TV hacking: News Corp strength is its weakness

In terms of revelations, Panorama provided not much that wasn’t already known, or assumed, in the NDS hacking saga: Criminals allege criminal behaviour in the inevitably very murky world of encryption, hacking and counter measures.

NDS admit hacking – to test its rival’s technology – and it is accepted as standard practice. NDS strenuously denies leaking those hacks and the allegation has yet to be tested in a court of law.

However, the allegations and the damage they cause, will be weighed in public opinion and, more importantly, in the board rooms of partners and investors around the world. The first big question is will it affect the Cisco takeover? It would be interesting to know how thorough the Disclosure Letter in the deal is on these subjects and how much contingent liability has been provided. But, broadly, the story is an old one and is unlikely to stop the compelling deal. It does make it more likely NDS will be consolidated in double quick time and will lose its corporate identity as Cisco tries to divorce it from its past.

More widely, this hacking of a different kind is going to heap more manure on the already tainted reputation of News Corp. Ironically, I think it is the very strength of the company that is proving its undoing.

Among the allegations in the BBC programme was the bold statement that the hacking of the On Digital/ITV Digital smart card (whoever was responsible) was the main reason for its demise. This isn’t true. It shut because it was a bad idea executed appallingly. ITV’s rats-in-a-sack decision making process, the appointment of wholly unqualified management, poor programming, poorer marketing, dodgy technology, and the laughable panicked purchase of second tier football rights for a vast fortune thinking they were some kind of alternative to the Premier League; these things undermined ITV Digital. People didn’t want to pay for it or watch it even when they could see it for free via pirate cards.

The other thing that undermined it was that Sky, undoubtedly, went to war. Sky had been denied access to the consortium by the regulator and, therefore, switched on its massive investment – its massive gamble – on going digital sooner than planned. As ever with News Corp (let’s not kid ourselves, whatever the Articles say, then, even more than now, Sky = News Corp in decision making and culture), a massive risk was taken and backed up with massive commitment from the top and throughout the management chain.

That is what is so impressive about News and why only an idiot would ever bet against it in a market fight. It is a massive multinational that can act like a nimble entrepreneur lead start-up. Rupert decides the goal, the management sign up and then it is ‘attack, attack, attack.’ It is impressive to watch; the Sun’s rapid domination of the tabloid market, Fox shaking the foundations of the US broadcast establishment, Sky wrestling BSB to submission, its domination of cablecos, the advance against all odds in Germany and Italy, the sweeping aside of ITV Digital.

But are the seeds of failure hidden in that success? Has the winning mentality become the culture of win at any cost? Business, as they say, is for grown ups, with grown up rules. But there are lines not to cross, or at the very least not get caught crossing.

News faces three big problems bearing down. James Murdoch was, is, on the board of NDS. That isn’t going to help save him as the anointed successor. Ofcom can’t ignore the latest allegations in its fit and proper person test over the Murdoch’s and BSkyB, and the phone hacking scandal has burned off all the political cover News would normally enjoy. But most important, the American investment community will increasingly see holding News stock as a moral hazard and, in the end, money talks and it will say enough is enough.

 

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