Murdoch ‘Back Scratching’ Shifts Blame to U.K. Politicians

As regulators expand a probe into whether News Corp. (NWSA) should retain its stake in British Sky Broadcasting Group (BSY) Plc, Rupert Murdoch’s testimony in a media-ethics inquiry turned public attention to the amount of time U.K. lawmakers have spent with the 81-year-old mogul, including trips on private planes and a family yacht in Greece.

Murdoch, the chairman of News Corp., and his son James spent three days in front of the U.K. panel this week blaming their ignorance of corruption at company newspapers on police, lawyers and subordinates. Police investigations of News Corp. journalists have resulted in about 45 arrests in the scandal, which spurred the inquiry by Judge Brian Leveson into relationships between News Corp. employees and politicians.

Evidence released by the ethics inquiry showed the Murdochs had dozens of meetings with the most powerful lawmakers in the U.K. As a result, Culture Secretary Jeremy Hunt is facing calls from the opposition Labour party to resign after e-mails showed one of his aides offered inside information on Hunt’s views to a News Corp. lobbyist when the company was offering 7.8 billion pounds ($12.6 billion) for the 61 percent of BSkyB it didn’t already own.

“Going into an attacking mode rather than being in a defensive mode was clearly very well planned,” Ajay Bhalla, a professor at London’s Cass Business School, said of the Murdoch strategy. “The focus now has shifted more to other levels, whether it is Jeremy Hunt or David Cameron or Gordon Brown, and the public is likely to” hold News Corp. less accountable.

‘Huge Power’

Murdoch testified he has never sought political favors or asked a prime minister for anything in exchange for support in the press. Tom Watson, a member of the parliamentary committee investigating phone hacking, said he thinks all British lawmakers know Murdoch wields “huge power.”

“U.K. lawmakers are in no doubt where Rupert Murdoch’s commercial and political interests lie,” Watson said. “With control of 40 percent of Britain’s newspapers, he is the ultimate floating voter and prime ministers know this.”

Prime Minister Cameron, who called for the review of media ethics in July, met with Rupert Murdoch six times since he became U.K. leader and on 15 occasions between 2006 and January 2010, when he was leader of the then-opposition Conservatives. On the way to a holiday in Turkey before he became prime minister, Cameron flew on Rupert’s son-in-law’s plane and stopped off in Santorini, Greece, to meet with the elder Murdoch on a yacht, the executive said yesterday, though he couldn’t recall if it was his yacht or his daughter’s.

Blair, Miliband

Tony Blair met with the media mogul more than 30 times when he was prime minister, according to the evidence released yesterday. Ed Miliband, head of the Labour party, went to the company’s summer party in June, about a month before New York-based News Corp. shut down its News of the World tabloid when reporters were accused of hacking into a murdered teenager’s voice mails for stories.

“That’s all part of the democratic process,” Rupert Murdoch said April 25. “Politicians of all sides like to have their views known by the editors of newspapers or publishers, hoping that they will be put across, hoping that they will succeed in impressing people. That’s the game.”

Murdoch also said that he doesn’t promote commercial interests with his newspapers.

Parliament’s report on phone-hacking is scheduled to be published next week and may conclude the Murdochs are implausible witnesses after James Murdoch’s testimony was challenged by other company executives. Britain’s Crown Prosecution Service is also considering whether to bring the first new criminal charges in the case.

Police Bribes

News Corp. rose 1.8 percent yesterday in New York trading. They rose 2 cents to $19.63 at 10:23 a.m. today. Miranda Higham, a spokeswoman for News Corp., declined to comment.

The inquiry led byLeveson is investigating the state of media ethics after reporters were found to have paid off police and public officials and intercepted voice mails and e-mails for stories. News Corp.’s newspapers became the center of the political upheaval after the 168-year-old tabloid News of the World was closed.

James Murdoch, News Corp.’s deputy chief operating officer, and his father both denied ever using political endorsements or positive coverage in the company’s titles to smooth the way for deals or gain favorable regulation. Rupert Murdoch said this week he didn’t know very many politicians.

“It’s a common thing in life, which goes way beyond journalism, to say ‘you scratch my back and I’ll scratch yours,’” he told the inquiry in London yesterday.

‘Scratch My Back’

However, when asked if that extended to his relationships with officials, he answered, “I don’t ask any politician to scratch my back.”

The Murdochs have said hacking was allowed to continue under their noses for years because they relied on employees, lawyers and police investigations that were faulty.

To help quell public outrage over phone hacking, Rebekah Brooks, head of the U.K. publishing unit News International, and Les Hinton, head of the Dow Jones (IYR) & Co. unit, stepped down over their involvement in the scandal. Brooks is among those arrested in the police probes. News Corp. also created the Management & Standards Committee to assist police inquiries.

Murdoch said he was “greatly distressed that people who’ve been with me 20, 30 years, fine, great journalists, friends of mine” had been arrested, before going on to say he was “glad” his company had handed over evidence about their actions to the police.

Coulson, Mulcaire

Rupert Murdoch also blamed the Metropolitan police for not informing the company that hacking was more extensive than first believed. A 2006 e-mail from the paper’s lawyer Tom Crone to its editor Andy Coulson said that Brooks was told by police there were more than 100 victims of phone hacking, and suggested that the private detective who hacked phones, Glenn Mulcaire, had “sequences of contacts” with the paper before and after his hacking attempts.

The risk for the company now may be that Leveson concludes that News Corp. has become too influential and shouldn’t be allowed to expand, according to media analyst Claire Enders. That could threaten plans to renew its takeover bid for BSkyB, which it abandoned last year, she said in a note.

“We don’t expect either Rupert or James Murdoch to come out of this process with any significant diminution in their standing,” Enders said in a note. “However, there remains a very substantial risk that one of Lord Leveson’s conclusions is that the scale of News Corp.’s operations in the U.K. should never be allowed to increase.”

Another threat may be British regulator Ofcom’s investigation of whether News Corp. is fit to hold its BSkyB stake. The regulator expanded its investigation to gather evidence about civil cases involving phone hacking.

To contact the reporters on this story: Amy Thomson in London at athomson6@bloomberg.net; Erik Larson in London at elarson4@bloomberg.net; Robert Hutton in London at rhutton1@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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