Margareta Pagano: The Murdoch empire strikes back...but will it be enough?

In killing the 'News of the World', James Murdoch has cut off the head of the serpent, but his ruthless move still leaves News Corp's bid for BSkyB in doubt

James Murdoch's decision to close the News of the World newspaper was sensational, cold, brutal – and brilliant; just like the paper which shuts today.

With one chop of the knife, Murdoch has sliced off the head of the snake before the reptile had the chance to sink its teeth into him too.

He can only be praying that it's enough to stop the venom spreading to the rest of the News Corporation empire. You don't have to be a cynic to see that Murdoch the younger has sacrificed one of the UK's oldest, biggest and most profitable newspapers for three reasons: to save his own skin, to have the chance of taking over from his father, Rupert, as head of News Corp when Murdoch Snr eventually retires, and to have any hope at all of being allowed to bid for BSkyB.

It is more than ironic that the newspaper, which under News International ownership has destroyed so many reputations, was about to destroy that of its master.

The Murdochs will have known the game was over the minute Ford and a host of other household names withdrew or threatened to withdraw their advertising in this weekend's edition; as the Tiger Woods affair showed so well, the world's big global brands have become the new moral arbiters, perhaps even more powerful than the papers and TV in which they advertise. It's known in the advertising trade as radical transparency, I understand.

It was this, quite apart from the avalanche of Twitter fury, that did for the red-top. And now Renault has pulled its ads from all Murdoch titles until further notice. But, most powerful of all, was the decision by the Royal British Legion to pull its adverts after revelations that the NOTW had hacked into the phones of dead soldiers, destroying any remaining trust between the newspaper and the public. When that has gone, there's not much left.

That's why Murdoch had to move swiftly to stop the poison spreading, and why killing off the NOTW is a small price to pay. Take yourself away from the noise of Westminster and Fleet Street and look across the Atlantic to where News Corp is one of the biggest TV and cable companies in the world, owning trophies from Fox News and movies such as Avatar to The Wall Street Journal and The New York Post. It's valued at $45bn on Nasdaq, has annual cash flow of $7bn and assets of $60bn. Global publishing assets are worth only about $5bn of that, and the UK publishing arm, which includes The Times, The Sunday Times and The Sun, are on the books at about $1.2bn, or, put another way, represent about 45 cents in terms of earnings per share.

As one New York analyst told me, that makes the NOTW worth about $600m – only 20 cents a share, or 1.4 per cent of the market value. So you can see why US analysts reckon the NOTW was worth sacrificing, and why they believe that the 4 per cent fall in the share price to close on Friday at $17.32 was overdone.

However, another big turning point for the Murdochs must have been the decision by the US press – particularly The New York Times, which is at war with their Wall Street Journal – to run with this story. The NYT has used what would usually have been a parochial UK story to declare war on a media rival. Murdoch will not have enjoyed his fellow Manhattanites pointing him, and his staff, out at parties, whispering: "They're the men who hack people's phones." Big investors such as Prince Alwaleed bin Talal won't have liked it either, even though the Saudi royal has been a great supporter.

This is a fragile and interesting time for News Corp: it's close to cleaning up after a profligate few years in which Rupert Murdoch has sunk millions into MySpace, paid $6bn – vanity-style money – for Dow Jones, which some analysts claim is worth less than $1bn, and paid millions for Shine, his daughter's production company.

Investors are said to be getting twitchy, worried that News Corp shares are off their $28-a-share peak, in relative decline to their big media peers. Some investors have also been critical of the mega-bucks paid to Murdoch and his top staff; and are expressing quiet disbelief that Murdoch management could have allowed such appalling behaviour on its papers.

But analysts expect profits this year to be good, which could make News Corp one of the most profitable media companies in the US – its cable business is going great guns, while Sky in Italy and Germany is churning out money. No wonder James and his father preferred to go for the kill first.

Will it work? Has James Murdoch done enough cleansing to get him the big prize of BSkyB ? News Corp owns 40 per cent of the broadcaster, so receives the dividend but not the cashflow. This is a big year for BSkyB, set to see a 24 per cent rise in operating profits to £200m; some analysts predict a rise in profits to £650m over the next few years. This also suggests any takeover bid could be as much as £9.30 a share if it were allowed.

It's impossible to know at this stage whether the Government will give its approval for a new bid, which following last week's shocking news has been delayed until at least September. But the odds must be less than 50:50, and it may well be that the Murdochs don't bother to try again, such is the mess.

However, Murdoch Jnr will now argue he's given up both Sky News and the NOTW; thus hoping to knock on the head the arguments over media plurality. But there's still the question over whether criminal charges will be brought against News Int staff – for phone-hacking or payments to police.

Executives such as his chief executive, Rebekah Brooks, and Les Hinton, who was in charge of the UK papers until switching to the US, must be feeling very uncomfortable. In any other business, Brooks would have gone by now and the only explanation for her survival is that she's still useful to the Murdoch team. And even if legal charges aren't brought, the UK regulator, Ofcom, still has the option to decide that News Corp is not a "fit and proper" owner of BSkyB.

As a certain ex-Sunday red-top might have screamed: "Gotcha!"

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