Rupert Murdoch Saves The Sun, But Crisis Could Move to America

Last Friday, Rupert Murdoch traveled to Wapping, in east London, to visit the unhappy newsroom of his cherished tabloid, The Sun. Senior journalists from the newspaper had been arrested on suspicion of making payments to public officials, as part of an investigation that arose out of the phone-hacking scandal that brought down Murdoch's News of the World last summer. Murdoch vowed that The Sun would survive the crisis. He even doubled down on his support—lifting the suspensions of the arrested journalists and announcing his intention to open a Sunday version of the paper. "I am staying with you all, in London, for the next several weeks to give you my unwavering support," he said in a memo to staff.

The proclamations were seen as a bold bid to regain the upper hand in what some observers have described as a "civil war" within Murdoch's news empire—one that has prompted questions of how much control the mogul retains in the midst of a crisis that refuses to die down.

This summer, Murdoch scrambled to put together his own team to clean up the mess at News Corporation, the U.S.-based media behemoth worth tens of billions of dollars, and its U.K. arm, News International, run by his son James. Murdoch appointed former New York City school reformer Joel Klein to oversee an internal investigation, which the company has painted as an effort to get to the bottom of its employees' alleged misconduct. But what has made the arrests particularly galling for Sun staff is that they are apparently being driven from within its Wapping headquarters. Investigators from the internal inquiry have been pouring through hundreds of millions of emails and passing information to police, and many journalists feel like they are collateral damage in the fight to save News Corporation's skin. "It's a horrible combination of people trying to protect the Murdochs and the company, and the Metropolitan Police trying to restore their reputation," one senior News International journalist tells Newsweek.

Geoffrey Robertson QC, Britain's foremost media lawyer, says Murdoch has created an "ethical crisis": "They sent in these commercial lawyers to hand over raw data from journalists' hard drives to a police force that they've allowed to camp in the newspaper's offices," he says. "This is unprecedented in modern journalism."

Yet some observers saw The Sun arrests as evidence of a power struggle within the company. Murdoch biographer Michael Wolff, writing in The Guardian last week, called the company "a set of warring, every-man-for-himself, fiefdoms," with people like Klein staking out territory of their own. "People are saying that it's one way of pushing Murdoch out, of getting rid of Murdoch and his British operation," says a source close to the family. Others believe that Murdoch is ill at ease with where the internal investigation has led. One source close to the situation at The Sun describes the paper as Murdoch's "family jewel" and notes that Murdoch has had long relationships with some of the arrested journalists, such as chief reporter John Kay.

The source speculates that the inquiry has escaped Murdoch's control. "It's [quite a] position for Rupert Murdoch to be put into, to choose between Joel Klein and the board members running News Corp., and his closest team ... these people who got arrested are sort of family."

Last week, Sun columnist Trevor Kavanagh, who is known to be close to Murdoch, caused a firestorm when he penned a scathing piece on the arrests. Alluding to the company's own investigation, Kavanagh said the "witch hunt" raised a "sensitive ... issue within the News International 'family' which we cannot ignore." He wrote: "It is important our parent company, News Corp, protects its reputation in the United States and the interests of its shareholders. But some of the greatest legends in Fleet Street have been held, at least on the basis of evidence so far revealed, for simply doing their jobs as journalists on behalf of the company."

One Westminster source who is following the scandal closely suspected that Kavanagh's rage echoed Murdoch's own sentiments. "There's quite a serious civil war in there, and we've probably underestimated the degree to which the Murdochs are being isolated within their own company," says the source. "Murdoch is being forced to say he's started this internal thing. My guess is he's lost control of it. Kavanagh could be expressing Murdoch's cry of pain."

"Rupert didn't know" about the column in advance, says the source close to The Sun. But "he very much liked it and thought it was fantastic, in fact."

Even as Murdoch works to weather the U.K. crisis, though, the battle against his company is spreading to new fronts.

Lawyer Mark Lewis—whose 2007 lawsuit on behalf of soccer official Gordon Taylor planted the seeds for the phone-hacking scandal, and whose suit on behalf of the family of murdered schoolgirl Milly Dowler caused it to break open—told Newsweek that he plans to bring the fight against Murdoch to America. Lewis declined to get into specifics—"I have been instructed in respect of two claims that have a U.S. angle," he said—but there is speculation that he intends to pursue instances in which a Murdoch journalist allegedly hacked a phone on U.S. soil. Murdoch opponents have been searching for such a case ever since the News of the World scandal broke. It would potentially allow claimants to take aim at News Corp. instead of the company's U.K. arm. "A new front has opened up on the other side of the Atlantic," Lewis told Newsweek.

At the same time, the FBI is reportedly investigating whether News Corp. employees violated the U.S. Foreign Corrupt Practices Act, which prohibits U.S. companies from bribing foreign officials. Mike Koehler, an FCPA expert at Butler University, points out that the risk to News Corp. grows as the list of arrests expands, and the corruption net is cast beyond the police to the military and government. "The issue when it comes to executives will be, did they authorize the payments, or did they know about them but fail to put a stop to them," Koehler says.

The fallout from a stateside legal fiasco could deal another blow to the Murdochs. Claire Enders, a U.K. media analyst, points out that shareholders haven't been overly concerned with the British scandal so far. Even the multimillion-dollar settlement to the Dowlers was a minor bump for a company with an annual profit of $2.7 billion. This fall Murdoch was overwhelmingly reelected as codirector of the News Corp. board. "I think [the Murdochs] take the U.S. stuff extremely seriously," Enders said. "No one is going to kid themselves that what makes Rupert Murdoch and James Murdoch get up in the morning is their positions in the U.K. It's how they are perceived in America that matters."

The damage to James may already be done. In his efforts to avoid being implicated in the scandal, James told Parliament that he was unaware that phone hacking was widespread when he authorized a massive payment to settle Taylor's suit. Yet a recently unearthed email chain shows that company officials had alerted James to the scale of the problem. James has since claimed that he didn't fully read the emails. An upcoming parliamentary report into the testimony is expected to spell further trouble for him.

James's role in the crisis is said to be driving a wedge into the Murdoch family, in particular between him and his sister, Elisabeth. "There is no doubt that Elisabeth feels that James has damaged the company, and that it was his failure to take action despite all the emails that apparently passed his desk on the mounting crisis that the company finds itself in these difficulties," the source close to the family says. "But dumping on James just protects Rupert," the source adds, pointing out that it was Rupert's two most trusted lieutenants, Les Hinton and Rebekah Brooks, who presided over News International when most of the alleged wrongdoing took place. Hinton led News International from 1995 to 2007, while Brooks edited both The Sun and News of the World before becoming CEO of News International in 2009. Both have resigned from the company.

Meanwhile, Murdoch's visit was largely seen as a PR coup, showing that the mogul is still in the game and buckling down for a fight. "This is a proper fightback," one Sun journalist told The Guardian. "We are carrying on despite everything."