March 5, 2021

The Media Equation: News Corp.’s Soft Power in the U.S.

That could never happen in the United States, right?

As it turns out, a News Corporation division has twice come under significant civil and criminal investigations in the United States, but neither inquiry went anywhere. Given what has happened in Britain with the growing phone-hacking scandal, it is worth wondering why.

Both cases involve News America Marketing, an obscure but lucrative division of the News Corporation that is a big player in the business of retail marketing, including newspaper coupon inserts and in-store promotions. The company has come under scrutiny for a pattern of conduct that includes below-cost pricing, paying customers not to do business with competitors and accusations of computer hacking.

News America Marketing came to control 90 percent of the in-store advertising business, according to Fortune, aided in part by a particularly quick and favorable antitrust decision made by the Justice Department in 1997. That year, the News Corporation announced it wanted to buy Heritage Media, a big competitor, for about $754 million in stock plus $600 million in assumed debt. The News Corporation said it would sell the broadcast properties and hang onto the marketing division, which serviced 40,000 groceries and other retailers.

The deal would make News America Marketing the dominant player in the business and, for that reason, the San Francisco field office of the Justice Department recommended to Washington that the News Corporation’s takeover bid be challenged on antitrust grounds. Typically, such a request from a field office would carry great weight in Washington and, at a minimum, delay the deal for months.

But the Justice Department brass overrode San Francisco’s objections and gave its blessing in just two weeks. So who ran the antitrust division at the Justice Department at the time? Joel Klein, who this year became an executive vice president at the News Corporation, head of its education division and a close adviser to Rupert Murdoch on the phone-hacking scandal in Britain.

It’s worth noting that less than a year later, the Justice Department division led by Mr. Klein blocked the News Corporation from selling its share of a satellite company to PrimeStar, owned by a group of cable providers, on antitrust grounds, so any suggestion that a department of the United States government was snugly in the hip pocket of Mr. Murdoch would not be correct.

None of this suggests that Mr. Klein cut some sort of a deal that resulted in a job 14 years later. But the speed of the antitrust decision surprised even the people involved in the takeover. One of the participants, who declined to be identified discussing private negotiations, said he thought the sale was effectively blocked before the surprising turnaround.

“After that meeting with the San Francisco office, we all looked at each other and said, ‘This deal is not going to happen,’ ” he said.

My colleague Eric Lipton and I spent a few days trying to tease apart who made the actual decision to give the purchase the go-ahead — “It was as if a magic button had been pushed somewhere. We were all in shock,” said one of the same participants in the deal — but there is no paper trail.

People who worked at the Justice Department back then either could not recollect how the decision was made or declined to share information if they knew.

A spokeswoman for the News Corporation released this statement: “Joel didn’t know Mr. Murdoch at the time of the Heritage Media transaction 14 years ago. A year later, the D.O.J. under his leadership challenged the PrimeStar transaction in which News Corporation had a major interest. Any suggested inference is ludicrous.”

A lawyer who worked in the Justice Department in Washington at the time but did not want to be identified discussing internal matters, said: “This decision was made on the merits. The front office in Washington didn’t think a case could be won in court based on the very narrow definition of the market.”

But in retrospect, the anticompetitive fears of the San Francisco office were well founded.

After the Heritage Media deal, News America Marketing was in a position to throw its weight around and it did just that, drawing a variety of lawsuits in which competitors claimed they had been threatened and harassed. The News Corporation has settled those cases at a cost of over $650 million, and now the F.B.I. is looking into whether there was a pattern of illicit tactics by that division of the News Corporation.

E-mail: carr@nytimes.com;

Twitter.com/carr2n

Article source: http://feeds.nytimes.com/click.phdo?i=def7b4d2f0d0ebc2e146f568c251e257

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