Rupert Murdoch’s biggest threat is from nepotism and incompetence

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July 16, 2011

Much is being discussed in the news about the metastasizing scandals relating to News Corp (NWS). It seems that criminal behavior was the modus operandi within the London tabloid news operations. There is now real concern that U.S. laws were broken, and that this might bring down Rupert Murdoch’s entire empire.

However, not being commented upon is the root cause of these problems for Rupert Murdoch: nepotism and incompetence. Like most large and powerful organizations ranging from Wall Street banks to Big Oil companies, executives rise to the top and are rewarded more for loyalty than competence.

Rupert Murdoch is not the only elderly powerful media mogul who has promoted a female lieutenant to top CEO levels simply because he liked her sexually, or who made one of his sons the heir of an empire regardless of competence.

News Corp is very successful at managing old-media operations such as print and TV. However, News Corp is utterly incompetent with new media. This is the same company that bought the most widely used social networking site, MySpace, for $580 Million and promptly ran it into nothing but a brand names sold for $35 Million. News Corp’s head of “digital”, Jon Miller, still has his job.

Again, loyalty is rewarded over competence.

At a recent media conference in Sun Valley hosted by Allen & Co, the old media Titans finally recognized that they could not hold off the impending paradigm shift toward new media original content delivered via the Internet, bypassing the cash cow cable box deals. Yet News Corp seems to have no significant plans to adopt this technology. None of the News Corp cable or broadcast channels have significant online offerings.

News Corp co-owns Hulu and has plans to sell it. With its $12 Billion in cash, News Corp is not acquiring new media distributors like Netflix.

Jon Miller, the MySpace genius, is still running the digital “new media” operations. His main contribution recently has been the launch of the Apple iPad-ready “Daily”.

While News Corp’s main concern in the near-term is a brewing FBI/SEC/DOJ investigation related to the London tabloids and possibly hacking of 9/11 victim’s phones, Rupert Murdoch’s biggest threat comes from his new partner Steve Jobs over at Apple.

Once Apple launches a 50-inch livingroom TV device that allows one to download content from the Internet over iCloud, Netflix, etc, the older viewers who still hang on to their cable plans will make the final cut. In New York City, Verizon offers a package for phone, TV, and Internet that costs $173 a month with HBO added. For $55 a month, one can get just the Internet, and use Skype for the phone calls and download their TV from Hulu. Moreover, Steve Jobs will have the upper hand in distribution deals of TV and film, just as he has dominated the book publishing and music industry.

Does any TV executive at Fox recognize how imminent this threat is to their cash cow cable and broadcast model? Who’s running the ship at news Corp to take it into this new era of “New media”? This remains to be seen, but all indications are that incompetence will accelerate the demise of News Corp.

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