Business

News of the World: Counting the cost

Rupert Murdoch
Image caption Will the hacking scandal now hit Mr Murdoch where it hurts most - in the wallet?

The hacking scandal is already proving highly damaging to the News of the World's reputation.

Not to mention, to the careers of many of the paper's current and former employees.

But as the number of advertisers deserting the tabloid newspaper looks set to snowball, how damaging could it be to News of the World's pocket?

Or indeed to that of its ultimate parent, Rupert Murdoch's News Corp?

Boycott

Recent allegations about hacking of teenage murder victim Milly Dowler's phone records have marked a turning point in public perceptions.

Dozens of companies who recently paid for advertising space on the tabloid have suddenly found themselves at the centre of a spontaneous online campaign.

The Twitter accounts of firms such as the Co-operative, Virgin Media and Easyjet have been bombarded by a concerted campaign of tweets calling on them to ditch the Sunday newspaper.

Image caption Dozens of companies, such as Dixons, have been deluged with tweets demanding a boycott

"In 20 years in the business, I cannot remember a situation where clients feel that strongly about an issue," says Jenny Biggam, founder of the Seven Stars media agency.

There have also been calls for readers to boycott the News of the World, and even its sister publications - the Sun, the Times and the Sunday Times.

A growing number of companies have decided to suspend their advertising.

Car maker Ford was the first, since joined by Vauxhall, Mitsubishi, the Co-op, Lloyds, Virgin Holidays and Npower.

Other firms - including many of the paper's top 10 advertisers - have said they are "reviewing" the situation or awaiting the outcome of the police investigation, or have said nothing.

'Roll of dishonour'

"I don't believe many people are going to officially boycott... in the sense of making a stand," one advertising company head tells the BBC.

Instead, he thinks a lot of firms will quietly drop their advertising in order to dissociate themselves from the scandal, making this Sunday's edition exceedingly thin.

"I think there will be a roll of dishonour on Monday," he explains. "The chaps at the Guardian especially will say 'These are the advertisers who supported [the News of the World] yesterday'."

An executive at another media planning and buying agency says the reaction of clients has been surprisingly diverse.

Some are personally outraged, he says, while others treat it as purely a business decision.

"There is an element of being seen to be doing something," he says. "Some see it as an opportunity to make a visible social and moral statement."

Perhaps the most outspoken criticism so far came from Mitsubishi's UK head of marketing, Lance Bradley, who told the BBC: "We didn't want to have anything to do with a paper that would behave in that way or would condone such actions."

His firm says it will give the unspent money to the charity ChildLine.

Meanwhile, BSkyB - which has yet to make any statement - finds itself in a particularly tight spot.

The satellite firm is News of the World's biggest advertiser, but is also the subject of a planned takeover by Rupert Murdoch's News Corp, which currently owns a 39% stake.

'Mammoth backlash'

How much would an advertiser boycott cost News of the World?

Like most newspapers, it is heavily dependent on advertising revenue, which provided it with some £40m in the past 12 months - less than a third of what it made from its sales to readers.

The impact will depend very much on how long the boycott lasts.

"As the UK's biggest-selling paper, the question is can [advertisers] afford to live without it?" says Ms Biggam. "As an ad vehicle, it does work."

The rival advertising company head agrees that if there are no further revelations, it could blow over in a matter of weeks.

However, if - as he expects - the hacking revelations continue, then it "could lead to an advertiser backlash of mammoth proportions".

Meanwhile, the media planning executive says he thinks things will only get interesting if "consumers start to vote with their wallets".

If there is a sustained downturn in the readership, he says advertisers who took a moral stand will also feel commercially vindicated.

An important precedent may be the boycott of the Sun by readers in the north-west of England following an article that accused football fans of attacking rescue workers at the 1989 Hillsborough disaster.

"But look at the Sun now," says the advertising firm head. "The public is fickle. People forget and move on."

Political dimension

A short, sharp downturn in business would be easy for News of the World to weather, as the paper's ultimate owner - News Corp - has very deep pockets.

Much of the lost revenue may simply be diverted into sister publications, with advertisers for example choosing to place an extra advert in the Sun.

Ford - which was the first to take a public stand against the News of the World - also explicitly left the door open to advertising more with other News International titles.

Moreover, News of the World - and its newspaper business as a whole - is a small part of News Corp's revenue-base and a loss-making one at that.

Many argue that the newspapers are more useful to Rupert Murdoch as a source of political influence than as a profit centre.

Indeed, it is the political dimension that may hurt News Corp far more than any financial losses at News of the World.

Already there are rumblings that News Corp's planned bid for BSkyB could be held up by Ofcom, which must ensure the buyer is "fit and proper".

And the revelations will strengthen the voice of those - like the business secretary Vince Cable - who argue that Mr Murdoch has got too big for his boots, and want to cut him down to size.

Certainly the stock markets are taking note, with News Corp's share price down 3.5% at the New York open on Wednesday.

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