David Carr writes:
“Bury your mistakes,” Rupert Murdoch is fond of saying. But some mistakes don’t stay buried, no matter how much money you throw at them.
Time and again in the United States and elsewhere, Mr. Murdoch’s News Corporation has used blunt force spending to skate past judgment, agreeing to payments to settle legal cases and, undoubtedly more important, silence its critics. In the case of News America Marketing, its obscure but profitable in-store and newspaper insert marketing business, the News Corporation has paid out about $655 million to make embarrassing charges of corporate espionage and anticompetitive behavior go away.
In 2006 the state of Minnesota accused News America of engaging in unfair trade practices, and the company settled by agreeing to pay costs and not to falsely disparage its competitors.
In 2009, a federal case in New Jersey brought by a company called Floorgraphics went to trial, accusing News America of, wait for it, hacking its way into Floorgraphics’s password protected computer system.
The complaint summed up the ethos of News America nicely, saying it had “illegally accessed plaintiff’s computer system and obtained proprietary information” and “disseminated false, misleading and malicious information about the plaintiff.”
The complaint stated that the breach was traced to an I.P. address registered to News America and that after the break-in, Floorgraphics lost contracts from Safeway, Winn-Dixie and Piggly Wiggly.
Much of the lawsuit was based on the testimony of Robert Emmel, a former News America executive who had become a whistle-blower. After a few days of testimony, the News Corporation had heard enough. It settled with Floorgraphics for $29.5 million and then, days later, bought it, even though it reportedly had sales of less than $1 million.
But the problems continued, and keeping a lid on News America turned out to be a busy and expensive exercise. At the beginning of this year, it paid out $125 million to Insignia Systems to settle allegations of anticompetitive behavior and violations of antitrust laws. And in the most costly payout, it spent half a billion dollars in 2010 on another settlement, just days before the case was scheduled to go to trial. The plaintiff, Valassis Communications, had already won a $300 million verdict in Michigan, but dropped the lawsuit in exchange for $500 million and an agreement to cooperate on certain ventures going forward.
The News Corporation is a very large, well-capitalized company, but that single payout to Valassis represented one-fifth of the company’s net income in 2010 and matched the earnings of the entire newspaper and information division that News America was a part of.