Murdoch closes News of the World - but moves quickly to replace it

There has been a dramatic development in the UK’s phone hacking scandal overnight, with News Corp announcing it will close News of the World. But there were a number of signs its publisher News Corp, would quickly fill the gap by expanding another paper in its stable, The Sun, to seven-day publishing - seen by analyts as a business savvy move.

The 168-year-old paper’s last edition will be this Sunday, with all proceeds donated to charity. A recent report put its circulation at 2.6 million - well ahead of rivals The Mail on Sunday (1.9 million) and The Sunday Mirror (1.1 million).

Rupert Murdoch bought News of the World in 1969 for £34 million, giving Mr. Murdoch his first foothold in the UK market.

The shutdown was announced by his son, News Corp COO James Murdoch, who said allegations made against the paper, if true, were "inhuman" and had no place in the company.

The paper's reputation had been "sullied by behaviour that was wrong," Mr Murdoch said.

Newscorp had been wrong to maintain the phone hacking scandal was confined to one reporter, the COO said, and wrong to make a statements to parliament "without being in full possession of the facts."  The company was now volutarily cooperating with two police investigations.

But even as Mr Murdoch moved to quell the scandal, the UK government announced it had a review of News Corp's £8 billion bid to take full control of BSkyB - a move widely seen as political fall-out directly tied to the scandal. And in a second major development, News of the World reporter Andy Coulson said police had told him he would be arrested on Friday. 

Dirty digging
News of the World reporters, and private investigators working for the paper, have been accused of hacking the cellphone voice mail accounts of numerous individuals, including members of the royal family, widows of British army soldiers slain in Iraq and a missing teenage girl – deleting messages and fiving her family false hope she was still alive.

Quickly filling the gap
The move may not be enough to silence News Corp critics. It was quickly noticed the company had registered thesunonsunday.co.uk on Tuesday, hinting it might launch a Sunday edition of The Sun to fill the gap left by the News of the World’s closure. 

Expanding The Sun to seven-day publishing was a savvy business move on Mr Murdoch's part, said analysts quoted by The New York Times today.

The Wall Street Journal (owned by News Corp) noted that no redundancies had been announced - a possible sign that stuff will be shuffled over to a new Sunday edition of The Sun.

And Rebekah Brooks (nee Wade), the former News of the World editor elevated to chief executive of News International (News Corp’s UK newspaper division) has kept her job – and £2.5 million salary – against expectations.

Little financial impact, major political impact
Yesterday, ahead of the announcement, The New York Times – a bitter News Corp rival – said the scandal would have little immediate financial impact on Rupert Murdoch’s company.

Over all, revenue from the publishing division of News Corp. accounted for only 17% of its revenue in the last nine months. In that time, cable network programming accounted for 61%, and film, which includes the 20th Century Fox studio, was 20%.

However, the scandal had begun to loom over News Corp’s £8 billion bid to move from minority ownership to full control of pay TV provider BskyB. Underlining the impact, Culture Secretary Jeremy Hunt delayed a government review of the takeover by several weeks today.

The move is ominious for News Corp. with its implication the company will have to move beyond closing News of the World if it is to shut down the scandal.

And although an advertiser boycott had been confined to the UK, The New York Times had began an exhaustive front page campaign to bring the affair to mainstream attention in the US, and News Corp share had begun to suffer.

In late NYSE trading today, News Corp shares (NYSE: NWS) were up 0.78% to $US18.08.