Rupert Murdoch's Newspaper War

Two of the publishing world's most influential editors approached the tower at 1211 Avenue of the Americas in Manhattan with apprehension. Headquarters of News Corp., the limestone-clad tower houses the company's pugnacious New York Post and Fox News Channel, favorites of the boss, Rupert Murdoch. When he's not hopscotching the seven continents, Murdoch rules his empire from his eighth-floor office here, which is decorated with a backlit, floor-to-ceiling map of the world—the better to pinpoint his hundreds of media properties, from Los Angeles-based Fox Broadcasting and the Silicon Valley headquarters of MySpace to the United Kingdom's BSkyB satellite-TV company. The dining suite where Murdoch hosts his guests has three separate rooms, each themed to one of the media Murdoch controls: newspapers, movies and television. The place whispers discretion, so the powerful who call on Murdoch needn't fret about surfacing the next day in the tittle-tattle of the New York Post's Page Six. Given the nature of their visit, discretion was important to the guests on a late spring day three years ago, the then Time Inc. Editor in Chief Norman Pearlstine and his deputy John Huey. The two men had come seeking support from the one media mogul whom other moguls most fear and respect.

Pearlstine and Huey were facing a potential public-relations nightmare. For months, they'd been trying to untangle Time magazine from "Plamegate," the scandal involving press leaks from the Bush West Wing that had compromised the identity of an undercover CIA agent, Valerie Plame. Cornered by a special prosecutor who was probing the mess, the magazine editors were still pressing for legal relief, but also realized that their only other recourse might be to cross that most sacrosanct journalistic line: revealing their reporter's confidential source—who in this case happened to be Vice President Dick Cheney's chief of staff, I. Lewis (Scooter) Libby. So they called on Murdoch to seek support for their legal position, recalls Pearlstine. Huey says they were also looking for a promise of a restrained response from Murdoch's minions if it were necessary to out the confidential source. They didn't want to land on the New York Post's front page with their heads superimposed on rats, for instance (such is the power of the Post over Manhattan's media elite). "Done," Murdoch said quickly, to the surprise of the editors.

With time to kill, the journalists turned their chitchat to the plight of Dow Jones, parent of The Wall Street Journal, of which Pearlstine had been managing editor from 1983 to 1991. Had Murdoch, they asked, read the recent Fortune story headlined DOW JONES: DOES THE FAMILY FINALLY WANT OUT? in which the longtime trustee of the controlling Bancroft family said they might be willing to sell "at $60 a share"? Murdoch hadn't, but he was intrigued. "For that price, I could buy the Journal and go there to be a proper newspaperman," Murdoch joked, eyes sparkling at the prospect of editing the iconic newspaper.

This week the Murdochian Era of the Proper Newspaperman has its debut. When readers open their newspapers Monday morning, they will discover a Wall Street Journal fashioned to the tastes of the man who revolutionized media markets from Australia to North America. With its increased focus on politics, international news, culture and sports, Murdoch's reconceived Journal represents nothing short of a formal declaration of war on that most venerable of journalistic institutions, The New York Times. Not since William Randolph Hearst's New York Journal challenged Joseph Pulitzer's New York World in the late 19th century has there been such a clash of newspaper titans. As was the case when Hearst took on Pulitzer, Murdoch—the son of an Australian journalist—still believes newspapers are the most influential media for shaping the public discourse, even in this new-media century. The fight could escalate in unknown ways if billionaire New York Mayor Michael Bloomberg ends up acquiring the Times. As NEWSWEEK has learned, top associates of the onetime information executive are encouraging him to do just that.

It isn't hard to guess which role Murdoch will play in this fight. Caricatured as the heir to Hearst's brand of yellow journalism, he was pilloried in much of the "respectable" press when he made his $5 billion, $65-a-share bid for Dow Jones last spring. Journalistic purists bellowed that he would sully the Journal with a mix of sensationalism and self-interested editorializing. But Murdoch presumably knows it would be idiocy to destroy the Journal brand (this is a flamethrower who appears to know the difference between scorching something and giving it sizzle). The new Journal is as respectable, restrained and readable as it has ever been—but with a broader world view designed to appeal to audiences well beyond its traditional, pin-striped base. But is that what Journal readers want?

To understand why the 77-year-old Murdoch has been itching for this particular fight, look no further than the mogul's three passions: print, power and respect. Using his knowledge of the first (he started his empire when his father bequeathed him Australia's Adelaide News when he was 22), Murdoch achieved the second. As for respect? Well, that's been more elusive, bestowed only grudgingly by those who simultaneously respect, detest and envy him. Murdoch has assembled one of the globe's biggest media empires, a conglomerate valued at $60 billion that will one day pass to his six children and seems destined to be run by his younger son, James. Critics like to paint Murdoch as a Machiavellian barbarian bent on world domination. So acquiring the venerable Wall Street Journal and then dethroning the nation's newspaper of record? Now that's something to bring a man respect.

The timing for Murdoch couldn't be better. With News Corp.'s deep pockets, he is attacking the Gray Lady at a moment of incredible vulnerability. Along with much of the rest of old media, the Times has been losing advertising dollars to the Internet hand over fist, though its Web site is a big hit with readers. Late last week its parent company reported a first-quarter loss of $335,000; the Times's own business section said it was "one of the worst periods the company and the newspaper industry have seen." Advertising, its lifeblood, fell almost 11 percent, "the sharpest drop in memory," the Times wrote. The newspaper is currently seeking to chop its staff by 100 through a voluntary buyout, and the cost-cutting isn't likely to abate in the months and years ahead. By contrast, Murdoch has been letting the spending flow at the Journal—beefing up its Washington bureau, seeking additional printing capacity and planning the launch of a glossy weekend magazine, WSJ., edited by Tina Gaudoin, a Brit who worked for the Murdoch-owned Times of London.

From the beginning, Murdoch had no intention of radically altering the appearance of the Journal, once known for its ink-dot black-and-white illustrations. The series of editorial and design changes introduced this week, and yet to come, are more evolutionary than revolutionary. Collectively, however, his modifications represent a shift more profound perhaps than any of the previous overhauls in the paper's 119-year history, including its late-to-the-party introduction of photographs in the 1980s, to its redesign of the iconic front page in 2002. Under Murdoch, news stories on politics and national and international affairs may just as often dominate page one as the business pieces that have been its bread and butter. Along with the refocused front page, Murdoch is effectively relaunching the entire A section as a catchall for general news. As of Monday, the second section, Marketplace, becomes home to the Journal's coverage of corporate America, while the third section, Money and Investing, remains the showcase for news of the financial markets and investing. A culture section is under development for a fall debut in the Journal's weekend edition, and Murdoch has added a weekly sports page. The op-ed section, famous for its erudite and influential espousal of conservative ideology, will grow to three pages from two.

Rather than entrust the job of all this to subordinates, Murdoch has been devoting half his time since acquiring Dow Jones to reshaping the paper. He has become a regular and jarring presence in the Journal newsroom: ever since he appeared unannounced on Easter—to, as he puts it, "set an example"—top editors have been dragging themselves into the Journal's headquarters across from Ground Zero on Sundays. "What sets Rupert apart is that after he's made a major acquisition, he goes in and works it and gets it running the way he wants it to, and then leaves managers in place," says Arthur Siskind, senior adviser to Murdoch.

"I grew up at the knee of my father," Murdoch mused as he prepared to jet off to the World Economic Forum at Davos earlier this year. After inheriting the Adelaide News from Keith Murdoch, a political reporter who went on to run an Australian media conglomerate, Rupert spent the next several years acquiring, launching and investing in newspaper and broadcasting properties in Australia. Then he set his sights on Britain and the United States. In England he bought the News of the World, The Sun, The Times and The Sunday Times. In 1973 he hopped the Atlantic and picked up the San Antonio Express and News. Over the ensuing years, he launched the supermarket tabloid The National Star and snared the New York Post, New York Magazine, The Village Voice, the Boston Herald and the Chicago Sun-Times (today he owns only the Post).

To Murdoch, the addition of each property represented a challenge to the established order—a notion that is now one of the main themes of his professional life. Speaking in his thick, sometimes indecipherable Aussie accent to dozens of News Corp. personnel managers who gathered at a Manhattan theater this February, he reiterated that mantra. "We are again challenging the status quo by seeing the continuing value of and investing resources in print publications," he told the crowd. "We are reinvigorating the world's greatest brand in financial journalism." Then Murdoch rushed off to attend more meetings at the Journal. A redesign of the paper's very successful Web site, with beefed-up interactivity and access to more free articles, is on the drawing board for this fall. And Journal reporters will appear regularly on the Fox Business Network when a pre-existing deal with CNBC lapses.

No detail about the paper's business seems too small for him to consider: in a recent interview, he describes with frustration how it currently requires a seven-hour truck drive from the Journal's printing plant in Riverside, Calif., to deliver newspapers to Phoenix. The need to bolster and broaden the Journal's production and delivery is one reason his battle with the Times will have to unfold gradually, he explains. Already, he is striking arrangements for local newspaper publishers to print the Journal; that way, not only can the paper be delivered earlier but the deadlines for stories can be extended.

An increasing share of those Journal articles will be about politics. Murdoch's passions, by and large, are limited to "only two topics—politics and media," says his daughter Elisabeth's husband, Matthew Freud, a London public-relations heavyweight and a descendant of Sigmund. Nothing spikes Murdoch's adrenaline like a wayward politician who's about to drown in newspaper ink: consider the scene last month of the hyperventilating mogul's receiving fresh word of the then New York Gov. Eliot Spitzer's tabloid-ready secret life as a client of high-priced prostitutes. As the story was breaking online at NewYorkTimes.com, Murdoch was stuck on his crippled jet in a hangar at a private airport in Palm Beach, Fla. With his wife, Wendi, looking on, Murdoch frantically worked the phones, bombarding New York Post editor Col Allan and Fox News chief Roger Ailes. "I couldn't believe it," Murdoch said later of Spitzer's scandalous predicament. "Naturally, I was on the phone: 'What do you know, and how are you going to treat the story?' " Murdoch was so caught up in the moment that he even sketched a mock layout of how the story might appear in The Wall Street Journal. Murdoch didn't phone editors at the Journal, however. "He doesn't treat the Journal the same as he does a tabloid," says a spokesman.

A good example of the kind of political coverage Murdoch is aiming for is the April 4 front-page story in the Journal that rocked Sen. Hillary Clinton's presidential campaign. The Journal reported that Clinton's pollster and chief strategist, Mark Penn, acting in his capacity as the CEO of the Burson-Marsteller public-relations and lobbying firm, had met with Colombian officials who'd paid his firm $300,000 to push for approval of a bilateral trade agreement that the senator opposed. A few days later, an embarrassed Clinton campaign demoted Penn. "I'm always delighted when any of my papers have an exclusive like that," Murdoch says.

One of the most intriguing parlor games of this year's presidential race has been figuring out whom Murdoch will support—and whether The Wall Street Journal, which hasn't endorsed a candidate since Herbert Hoover, will do so now ("We haven't made up our minds," the Journal recently reported Murdoch as saying). As a champion of conservative causes, Murdoch would seem to have already made up his mind. But he likes to keep the pols guessing. When he hosted a fund-raiser for Senator Clinton in 2006, it stunned both political conservatives and liberals. But an equally shocking turnabout came just days before this year's Super Tuesday primary contests. Murdoch's New York Post not only endorsed Illinois Sen. Barack Obama in New York's primary, but it also criticized Senator Clinton, with whom it was assumed Murdoch was now friendly, given the '06 fund-raiser.

Why did Murdoch turn cold on Clinton? That's remained an unanswered question—until now. "She's been a good senator for New York," he told NEWSWEEK recently. "It doesn't mean she'd make a good president." While he lauds Clinton's "terrific mastery of details and issues," Murdoch says, "I'm against a lot of her big national issues." He says he's worried that the senator will make the United States more of "a dependency society" like the United Kingdom was before Margaret Thatcher, of whom he was an ardent supporter. "Government should not be too big," he says. Interpretation: Clinton, despite her centrist message, remains too liberal for Murdoch. Clinton's camp rejects the view. "I don't know what evidence he has to that effect," Harold Ickes, a Clinton strategist, told NEWSWEEK on Friday. "I don't know what he would look to in terms of her policies that she's proposing that he could draw that conclusion." As for the Post's nod to Obama, that appears to have been a calculated attempt by Murdoch to do his part to prolong a great horse race. "I said, 'Let's make a race of it'," he said.

In his daily contest against The New York Times, Murdoch appears poised to use his playbook from the 12-year showdown between his upstart Fox News and the entrenched CNN, formerly owned by Ted Turner. Murdoch marketed "fair and balanced" Fox as an alternative to what he deemed CNN's liberal bias. And certainly The Wall Street Journal's conservative leanings are a foil to the Times's liberal voice. But the Journal-vs.-Times war seems unlikely to get as personal as Murdoch vs. Turner (he neglected to take his lithium, Murdoch once said of the manic-depressive Turner; he's like Hitler, Turner said of Murdoch). Murdoch says he and New York Times Co. chairman Arthur Sulzberger Jr. aren't friends, but there's no hostility between them, either. Sulzberger declined to comment for this article.

Things may not be hostile, but they are certainly feisty. For years, Murdoch has targeted Sulzberger for tabloid harassment. The Post regularly runs a "Sulzberger meter" alongside stories about negative developments at the rival publishing company, featuring a head shot of Sulzberger sporting a black eye. The Journal joined the fray last December, after Murdoch had clinched the Dow Jones deal, accusing his critics of "commercial" and "ideological" motives and blasting the Times for giving credence to concerns that Murdoch would turn the Journal into a mouthpiece for his own business and right-wing political interests. The Times, like numerous other media outlets, has been critical of Murdoch for allegedly using his media properties to pursue personal business and political ends—a contention that Murdoch vehemently rejects. "I've never, ever done that," he says angrily. "I challenge anyone to show that I did. My bloody papers won't even review Fox films favorably."

The Murdoch camp is particularly miffed about two back-to-back front-page investigative stories in the Times that endeavored to detail the history of Murdoch's conflicts of interest. Murdoch also contends that Sulzberger misled him about the tone and content of an upcoming Times editorial about him when the two men encountered each other at a party aboard Internet mogul Barry Diller's yacht to celebrate Murdoch's Dow Jones victory. The way Murdoch tells it, Sulzberger assured him that he needn't worry about the editorial, which would be running in the next day's paper. But when he opened the Times, Murdoch cringed. The editorial reprised an oft-repeated anecdote about the mogul's once booting the BBC from a Murdoch-owned satellite television service, Star TV. The accusation was that Murdoch had pulled the BBC's news service as a reprisal for stories it carried critical of the Chinese government; at the time, he was trying to curry favor with the Chinese to ease his entry into the exploding Asian market. In an interview, as he has previously, Murdoch contended the network was pulled for financial reasons, not for its China coverage. Murdoch fired off a letter to Sulzberger, the content of which still rankles the Times scion: "Dear Arthur, It was a pleasure to see you last night ... I don't know how many times I have to state that I didn't take off the BBC ... Let the battle begin!"

Can Murdoch really win this fight? Many media-industry watchers, journalists and communications experts argue that the Journal will never pose much of a threat to the Times's franchise. In fact, the changes could damage the Journal brand. "Turning a paper into an old-fashioned variety show—we have a little of everything—I don't think is the route to success," says a former senior Dow Jones executive. "The risk you run is that you are not best at anything." But the same critics also warn that "it's never a good time to have to confront someone like Murdoch, who doesn't care about making money on a particular product," says newspaper analyst John Morton.

New York Times CEO Janet Robinson said last week that the Times is prepared for the confrontation with Murdoch. "The New York Times," she told analysts, "has had broad coverage for 156 years now, and from that perspective we are far advanced in the type of journalism we create and the type of advertising we bring into the paper."

Murdoch's challenge is just the latest of woes for the Times Co., which, with a market value of $2.7 billion, is a fraction of the size of News Corp. As the Times company's shares have dropped sharply in recent years, management has come under attack. Like many family-owned media companies, the Sulzbergers control the Times through a family trust that owns supervoting shares; public investors own the vast majority of a second class of common shares that have much less voting power. In the past two years, the Times has managed to thwart an aggressive assault on the two-class structure from a hedge-fund sponsored by investment bank Morgan Stanley. Then a second assault came, from a hedge-fund alliance that sought to kick out a Times slate of directors and elect a roster of dissidents in a bid to force dramatic change from within. To avoid a bitter and possibly losing battle for shareholder support, the Times invited two representatives of the alliance onto its board.

As the result of the Times's unrelenting troubles, takeover speculation abounds. The conjecture has mushroomed since Murdoch's success with his unwelcome bid for Dow Jones, where a two-class stock arrangement was believed to render the family-controlled company impregnable against a hostile offer. But the circumstances of the Times and Dow Jones are profoundly different—the far-flung, bickering Bancrofts were absentee heirs; the proud and cohesive Sulzbergers run the Times. Still, names like Google and legendary investor Warren Buffett, who is a director of The Washington Post Company, which owns NEWSWEEK, get floated as white knights for the Times.

But the loudest chatter is about Bloomberg, whose fortune—based on his stake in financial-information giant Bloomberg LP—Forbes magazine pegs at $11.6 billion. In a farewell column in January marking his retirement, Journal managing editor Paul Steiger touted the possibility of a friendly Bloomberg-Times merger. In NEWSWEEK interviews last week, a member of Bloomberg's inner circle confirmed that the mayor's confidants and closest associates are, in fact, encouraging him to explore the idea. The Bloomberg source wasn't authorized to publicly discuss the matter and, as a result, insisted on anonymity. Through a spokesman, Bloomberg declined to comment. According to the source, the proponents of the merger are appealing to the mayor's sense of "civic-mindedness," arguing that he is best suited to take the publishing company private to "help protect the brand" in the wake of relentless shareholder assaults. "It is clearly a brand that Bloomberg could help preserve and that he cares about immensely … and could pay a competitive price" for, says this person.

Murdoch, for one, sees a natural fit between Bloomberg and the Journal's uptown rival. Bloomberg, he notes, has pledged to remain a force in national public life after leaving New York's city hall at the end of next year. To that end, owning the Times would help immensely, Murdoch reasons. Yet the prospect of competing against a Bloomberg-owned Times appears to rattle him. "I wouldn't look forward to going up against him," Murdoch told NEWSWEEK, citing his "great respect for Bloomberg's business abilities."

As Murdoch was pursuing the Journal, he left the impression with some around him that it would be a retirement present to himself. How wrong they were. The morning after the deal was sealed, Murdoch told a top lieutenant, "I know the next deal I'm going to do." Whenever Murdoch is asked about retirement plans, he generally bats it away, and his top executives appear to not expect him ever to step down. "My father has an enormous appetite for life, an enormous curiosity about the world," says his daughter Elisabeth. "Why would he not live with that kind of zest up to the last second? I love that about him."

Over the past several years, in fact, Murdoch has been rediscovering his youth. After a marriage of more than 30 years that produced three kids—Elisabeth, Lachlan and James, all in their mid- to late 30s (and there's Prudence from wife No. 1)—he wed for the third time in 1998. At 39, Wendi, who was an employee of his Hong Kong-based Star TV service, is almost 40 years younger than Murdoch; he says she's helped give him a new lease on life. "She's introduced me to some extent to a new world," Murdoch says of Wendi, who snuggled up to him last December at a dinner celebrating the close of the Dow Jones deal. "She makes me young, and has introduced me to her young friends, many of them the brightest people in New York." Murdoch now tends to wear more-casual black fashion outside of work, and his hair appears to betray appointments with a colorist. "Wendi is a great force for Rupert," says his friend Diller. "She is equally ambitious. She wants to have a full life for him and for herself. It's quite sweet to watch."

Part of that full life includes two young girls, 5 and 7, with Wendi, and their status as heirs and other issues reportedly were behind a family crisis in recent years concerning inheritance. But the dispute was ultimately resolved, helped along by James, the only Murdoch offspring currently employed by the company. Accordingly, a family trust distributed $600 million of News Corp. shares and cash, or $150 million each, to the Murdoch brood last year. James, 35, is his father's presumed heir apparent after a December promotion that ceded him oversight of News Corp.'s European and Asian operations. But don't expect Murdoch to hand the Journal and the rest of his empire over to his son any time soon. He's having too much fun playing Hearst to Sulzberger's Pulitzer.

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