Citizens for Responsibility and Ethics in Washington (Crew) has written to the chairman of the Federal Communications Commission, Julius Genachowski, calling on the regulator to pull the plug on Rupert Murdoch's lucrative television licences on grounds of character.
The letter argues that the final report of the UK Commons culture, media and sport committee, which concluded that Murdoch was not fit to run a major international company, had implications for the US regulators that they had now to act upon.
Melanie Sloan, Crew's director, said that the Murdochs had clearly failed the character test that is embedded within US media law as it is within British. "If they are not passing the character standard under British law, it seems to me that they are not going to meet the character standard in America."
In their report, the British parliamentarians found Rupert Murdoch was "not a fit person" to exercise stewardship of a major international company. The Commons culture, media and sport select committee also concluded that James Murdoch showed "wilful ignorance" of the extent of phone hacking during 2009 and 2010.
Under FCC regulations, broadcast frequencies can only be handed to firms run by people of good "character" who serve the "public interest" and speak with "candor". In making that judgment, the FCC is entitled to consider past conduct of media owners, including conduct that does not relate directly to their broadcasting interests, as well as any patterns of alleged misbehaviour.
The FCC has so far shown an unwillingness to be drawn into the billowing phone hacking scandal concerning the News of the World and other News Corporation outlets in the UK. Last July, Genachowski indicated that he did not expect his agency to get involved in the probe.
But Crew insisted that as more information emerges about the failure of News Corp to deal with its hacking crisis, federal authorities would eventually be forced to act. The watchdog has also written to the US Senate and House committees on commerce calling for congressional hearings into whether the Murdochs were fit to hold the Fox TV licences. A similar request from Crew last year went unanswered.
Any suggestion that there was scrutiny of News Corp's TV licences would cause havoc within the company because its profits are closely tied to television in the US. However, the firm's shareholders appear to be relaxed in that regard, as News Corp's shares rose slightly after news broke of the scathing UK committee report.
Analysts have long discounted the UK newspaper business as a distraction and too tiny to affect the bottom line. One speculated that investors were betting the report was likely to lead to News Corp focusing on its larger, more profitable US assets.
Thomas Eagan, media analyst at Collins Stewart said more pressure on Murdoch meant more responsibility for Chase Carey, News Corp's chief operating officer. "That's a positive for us, we are big fans of Chase Carey," he said.
The big unanswered question for shareholders is over the British pay TV giant BSkyB, Eagan said. Ofcom, the British media regulator, is currently assessing whether News is a "fit and proper" owner of the profitable firm. The hacking scandal effectively ended News Corp's bid for full control of BSkyB. Should Ofcom rule against Sky, it may have to sell all or part of its 39.1% holding in the pay-TV operator.
Some shareholders are intensifying their calls for a shake-up at the top of News Corp on the back of the British parliamentary report. Change to Win, an advisory group that works with pension funds with over $200bn in assets, called for Murdoch to resign. Senior policy analyst Michael Pryce-Jones said News Corp's board should meet to form a succession plan immediately. "This is a company in crisis," he said.
Pryce-Jones said that when he first saw the headlines about the report he had assumed they were talking about James Murdoch. "This is far worse than I had expected," he said. "The focus is now on Rupert."
He added: "In any other company James would have have been sacked in July and we'd be preparing for succession. [Rupert] Murdoch clearly can not stay on a CEO and chairman of this company."
Pryce-Jones said he blamed News Corp's independent directors for much of what had gone wrong. The directors include top US lawyer Viet Dinh, chief architect of the USA Patriot Act, Joel Klein, the former chancellor of the New York City department of education and Rod Eddington, former chief executive of British Airways. "They have said that they are going to act, but they have done nothing. They need a Plan B. Plan A was apparently to ignore this and hope it would go away," he said.
Father Seamus Finn of the Interfaith Center on Corporate Responsibility, who led a shareholder vote against Rupert and James Murdoch and other senior executives at News Corp's annual general meeting last year, said: "This report is exactly what I asked Mr Murdoch about last year, it's about the culture of the company and who sets the tone for that culture."
He said the report "sets another stone on the balance" against Murdoch but that for US shareholders the political nature of the report was likely to lead many to discount its impact. "This is an extraordinary report but it is happening in a political context," he said.
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