James Murdoch's Death Star moment

The chairmanship of BSkyB looked like James Murdoch's last stand, and now that he has stood down from the satellite operator questions will be asked about his board position at News Corp.

FT.com

BSkyB is where James Murdoch made his name, with an aggressive management style that established the satellite operator as one of the UK media companies best positioned for the digital age.

That same aggression now appears to have contributed to a slow-motion fall from grace that his resignation yesterday from BSkyB’s chairmanship is unlikely to halt.

Until last year, investors had paid little attention to the other UK duties that Murdoch had taken on when in December 2007 he stepped up to the chairmanship after four years as BSkyB’s chief executive.

As deputy chief operating officer of News Corp – the Murdoch-controlled media group that is BSkyB’s largest shareholder – he had taken over its promising European and Asian pay-television businesses. His role as executive chairman at the group’s News International newspaper unit looked like an afterthought.

When he pressed for News Corp to buy the 60.9 per cent of BSkyB it did not already own, Murdoch hoped to expand that empire and cement his status as heir-presumptive to his father, Rupert.

Instead, the bid backfired, drawing unprecedented scrutiny of the Murdochs’ media power, and reviving rivals’ interest in a five-year-old story about phone hacking at News International’s News of the World tabloid. When fresh revelations put that story on front pages again last July, Mr Murdoch suddenly found himself with few defenders.

As the scandal has broadened, dragging Murdoch into two House of Commons grillings into what he knew of widespread hacking and other allegations, he and News Corp have taken a series of steps to try to insulate him from the furore in London.

In November, he stepped down as a director of News Group Newspapers, a subsidiary of News International. In January, he resigned from the board of GlaxoSmithKline, the pharmaceuticals group. In February he ceded his position as executive chairman of News International. And then, two weeks ago, he told the auctioneer Sotheby’s that he would not stand for re-election as a non-executive. On each occasion, the official reason given was his need to focus on News Corp’s global television assets.

The chairmanship of BSkyB looked like Murdoch’s last stand: the terrain he was least willing to concede. Friends confirmed his attachment to the company, where he had a statue of Darth Vader outside his office. But, inside BSkyB, executives now talk of the need "to distance ourselves from the Death Star” of News Corp.

In remaining on the BSkyB and News Corp boards, Murdoch has reminded observers that he still has territory to fight for. People close to him say he still hopes to become News Corp’s chief operating officer, should Rupert Murdoch split his chairman and CEO roles and promote Chase Carey from COO to CEO.

But losing his lead role at BSkyB raises questions about the rationale behind Murdoch’s current position on the board of News Corp. It leaves News Corp’s other pay-television platforms, including Star TV in India, Sky Italia and Sky Deutschland, looking like a disparate collection of assets.

Resigning as chairman will do nothing to stop the police, parliamentary, judicial and regulatory investigations into News Corp, but it may help to insulate BSkyB from the tumult.

Shareholders in the UK company responded with relief to Murdoch’s decision, with one saying it was "inevitable and appropriate”.

Robert Talbut, chief investment officer of Royal London Asset Management, said: "James Murdoch has reached the correct conclusion in deciding to step down.” But he added that he expected the chairmanship to remain independent of the group’s largest shareholder in future.

It now looks almost certain that James will be the last Murdoch family member to chair BSkyB, and probably the last News Corp appointee. Ofcom is still examining whether News Corp and its officers qualify as "fit and proper owners” of the broadcast licences BSkyB holds. As a director of the parent, Murdoch is in the line of fire should it find against him.

News Corp’s bigger fear is that Ofcom could force it to sell all or part of its stake to satisfy the regulator that it no longer has effective control. After the failure of Mr Murdoch’s bid last year, and his demotion on its board, the prospect of an exit that long seemed unthinkable now looks possible, if not imminent, while the chances of gaining full control look remote.

Rupert Murdoch bet his company on launching BSkyB a generation ago. For his son to surrender its chairmanship is a more profound moment in the history of his intertwined company and family than the changed job titles alone betray.

Copyright The Financial Times Limited 2012.