7/7/11

News of the World Closure Shows the Business Cost of a Bad Reputation

The decision to close the News of the World in the UK because of the fallout from the phone hacking scandal shows the importance of ethical behavior and public credibility for media firms.

The paper had been hacking the private communications of celebrities, politicians, crime victims, and even relatives of soldiers killed in Afghanistan and then spent four years trying to cover it up by paying hush money and—according to some reports—bribing police officers to ignore its crimes.

The paper, owned by Rupert Murdoch’s News Corp., was Britain’s largest selling Sunday newspaper until it spectacularly unraveled in recent weeks. Continuing revelations of illicit activities and the announcement of Parliamentary and police investigations led advertisers including Ford, Sainsbury, Lloyds Banking Group, Virgin Media, Dixons, and Vauxhall to pull their advertising.

Perhaps it was embarrassment—but it was more likely the loss of revenue, the loss of almost $3 billion in market value for the parent company because of declining share prices, the hundreds of millions of pounds in damages that will have to be paid, and the fact that the paper’s meltdown was endangering Murdoch’s takeover of BskyB—that led him to kill the paper.

Unfortunately, the scandal shows that some journalists and news organizations will go to any length to get a story, no matter how disgraceful and unethical it may be. Fortunately, the number of journalists who will go as far as those at the News of the World are limited, but the outrageous conduct highlights the growing chasm between those who believe everything should be public and that journalists have a right to do anything to get information and those who believe in a right to privacy and a right to be left alone.

The culture at the News of the World that led to the behavior shows that pressures on organizations to put their interests above those of the public needs to be resisted. It is hardly a culture reputable news organizations and companies should emulate. Not only the reputational costs—but the economic costs as well—are far to high.

1 comment:

William E Rinehart said...

Prof. Picard,


Great post. I agree with you completely on this subject, but as the case tends to be, I have found few journalists and commentators looking into the economic logic of the decision. Huge fan of your blog, I just wished you posted a little more often because I find your opinion solidly grounded.

Cheers!