Amid FBI Probe, News Corp. U.S. Licenses Seen as Safe for Now
News Corp. (NWSA) remains unlikely to lose its U.S. broadcast licenses even as the FBI investigates phone- hacking allegations, according to analysts who caution that the ongoing probe heightens the company’s potential risk.
The threat to News Corp.’s licenses depends on “what the bad acts are, who did or knew of them, where they occurred, and when the investigation concludes,” Rebecca Arbogast, a Washington-based analyst with Stifel Nicolaus & Co., wrote in a note to investors today.
“The standard for revoking a license, as a practical matter, is very high,” Arbogast wrote. “Depending on how the facts develop, we may be looking at an unprecedented situation.”
The scandal at News of the World, owned by New York-based News Corp. has convulsed the British media, political world and the police since the July 4 revelation that reporters working for the London tabloid hacked the mobile phone of a murdered schoolgirl and deleted messages.
In two weeks, News Corp. Chairman and Chief Executive Officer Rupert Murdoch has been forced to close the newspaper and drop his bid for British Sky Broadcasting Group Plc. (BSY) The scandal has led to 10 arrests, including that of former News of the World editor Rebekah Brooks.
The possibility of the Federal Communications Commission stripping News Corp.’s licenses to operate 27 U.S. television stations remains remote at this stage, Paul Gallant, a Washington-based analyst with MF Global, wrote in a research note to investors today.
At the same time, the Federal Bureau of Investigation probe is “obviously a significant unknown and potential risk for News Corp.” and the views of U.S. lawmakers “could affect whether - - and how aggressively -- the FCC investigates News Corp.’s local TV licenses,” Gallant wrote. News Corp. owns the Fox TV networks.
The FBI, prodded by members of Congress, began looking into whether News Corp. employees may have targeted the phones of victims of the Sept. 11, 2001, terrorist attacks.
U.S. Representative Peter King, a New York Republican and chairman of the House Homeland Security Committee, asked FBI Director Robert Mueller in a July 13 letter to investigate whether News of the World employees tried to access voicemails of Sept. 11 victims through bribery and illegal wiretapping.
“We’re aware of certain allegations pertaining to a possible hacking by News Corp. personnel and we’re looking into those charges,” Jim Margolin, a spokesman for the FBI’s New York office, said in a phone interview last week.
The FCC won’t involve itself in the U.K. probe of the phone-hacking allegations, FCC Chairman Julius Genachowski told reporters on July 12, before reports of the FBI probe.
“Obviously there is a process going on in the U.K., and that is a U.K. process, and I don’t expect we will be involved with that,” Genachowski said.
Neil Grace, an agency spokesman, declined to comment further today, referring to Genachowski’s earlier statements.
Teri Everett, a spokeswoman for News Corp., did not immediately respond to requests for comment. Bloomberg LP, the parent of Bloomberg News, competes with News Corp. units in providing financial news and information.
The FCC, which has a Democratic majority, may wait until after the 2012 election if it chooses to act, analysts said.
The agency doesn’t want to give the impression of “censoring a network that is seen as being aligned with the political right,” Jeffrey Silva, a Washington-based analyst for Medley Global Advisors LLC, said in an interview. “That would invite criticism from Republicans that this is a witch hunt and abuse of power by the FCC.”
Gallant said that some outside parties may petition the agency to investigate News Corp.’s fitness to hold licenses, and said it’s “conceivable” that the agency may consider allegations of wrongdoing when the company’s licenses come up for renewal.
News Corp.’s licenses for stations in the Washington, D.C., area will be up for renewal in June 2012, followed by stations in Illinois in 2013, Gallant wrote.
News Corp.’s U.S. broadcast licenses “don’t appear to be at serious risk based on the law and what we know, but we don’t know everything right now,” Silva said.
“If it could be shown beyond a reasonable doubt that upper management either knew of, orchestrated or had some substantial role in the phone hacking, that would be a possible trigger for the FCC to get involved,” Silva said.
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