Last Updated Jul 8, 2011 3:43 PM EDT
The advertiser defections -- virtually all of the News of the World's major clients said they'd leave before Murdoch closed the paper yesterday -- could spread to other News Corp. (NWS) properties such as the Wall Street Journal and Sky Broadcasting. People remain angry that News International CEO Rebekah Brooks hasn't lost her job even though she was in charge of the News of the World during the phone hacking scandal. She also told the British parliament in 2003 that her paper had bribed police officers for leaked information on their investigations. She may yet face charges, according to London police. Police are also investigating the deletion of millions of emails at News International between the paper's editors and staff.
The investigation has also delayed the British government's approval of News' takeover of Sky Broadcasting. Shares in BSkyB (BSY) have plunged as the scandal has unfolded, from a recent high of 848p to a current asking price of 750p.
Incompetent or a fraud?
The investigation is also likely to entangle Les Hinton, the Wall Street Journal's publisher and the CEO of parent company Dow Jones. In 2009, Hinton told parliament he paid off a News of the World reporter and private investigator after they were imprisoned for hacking into the voicemails of royal staff. He also told MPs that the hacking had been "thoroughly investigated" and that "there was never any evidence delivered to me suggesting the conduct of Clive Goodman [the jailed reporter] spread beyond him." Hinton's investigation now looks incompetent at best or like a fraudulent coverup at worst, according to Media Matters.
Brooks' continued existence atop the News International empire could spread the ad boycott to The Sun, the iconic weekday tabloid that has a 2.8 million circulation. It is the jewel of the Murdoch newspaper empire -- yet Brooks will oversee the Sun's expected launch of a Sunday edition to replace the News of the World. Previously, the News of the World functioned as The Sun's de facto Sunday paper. Her mere presence will be a lightning conductor for criticism.
The question for Murdoch is whether he can move faster to contain the damage than the tweeting masses. For marketers, the astonishing part of the News of the World closure is how it was fomented by a mass protest on Twitter, and how advertisers used Twitter to announce their boycotts.
Given that all roads at News lead back to Murdoch, and that News is a publicly traded company whose non-Murdoch shareholders have limited patience, it is not inconceivable that the scandal may only be ended by the resignation of Murdoch himself (to be replaced no doubt by his son, James).