Rupert Murdoch reads the last edition of the News of the World newspaper… (Frank Doran / Rex Features,…)
In the eyes of Wall Street, News Corp. Chairman Rupert Murdoch's Achilles' heel has always been his unabashed love of newspapers.
Now with Murdoch and son James scheduled to testify before Britain's Parliament on Tuesday, media analysts are hoping the phone-hacking scandal at the company's now-closed News of the World tabloid will finally convince the 80-year-old mogul that it is time to stop the presses that threaten the family empire.
"Investors hate everything to do with the newspaper business," said Rich Greenfield, an analyst with BTIG. "It is perceived to be the worst asset within News Corp."
Photos: British phone hacking scandal
In a global conglomerate with revenue of more than $30 billion and assets that include a major movie studio and broadcast and cable television networks, News Corp.'s newspaper holdings are one of the smallest profit centers.
The division, which includes British papers the Sun and the Sunday Times as well as the Wall Street Journal and the New York Post in the U.S., will contribute about $6.2 billion, or 18% of News Corp.'s total revenue for fiscal year 2011 and $543 million, or 10%, of the company's $5 billion in operating income, according to estimates by Nomura Equity Research.
But Wall Street's concerns about Murdoch's newspaper operations extend far beyond their financial results.
Dubbing News Corp.'s newspapers "toxic," Nomura analyst Michael Nathanson said in a report issued Monday that the company should use the News of the World debacle to "take another look at its assets to determine which are noncore."
Shares of News Corp. have plummeted 17.4% since the scandal began raging out of control two weeks ago, erasing an estimated $8 billion in market value.
The imbroglio has resulted in the resignations of two Murdoch confidants and the arrest of one of them, and the collapse of a $12-billion deal to buy outright the powerful British Sky Broadcasting satellite TV service. In the last few days, the commissioner and assistant commissioner of Scotland Yard were also brought down by the fiasco.
Wall Street has never been on the same page with Murdoch when it comes to newspapers. But some observers point out it was newspapers that gave Murdoch entree to the corridors of power. Politicians kowtowed to the press baron and his papers in exchange for endorsements. Once inside, Murdoch's newspapers could also go on the attack, laying waste to any opposition.
"The newspapers brought Rupert Murdoch social standing, position and enormous power — and enabled him to build an empire," said James O'Rourke, a professor of management at the University of Notre Dame.
The clout the newspapers have given Murdoch around the globe has helped News Corp. in ways that bottom-line-focused Wall Street sometimes overlooks.
"There is no question — circulation equals reach, which equals influence, which soon equals access," said Frank Sesno, a former senior executive at CNN who is now director of George Washington University's School of Media and Public Affairs.
Murdoch's papers, he added, have opened doors for the company with the political establishment.
"The size and reach and point-of-view journalism that Murdoch properties pursue both thrive on and generate access at the highest levels," Sesno said.
This has been particularly true in Britain, O'Rourke observed.
"The politicians couldn't stand the criticism from his tabloids, so they sought to curry favor," he said, adding that the "most surprising" cozy relationship was that with Scotland Yard.
Murdoch's "operation paid the police for leads, so they shared a common goal … to suppress the investigation of News International," O'Rourke said, referring to the subsidiary that includes the British newspapers.
Aftershocks from the News of the World phone voice-mail hacking scandal continue to reverberate throughout News Corp. and Britain's establishment. Most recently, Scotland Yard Commissioner Paul Stephenson and Assistant Commissioner John Yates, both of whom had close ties to News International, resigned.
Rebekah Brooks, 43, the beleaguered former head of News International, was arrested Sunday in relation to the ongoing probe. Brooks was the editor of News of the World when, authorities allege, it hacked into the voice mails of the rich and famous as well as victims of crime and terrorism.
Struggling to contain the News of the World fire from spreading to the rest of the company, News Corp. said Monday it was tapping prominent British lawyer Lord Anthony Grabiner as independent chairman of its Management and Standards Committee, which is conducting an internal probe of the phone-hacking scandal.
Grabiner, 66, is a commercial lawyer in London whose resume includes a stint as chairman of the governors of the London School of Economics.
The Management and Standards Committee will report to Joel Klein, a News Corp. executive vice president and board member who has taken on a more prominent role in directing the company's handling of the crisis.
Klein, in turn, will report to Viet Dinh, an independent director of News Corp.'s board and chairman of its corporate governance committee. Dinh is a law professor at Georgetown University and had held senior positions on Capitol Hill.
Having Dinh play a major oversight role may be News Corp.'s way of mollifying the independent members of its board who might have concerns over how the company has managed the News of the World flap.
A News Corp. spokeswoman and Dinh did not respond to requests for comment.
Photos: British phone hacking scandal
Times staff writer Meg James contributed to this report.