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Murdoch’s News Corp. Denies Pay-TV Piracy Reports

Rupert Murdoch’s News Corp. (NWSA) denied reports that a pay-TV software maker it co-owned was involved in piracy aimed at toppling rivals as politicians called for an investigation of the allegations.

The News Corp. subsidiary, NDS, set up a unit in the mid-1990s to hack smartcard codes and leak them online, giving viewers free access to competitors’ programs, the Australian Financial Review newspaper reported March 28. The report, which cites internal documents and e-mails, echoes a report on the unit by the BBC’s Panorama program this week.

“The BBC’s Panorama program was a gross misrepresentation of NDS’s role as a high quality and leading provider of technology and services to the pay-TV industry, as are many of the other press accounts that have piled on -- if not exaggerated -- the BBC’s inaccurate claims,” Chase Carey, News Corp.’s president, said in an e-mailed statement.

NDS Executive Chairman Abe Peled called on the Australian Financial Review to retract its story in a letter sent to Editor-in-Chief Michael Stutchbury today.

The allegations increase pressure on James Murdoch, the deputy chief operating officer of News Corp. and chairman of U.K. pay-TV company British Sky Broadcasting Group Plc (BSY), as he seeks to move on from the phone-hacking scandal at the British tabloid unit. Murdoch, 39, was a non-executive director of NDS when the alleged smartcard hacking took place.

Photographer: Peter Foley/Bloomberg

James Murdoch, deputy chief operating officer of News Corp. Close

James Murdoch, deputy chief operating officer of News Corp.

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Photographer: Peter Foley/Bloomberg

James Murdoch, deputy chief operating officer of News Corp.

“If these allegations are true they mark a sinister new low in the hacking scandal,” said U.K. lawmaker Tom Watson, who’s on a parliamentary committee preparing a report about News Corp.’s handling of the phone-hacking probe. Britain’s media watchdog Ofcom “has a duty to investigate,” he said.

‘Fit and Proper’

Murdoch, the son of Chairman Rupert Murdoch, already faces calls from investors to step down from News Corp.’s board and resign from his role at BSkyB. The BBC said there’s no evidence he was aware of the NDS scheme.

Rupert Murdoch said in a tweet today on his Twitter Inc. account that News Corp. is planning a response to the media reports.

“Seems every competitor and enemy piling on with lies and libels,” the elder Murdoch wrote. “So bad, easy to hit back hard, which preparing.”

‘Makes a Mockery’

Ofcom, the regulator, is evaluating whether James Murdoch is “fit and proper” to hold a broadcast license on behalf of BSkyB, in which News Corp. has a 39 percent stake. Ofcom said yesterday it will consider all relevant evidence.

The phone-hacking scandal prompted News Corp. to close the News of the World tabloid in July and drop its 7.8 billion-pound ($12.4 billion) bid for full control of BSkyB.

“If the allegations are proven, then it makes a mockery of the regulations that protect viewers,” said Mark Lewis, a lawyer for victims of News Corp.’s phone hacking who testified before the parliamentary committee. The claims “stretch the definition of ‘fit and proper.’”

News Corp.’s Australian unit, News Limited, said in a statement the Australian Financial Review’s report is “full of factual inaccuracies, flawed references, fanciful conclusions and baseless accusations which have been disproved in overseas courts.”

‘Seriously Misconstrued’

The piracy hurt News Corp.’s rivals in Australia and Britain, helping to ruin one of them, the news reports said. Both reports said NDS initially aimed to detect fraud and to fight piracy against News Corp.’s own pay-TV offerings, and only later began to promote and facilitated piracy.

The BBC “seriously misconstrued legitimate activities,” Abe Peled, the executive chairman of NDS, wrote in a letter to Panorama provided by News Corp. The documentary relied on “manipulated e-mail chains” and took e-mails out of context, he said.

Australia’s Communications Minister Stephen Conroy said after the report that claims of criminal activity should be probed by police.

A spokeswoman for the Australian Federal Police said today that they are not investigating the NDS allegations and are only assisting U.K. police with the phone-hacking probe.

The allegations may complicate a proposed takeover of Austar United Communications Ltd. (AUN) by Foxtel, 25 percent-owned by News Corp. The deal, if approved by Australia’s competition regulator, would create the country’s largest pay-TV provider.

The BBC said NDS paid a hacker to crack the pay-TV technology of British rival ITV Digital and leak the codes online, contributing to the company’s collapse in 2002. At the time, ITV was threatening pay-TV revenue at BSkyB, BBC said.

Cisco Sale

NDS, now co-owned by London hedge fund Permira Advisers LLP, is being sold to Cisco Systems Inc., (CSCO) the largest maker of equipment for computer networks, for $5 billion.

“Recent media allegations date back over 10 years and predate Cisco’s involvement with NDS,” Jim Brady, a spokesman for San Jose, California-based Cisco, said in a statement. “Given we remain separate companies, it would be inappropriate for Cisco to comment further.”

Vivendi Universal SA’s Canal Plus unit sued NDS in the U.S. in 2002 over the same allegations and eventually resolved the lawsuit by selling an Italian business to News Corp.

U.S. satellite-TV broadcaster Dish Network Corp. (DISH) accused NDS in court arguments in 2008 of hacking the security code of its access cards and causing at least $90 million in damages.

NDS, which provided encryption technology for Dish rival DirecTV Group Inc., was accused in that case of recruiting satellite-TV hackers and pirates to crack codes. A jury in California found that NDS wasn’t liable for a 2000 Internet post with information on how to hack Dish’s cards.

Stolen Hard Drive

The internal e-mails cited by the Australian Financial Review are from a stolen hard-drive that was used as evidence in Echostar’s pay-TV piracy trial against News Corp., NDS spokeswoman Amy Lucas said in an e-mail.

The Independent newspaper in Britain also reported today that NDS paid 2,000 pounds to the police department in Surrey, England, in 2000 for “assistance given to us in our work.” NDS said in a statement that there was nothing improper about what it described as a charitable donation.

James Murdoch has given up several influential positions following the phone-hacking scandal where journalists intercepted the mobile-phone voice mails of politicians, celebrities and victims of crime to get scoops.

Sotheby’s Board

Auction house Sotheby’s said March 16 that James Murdoch will leave its board. He resigned from the board of London-based drug maker GlaxoSmithKline Plc (GSK) in January and stepped down as executive chairman of News Corp.’s U.K. unit, News International, last month.

News Corp. has said James Murdoch will focus on his main job as deputy chief operating officer to oversee the company’s international television operations.

The younger Murdoch’s future at BSkyB also hinges on a report that U.K. lawmakers are preparing on the phone-hacking scandal following testimony he gave the committee last year that was later contradicted by former subordinates.

Lawmakers began the inquiry in July about whether Parliament had been misled about the extent of phone hacking during a previous probe in 2009. It has questioned James Murdoch twice for the new report, once alongside his father Rupert.

Bloomberg LP, the parent of Bloomberg News, competes with News Corp. units in providing financial news and information.

To contact the reporters on this story: Erik Larson in London at elarson4@bloomberg.net; Amy Thomson in London at athomson6@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net; Kenneth Wong at kwong11@bloomberg.net

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