RUPERT Murdoch's News Corporation has paid about $655 million ($A617 million) to make embarrassing charges of corporate espionage and anticompetitive behaviour go away. It spent $500 million just days before a case against News America Marketing, its obscure but profitable in-store and newspaper insert marketing business, went to trial. Valassis Communications, had already won a $300 million verdict in Michigan, but dropped the lawsuit in 2010 in exchange for $500 million and an agreement to cooperate on certain ventures. That single payout to Valassis represented one-fifth of the company's net income that year and matched the earnings of the entire newspaper and information division of which News America was a part.
In 2006, the state of Minnesota had accused News America of engaging in unfair trade practices, and the company settled by agreeing to pay costs and not to falsely disparage its competitors. In 2009, a federal case in New Jersey brought by a company called Floorgraphics went to trial, accusing News America of hacking its way into its password-protected computer system. The complaint summed up the ethos of News America nicely, saying it had "illegally accessed plaintiff's computer system and obtained proprietary information" and "disseminated false, misleading and malicious information'' about it.
Floorgraphics stated that the breach was traced to an internet address registered to News America and that after the break-in, Floorgraphics lost contracts from Safeway, Winn-Dixie and Piggly Wiggly. Much of the lawsuit was based on the testimony of Robert Emmel, a former News America executive who had become a whistleblower. After a few days of testimony, News Corporation had heard enough. It settled with Floorgraphics for $29.5 million and then, days later, bought it, even though it reportedly had sales of less than $1 million.
News America was led by Paul V. Carlucci, who, according to Forbes, used to show the sales staff the scene in The Untouchables in which Al Capone beats a man to death with a baseball bat. Mr Emmel testified that Mr Carlucci was clear about the guiding corporate philosophy. According to Mr Emmel's testimony, Mr Carlucci said that if there were employees uncomfortable with the company's philosophy - "bed-wetting liberals'', in particular, was the description he used - he could arrange to have those employees sacked. Mr Carlucci was later promoted - he became the publisher of the tabloid New York Post in 2005. He continues to serve as head of News America.
Mr Murdoch has recently stated his desire to "absolutely establish our integrity'' in the eyes of the public. A representative for the News Corporation did not respond to a request for comment. Keeping a lid on News America turned out to be a busy and expensive exercise. At the beginning of this year, News Corp paid out $125 million to Insignia Systems to settle further allegations of anticompetitive behaviour and violations of antitrust laws. On the other side of the Atlantic, according to The Guardian, whose reporting pulled back the curtain on the phone-hacking scandal, News Corporation paid out $1.6 million in 2009 to settle claims related to the scandal. While expedient, and inexpensive - the company still has gobs of money on hand - the strategy may have backfired in the long run. If some of those cases had gone to trial, it would have had the effect of lancing the wound. Litigation can have an annealing effect on companies, forcing them to re-examine the way they do business. But as it was, the full extent and villainy of the hacking was never known because News Corporation paid serious money to make sure it stayed that way. But the money the company reportedly paid out to hacking victims is chickenfeed compared with what it has spent trying to paper over the tactics of News America.
Even as the flames of the scandal begin to edge closer to Mr Murdoch's door, anybody betting against his business survival will most likely come away disappointed. He has been in deep trouble before and not only survived, but prospered. The News Corporation's reputation may be under water, but the company itself is very liquid, with $11.8 billion in cash on hand and more than $2.5 billion of annual free cash flow.
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