will Survive This Crisis

For those who are unaware, News Corp, owner of half the world's media including Fox, Dow Jones, and a whole lot more, was recently embroiled in a scandal.  It seems that employees of News of the World, a British tabloid owned by News Corp (at least it was until the paper closed last week), were hacking people's phones.  And these weren't just any people's phones, they were, like, really pathetic people's phones.  We're talking families of dead and missing children.  Pretty sick.

Anyway, this has ballooned into a gigantic ethics scandal involving News Corp. CEO Rupert Murdoch, his son, bigwigs at Scotland Yard, and even UK Prime Minister David Cameron.  Many have been talking about the 80-year-old Murdoch stepping down as a result of this embarrassment.  News Corp. has already abandoned its bid to acquire the remainder of British media outlet BSkyB, and there are a lot of questions surrounding News Corp.'s future.  Here is what I think about two of those questions:

Question: What will happen to Rupert Murdoch?

Answer: Probably not much.  Murdoch's family owns 40 percent of that company.  Odds are that he isn't going anywhere.  Yeah, the press will beat him up, but the press has been beating him up for years because of his political views, so that's nothing new.  A more interesting question is, "Should Murdoch step down?"  To this I also say "no".  At least, I don't think he should do it right now.  Murdoch has built this company from the ground up, and it pretty much runs on his vision.  Of course, he will die one day (some liberals' theories about him being a real-life Voldemort, notwithstanding), and because of this, it is crucial that he establish a succession plan.  That would be the prudent action to take now.  Develop a succession plan, and then gracefully bow out in about a year or so once all this mishegas has blown over.  He could probably assume an executive chairman role, but pass on management of the firm to his son or to this apparently very capable second-in-command.

Question: How will this crisis affect News Corp.

Answer: It won't!  Here's what makes crises potentially disastrous for companies.  In any crisis, usually some stakeholder is hurt or perceives themselves as potentially in danger.  In this case, it was some people who got hacked.  In BP's case, it was a bunch of fish in the Gulf.  In Toyota's case, it was all of their customers.  What makes a crisis potentially disastrous is that the stakeholder who got screwed is the one buttering your bread.  Yes, BP's stock tanked when they turned the Gulf into salad dressing, but their customers stopped buying BP gas for about a nanosecond.  Their revenues stayed where they had been, and no one even remembers the damn oil spill.  Conversely, Toyota (even though very little actually happened) appeared to put all their customers at risk.  WOOPS!  There go the sales.

Now look at News Corp.  They hurt some people who were newsworthy.  Here's the funny part: while some people may feign outrage, they're still tuning in to Fox News to learn about the scandal.  Murdoch is actually making money off his own screw-up!  Isn't capitalism awesome?  Ultimately, we like hearing about this stuff, even though we may think it's wrong, and so the only way a media outlet could actually hurt themselves is to be boring (you listening, MSNBC?).

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