As the scandal grows, could Murdoch exit Britain altogether?

A faction within the tycoon's empire has long wanted him to shed News International. Now they smell blood, says Ian Burrell

Will Rupert Murdoch abandon British newspapers entirely? After the dramatic demise of the News of the World, speculation was rife last night that the News Corp media empire might seek to sell off News International to protect the rest of its business from the fallout of the hacking scandal.

Rupert Murdoch's media empire: what News Corp owns - click here to download graphic (170k)

With a tsunami of bad publicity threatening the company's bid to take control of BSkyB, the News Corp board in New York is likely to face questions from shareholders on the business case for retaining the News International stable of mostly loss-making titles.

Pressure increased yesterday with news that a group of American institutional investors had brought new charges against the company over the phone-hacking affair. The investors, who are critical of Rupert Murdoch and his son and deputy, James, accused News Corp of "rampant nepotism and failed corporate governance".

Beyond the chairman and chief executive himself, who has a long and sentimental attachment to the UK newspapers on which he built his fortune, News International has few friends at News Corp in the US where it will be held responsible for reducing the company's share price, which was down 6 per cent yesterday.

"There has long been a faction within News Corp which says 'Why do we have these newspapers?'" notes Michael Wolff, contributing editor to Vanity Fair and Rupert Murdoch's biographer. He said that the former president and chief operating officer, Peter Chernin, had taken such a view, and that the current chief operating officer, Chase Carey, the most likely non-family member to succeed the ageing chairman, "has never had any involvement in the newspapers".

Wolff said it was conceivable that News Corp would attempt to put the phone-hacking scandal behind it by selling News International. "It's quite possible that at some point one of the fall-back positions is to blame it all on the newspapers: 'It's newspaper culture and newspapers which are the problem here, not the company, which is a modern media company.' The newspapers were once the motor of this company but they have not been certainly in half a generation. In New York no one has heard of the News of the World."

He said that the board of the US-listed company needed to show that it did not simply act at the behest of the chairman. "As boards of major companies go, this is one of the most docile and least independent. One of the themes that is going to be taken up there is of corporate governance and that these people are not accountable. That's a board-level question and I think the board is going to come under increasing pressure to realise that." The Times and Sunday Times made losses of £87.7m in the year to 28 June 2009. News International, including The Sun and News of the World, made an overall loss of £925,000 in 2010. The Sun is still profitable but its circulation of 2.8 million is down 3 per cent on last year.

The closure of the News of the World is set to significantly reduce UK newspaper revenues which, at £1bn last year, are dwarfed by the £5.9bn made by BSkyB (of which News Corp takes 39 per cent), and represent a small slice of the £21bn revenue which News Corp makes worldwide.

Douglas McCabe, of the media analysts Enders, said the News Corp board would not normally take a great deal of interest in the UK newspapers given their "relatively trivial" contribution to global revenues. "The News Corp accounts are very largely biased towards screen-based media," he said. "Newspaper media have for some time been a declining part of the portfolio. When there are no additional factors [the board] wouldn't spend much time thinking about [UK newspapers], either considering whether to sell or anything else. But when they are brought very much into relief by a situation like this, then you are forced to carefully consider what value they have in the overall portfolio."

Despite the efforts of executives with responsibility for the London operation, such as James Murdoch and News International chief executive Rebekah Brooks, the scandal has crossed the Atlantic, being seized on by the US media and threatening to infect other prestigious News Corp brands.

Les Hinton, who runs The Wall Street Journal, is expected to be called to give evidence to a public inquiry on hacking and asked to explain why he failed to appraise himself of the extent of the malpractice when he held his previous position as executive chairman of News International.

Brian Cathcart, professor of journalism at Kingston University, agreed that it was getting harder to maintain a business case for News Corp retaining its interests in the British press. "If you were a shareholder in News Corp you might be looking at it and thinking: 'This is just a small limb of the organisation, we want this BSkyB deal, how can we have allowed this to screw it up?'" he said. He added that people who had purchased shares in News Corp had essentially made a decision to back the judgement of one man. "News Corp is not a normal business, it has grown on the genius of one businessman and if you are a shareholder you are just someone who is betting on Rupert Murdoch."

Mr Murdoch had shown in his purchase of The Wall Street Journal that he still believes in newspapers but, having recently celebrated his 80th birthday, he may soon hand over to a successor who is less enamoured of having ink on his fingers.

James Murdoch showed in folding the News of the World that he had limited sentimental loyalty for a paper that his father bought in 1969. Chase Carey may have even less of an attachment to News Corp's British prints.

Professor Cathcart said: "The Times is a good newspaper now and better than it has been for most of Rupert Murdoch's ownership. Is The Times ever going to find another owner with pockets as deep as the Murdochs'? It's very hard to imagine."

Murdoch's US circle

Chase Carey

As chief operating officer, he is Rupert Murdoch's No 2, running the day to day business of the company. He was brought back to News Corp in 2009 from a US satellite firm it had previously sold. In years past, Murdoch entrusted him with building satellite operations in Europe and Asia.

Joel Klein

He has been handed the task of overseeing the internal investigation into the hacking scandal. Until last year, he was running the New York schools system for mayor Michael Bloomberg. Murdoch hired him as a non-executive for his ties to the Democratic party establishment.

Viet Dinh

The Vietnamese immigrant to the US was Assistant Attorney General under President George W Bush. He is the other News Corp non-executive working on the hacking investigation and public relations fallout.

Arthur Siskind

If anyone knows where News Corp's bodies are buried, he knows, because he buried them. He was Mr Murdoch's senior in-house lawyer for 13 years, and stayed on after retirement in 2004 as "senior adviser to the chairman".

Robert Thomson

Mr Murdoch's last great adventure in the newspaper business, the acquisition of The Wall Street Journal, was cooked up with the former editor of the Times. Now Mr Thomson is editor of the WSJ and remains a trusted adviser.