LONDON — James Murdoch, his credibility diminished and his future at the helm of his father’s media empire in doubt, stepped down Wednesday as executive chairman of News International, the troubled British newspaper subsidiary embroiled in a deepening phone hacking scandal.
The move – which the company cast as allowing Rupert Murdoch’s younger son to focus on News Corp.’s international TV holdings – plucks the one-time heir apparent out of the cross-hairs of the crisis that has spurred judicial and police inquiries and claimed the careers of several top executives.
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“No one is surprised at this development,” said Douglas McCabe, a media analyst at Enders Analysis. “The view is that James’ association with News International was becoming problematic and this is an attempt to move him away from it.”
The 39-year-old James will remain deputy chief operating officer of News Corp., and experts said removing him from the firestorm over News International doesn’t just help with damage control. It also leaves the embattled executive in a key position at the company and places him back into the role of TV executive, where he has shone in the past.
News Corp. shares set a 52-week high in New York after the news broke, rising 2.7 percent to $20.35 a share as Wall Street took the news as a sign that the company’s widely respected president and chief operating officer, Chase Carey, would have more say in the company than James, whose title as deputy COO is increasingly seen as symbolic.
Speculation over how long James Murdoch would last at the helm of News International had been rampant since allegations of widespread phone hacking at the News of the World exploded in July.
A wave of bad publicity and the loss of advertising revenue ultimately led Rupert Murdoch to shut down the 168-year-old tabloid News of the World. Murdoch also withdrew his $12 billion bid to take full control of satellite broadcaster BSkyB – a major setback to his plans for expansion in Britain.
He then lost a series of trusted lieutenants with the resignation of News International’s chief executive, Rebekah Brooks, and Les Hinton, CEO of Dow Jones & Co., the News Corp. subsidiary that publishes The Wall Street Journal and Dow Jones Newswires.
James Murdoch found his credibility publicly challenged at a parliamentary inquiry into the scandal. But as more damaging information came to light, the younger Murdoch stayed put.
Rupert Murdoch expressed full support for his son even as James Murdoch’s testimony to lawmakers – and fitness as an executive – were repeatedly called into question.
James Murdoch twice had to change his story about what he knew when in the phone-hacking scandal. In testimony before Parliament last year, he insisted he was never shown a critical piece of evidence that suggested illegal practices went much further than his company was admitting at the time.
Contradicted by his former top aides, James Murdoch later had to return to Parliament to modify his testimony. He was told about the evidence, he acknowledged, but said he wasn’t told why it was important.
Another document uncovered since then has cast doubt on that explanation. A 2008 email proved that James Murdoch had been warned by one of his top lawyers — in writing — that the explosive evidence could lead to a “nightmare scenario.”
In a letter to U.K. lawmakers in December, James Murdoch explained he got that email on his smart phone but must not have read all the way down to the important part.
His so-called “BlackBerry defense” has since been widely ridiculed.
“James’ resignation was inevitable,” said Louis Ureneck, a journalism professor at Boston University. “He either condoned the hacking or was irresponsibly unaware. Neither is acceptable in a top executive of a media company.”
Rumors about James Murdoch’s tenure have swirled on both sides of the Atlantic. Vanity Fair reported in December that Rupert Murdoch initially told James to take a leave of absence as the scandal unraveled but later changed his mind.
Rupert Murdoch’s critics and even his shareholders have also loudly called for James Murdoch’s head. In October, more than a third of shareholders voted against re-electing the younger Murdoch to the company’s board of directors.
Speculation over James Murdoch’s future in the News Corp. empire gained steam again earlier this month when Rupert Murdoch’s elder son, Lachlan, was featured prominently at his father’s side in a tour of The Sun’s London newsroom.
At the time, company officials threw water on succession speculation, saying Lachlan Murdoch accompanied his father only because James Murdoch was out of Britain due to other commitments.
Media expert and think-tank director Charlie Beckett said Wednesday’s move to shift James Murdoch away from the U.K. scandal shows the Murdoch family and its global empire are, for the first time, being subjected to external forces because of public anger about the scandal.
“They’re not in control of their destiny,” he said. The move “is an attempt to reassert some kind of control.”
Beckett noted that James Murdoch will remain an integral part of the company, since television is a huge part of News Corp.’s global business.
“James Murdoch is not particularly enamored with newspapers and is a brilliant TV executive,” Beckett said. “If that’s being thrown under a bus, then I would love to be thrown under a bus like that. He’s not losing his job, he’s being given an important role.”
In the News Corp. statement, James Murdoch thanked his colleagues for their dedication, saying they work “tirelessly to inform the public.” He also praised the company’s latest British newspaper, The Sun on Sunday, which published its first edition last weekend.
Rupert Murdoch praised his son’s leadership at News International, saying he has made “lasting contributions” to the group’s global strategy.
“Now that he has moved to New York, James will continue to assume a variety of essential corporate leadership mandates, with particular focus on important pay-TV businesses and broader international operations,” Murdoch said.
Even as the phone hacking scandal has tarnished James Murdoch, it has elevated News Corp. chief operating officer Carey. A former executive at News Corp.’s Fox Entertainment Group, Carey presided over the launch of Fox Sports and creation of Fox News Channel, which are now among the company’s most profitable businesses.
Carey, 58, represents the company at investor conferences, has led tough negotiations for higher fees from pay TV distributors and is well-liked by Wall Street analysts.
Asked Tuesday at a conference if he realized News Corp. stock would rise if it got rid of its problematic newspaper businesses, Carey acknowledged the board had discussed spinning them off entirely. “As a board we have and will continue to discuss everything that we think that makes sense,” he said.
With News Corp. stock on the rise after Wednesday’s announcement, analysts pointed to Carey’s influence.
“The stock is up, and I think that’s not surprising,” said Collins Stewart analyst Thomas Eagan. “The Street has always liked Chase Carey as a manager and I think this cements his control over management. Who knows what the long term succession plan is, but for now, he firmly is No. 2 and No. 3.”
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