IN DEPTH: The $1bn News Corp. scandal the Murdochs wanted buried – PART 1
By Dan Evans
AS THE British Competition and Markets Authority begins its scrutiny of an £11.7bn bid from Rupert Murdoch’s 21st Century Fox to fully acquire UK satellite broadcaster Sky plc, Byline Investigates examines a corporate scandal that shows the extraordinary lengths their sister company News Corp. took to dominate and destroy its competition in America.
It’s a tale of espionage and dirty tricks, of computer hacking and FBI probes, and the paying out of more than a billion dollars in costs and damages over business practises said to be rooted in mobster mentality. It’s also a warning to the protectors of Britain’s broadcasting landscape to searchingly question the Murdochian mantra that ‘profit is the only… guarantor of independence’.
Paul V. Carlucci’s sharp brown eyes settled on businessman brothers George and Richard Rebh across the restaurant table. The service at Manhattan’s fashionable Cantonese lunch-spot A Dish of Salt hustled about them. The Spinach with Crabmeat was, apparently, spectacular.
Carlucci, the tough-talking, deal-making, slick-haired boss of Rupert Murdoch’s uber profitable supermarket adverts company News America Marketing (NAM), was getting down to brass tacks.
Given what followed, the Rebh brothers – whose start-up business FloorGraphics printed ads directly on to grocery shop floors, giving them one foot on a goldmine – could be forgiven for feeling as if they were the hors d’oeuvres.
Murdoch’s NAM was and is one of the titans of its trade, with a staff of around 4,000 reaching millions of consumers each day in stores on top of the 60 million households that receive its Sunday newspaper inserts.
The Rebhs had arrived for lunch among New York’s midtown skyscrapers in July 1999 with thoughts of partnering up their young company with the biggest beast in the retail advertising jungle.
Instead, according to George Rebh’s subsequent evidence to a US Federal court, Carlucci suggested they might want to sell FloorGraphics, with its staff of 85, to Rupert Murdoch.
But when the Rebhs said no, the native New Yorker – once described as the most ‘influential executive you’ve never heard of inside Rupert Murdoch’s empire’ – suddenly and unexpectedly turned the screw.
“I have always liked floor advertising,” Carlucci allegedly said. “So from now on, consider us your competitor and understand this: if you ever get into any of our businesses, I will destroy you. I work for a man who wants it all, and doesn’t understand anybody telling him he can’t have it all.”
Richard Rebh, stunned, gathered his thoughts.
According to his court deposition, he replied: “So let me see if I understand this. You can get into our business and compete with us, but if we were to get into yours, you will destroy us?” to which Carlucci allegedly responded: “That’s right.”
Lunch went uneaten. Five months later FloorGraphics won a contract to mount advertising signage throughout the 600-or-so stores of US supermarket chain A&P.
It was a modest expansion, and one that stepped into NAM’s core business of in-store marketing, coupons and magazine inserts.
The Rebhs alleged, in their 2009 lawsuit against the News Corp. subsidiary, that it lit the touch-paper on a campaign of corporate espionage, computer hacking, and practices more familiar to mobsters than billion-dollar-turnover businesses.
The Rebhs said News America Marketing’s prime objective was clear – to humiliate and then exterminate FloorGraphics as a competitor.
Their lawyer offered a pithy assessment to the court. He said: “What this case boils down to is (this); one small start-up business that grew successful being crushed by a very, very large powerful competitor who didn’t want competition.”
The most controversial element of the FloorGraphics trial was NAM’s admission that a computer at its offices in Connecticut had accessed the password-protected website of its competitor 11 times over four months.
The trial heard how computer hacking gave NAM access to commercially critical information about its rival, including details of every sale FloorGraphics had made, its client list, business projections, and campaign strategies.
Not long after the website breaches, it was said, FloorGraphics began to lose crucial contracts to NAM.
Major players whose custom had been long fought for – including Safeway, Winn-Dixie, the South Carolina retail chain Piggly Wiggly – defected.
As FloorGraphics’ lawyer put it, the computer breach gave access to “private, confidential, proprietary business information that they could use against FloorGraphics in negotiations for getting bids in retail contracts… after that, one retailer, then the next retailer, then the next retailer fell.”
FloorGraphics complained that NAM had poached its leading salesman Gary Henderson – the man who organised that first fateful lunchtime meeting – to lead its attack.
Henderson joined NAM a year after Carlucci’s alleged A Dish of Salt declaration, first as a consultant, then as a sales vice president. His insider knowledge of the FloorGraphics operation was, it is said, key to Carlucci’s vision for market dominance.
But where it could be expected that Henderson would understand the general modus operandi of his previous employers, some of his insights raised eyebrows, even among his own new workmates.
Insiders have described how Henderson seemingly had access to the latest ideas and work emerging from his former firm. He allegedly produced full-colour FloorGraphics campaigns for his staff to see in meetings, when they still had yet to be launched – and had barely left the Floorgraphics art desks.
According to New York Magazine – in vignettes that British regulators weighing up Rupert Murdoch’s latest Sky bid might well note – this level of commercial intrusion was commonplace at NAM.
In fact, the magazine painted an image of an organisation where the line in the sand of good business practises was routinely overstepped – provided it secured results.
One former staffer reportedly said: “He (Henderson) would show us an eight-and-a-half-by-eleven colour piece of paper of an ad. He would say, ‘They’ – FloorGraphics – ‘are running this and why aren’t we? Let’s go get it.’”
“How the hell did you get that?” the staffer asked. “Oh, they’re easy to get. Don’t worry about it,” Henderson allegedly replied.
A second ex-employee also reportedly remembered Henderson providing information about upcoming campaigns.
“I recall Gary saying, ‘Here’s who FloorGraphics is doing business with,’” they said. “It was future stuff.”
Henderson is said to have promoted the idea that he had open access to core parts of FloorGraphics’ IT network – and that he helped himself to the sensitive commercial data it contained with approval from his managers.
The insider went on: “He admitted he had information from inside FloorGraphics’ computer system. He knew how to get into their passwords. He said he had the blessings of his bosses.”
PART TWO in this four-part series: Federal Excess – FBI probes News Corp. over computer hacks…
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