News Corp.: The Legal Liability
Experts say crippling civil suits could number in the thousands.
In April 2010, as reports circulated that News Corp. had paid actress Sienna Miller £100,000 ($160,000) to settle invasion-of-privacy claims against News of the World, observers believed that the allegations of phone-hacking might cost the Rupert Murdoch company $20 million to resolve. But now, as the scandal has exploded to include possibly 4,000 victims, that figure seems far too low.
In addition to whatever criminal charges might stem from violations of the country's Regulation of Investigatory Powers Act, which makes it illegal to intercept communications without consent, many lawyers predict a flurry of civil lawsuits similar to the one Jude Law has filed against News International. They could number in the thousands because the U.K. has no class actions.
Attorney Alexander Rufus-Isaacs points to several U.K. statutes -- including invasion of privacy, harassment, intrusion, distress and emotional distress -- under which victims could sue. Damages could be "substantial" and he believes News Corp. "will move quickly to settle these cases with litigants or a victims group that represents them."
British courts have been reluctant to award huge damages to defamation or privacy victims, though in 2008 motor-racing boss Max Mosley won £60,000 ($97,000) against News of the World for claiming he had been involved in a "Nazi orgy" (model Naomi Campbell, by contrast, won only £2,500 in a privacy case).
But the unfolding scandal could embolden U.K. judges to add "exemplary" damages as punishment. "I believe that a number of the current phone-hacking claimants have included exemplary damages in their claims against News Group," Dominic Crossley, the lawyer who repped Mosley, wrote on his blog.
A shareholder suit in the U.S. is pending, and allegations that News Corp. officials made payments to U.K. police could bring charges by the U.S. Department of Justice that Murdoch's company violated the Foreign Corrupt Practices Act. Some believe the legal pressure could force News Corp. to divest assets -- which would cost it far more than lawsuits.
REPORT CARD: Wall Street Picks Apart the Murdoch Empire
U.S. Newspapers: TOXIC
The company's print-media holdings long have been unpopular with investors because of their lack of growth momentum. Nomura analyst Michael Nathanson on July 18 called them "toxic" assets, arguing that a sale would help the company's valuation and jettison a group that contributes less than 10 percent of operating profit.
Cable Networks: GOOD
Evercore Partners analyst Alan Gould estimates the value of the cable networks, which include Fox News Channel and FX, at $34.9 billion and $14.40 per share for fiscal 2012, compared with a relatively small $10.2 billion and $4.22 per share for the filmed entertainment unit.
Filmed Entertainment: BAD
Nathanson is bearish on the Fox film studio, home of Avatar, based on DVD dips and lower profit margins. And while TV studio hits Modern Family and Glee should generate big syndication numbers, "Fox is less positioned for the international procedural market than many of its peers," says RBC Capital Markets analyst David Bank.
Broadcast TV: GOOD
The TV network business is valued at a relatively small $600 million for fiscal 2012. But Fox won the 2010-11 season in the 18-t0-49 demo and maintained American Idol ratings. Plus, "we expect further improvement in the TV unit as News Corp. books more retransmission fees," says Gimme Credit analyst Dave Novosel.
U.K. Newspapers: TOXIC
Collins Stewart analyst Thomas Eagan says the scandal has reduced the value of Murdoch's British papers, which include The Sun, The Times of London and The Sunday Times. "Last year, we valued the U.K. papers at $1 billion to $1.5 billion, but today, given the current environment, below $1 billion is more likely," says Eagan.
-- Georg Szalai