Murdoch empire faces new scandal, potentially far more damaging

A series of investigative reports by journalists around the globe have put Rupert Murdoch's News Corporation at the center of a new hacking scandal. If proven true, the allegations could be far more devastating than the scandal that brought an end to the News of the World newspaper last year, since this one strikes at the financial heart of Mr. Murdoch's empire: News Corp's valuable television holdings.

The Australian Financial Review wrote in a March 28 report that News Corp cost its TV rivals tens of millions of dollars by "promoting" hackers' efforts to give customers unauthorized, cheaper access to its rivals' broadcasting. The AFR, Australia's biggest financial newspaper, writes that "the piracy cost the Australian pay TV companies up to $50 million a year and helped cripple the finances of Austar," a rival satellite TV company.

The AFR's March 28 report, which was based on a four-year investigation, was published just two days after a similar report by BBC News program Panorama. The BBC report said that according to a British hacker, a former News Corp subsidiary leaked information about how to hack into the software of rival satellite TV provider ONdigital, devastating ONdigital's business in Britain. And the Independent reported earlier this week on similar accusations by an Italian hacker regarding Nagra France, another satellite TV provider operating in Italy.

News Corp have denied allegations of wrongdoing, and indicated that it was preparing a legal challenge against the AFR and other news outlets reporting on the TV hacking. Mr. Murdoch dismissed the reports as "lies and libels" on Twitter.

Even if the allegations are proven to be true, however, Murdoch's rivals may not have any legal recourse against NDS and News Corp, since digital laws were still in embryo when the alleged hacking took place.

High-tech hacking

The phone-hacking scandal that embroiled News Corp's British newspaper holdings last year was a relatively low-tech enterprise, involving stolen passwords and simple tricks. But the alleged TV hacking is at an entirely different level.

This week's reports claim that News Corp operated a group of former intelligence and security operatives – known as Operational Security (OpSec) – who facilitated high-tech hacking of TV competitors' paid programming during the late 1990s and early 2000s.

The core technology at issue is the satellite TV set-top box. In order for satellite TV broadcasters to control access to their signal, they need to encrypt it so that only sets with corresponding decryption cards can unscramble the broadcast. The broadcasters make their money by selling customers the means to decrypt and access their signals, giving customers the ability to pick up the broadcasts on their set-top boxes. As such, it is critical to broadcasters that their decryption cards remain secure, since a hacked card will let a set-top box pick up any channel the broadcaster offers for free.

According to the reports by the AFR, the Independent, and Panorama, OpSec employed hackers to break the decryption of News Corp's satellite TV rivals and then disseminate the means of decryption to other members of the hacking community. The broader hacking community would then independently use that decryption to create pirate cards which could be sold on the cheap, undercutting the rival broadcasters' market share and thus devaluing their stock.

According to the AFR, News Corp and OpSec used this technique for a variety of purposes, including to drive rivals out of the market and to weaken them enough that News Corp and its subsidiaries could buy them out.

The AFR reports that at the time the hacking was going on, Australia had no effective laws against satellite TV piracy, so none of the hacking would have been illegal under Australian law. Other areas of law that could apply, such as international copyright law, were at a nascent stage at the time of the alleged events, which may preclude criminal charges or civil claims against NDS or News Corp on such grounds.

14,400 newly released emails

The AFR's report appears to be based on a newly released collection of 14,400 emails formerly held by Ray Adams, a former Metropolitan Police commander and top OpSec official in Europe, and other documents that AFR says "show NDS sabotaged business rivals, fabricated legal actions and obtained telephone records illegally." The AFR has published samples of the emails online.

The reports from The Independent and Panorama also appear to be based on evidence previously unseen. The Independent reports that according to documents it has acquired, Italian hacker Pasquale Caiazza – currently on trial for piracy in Italy – was being paid by News International, News Corp's British newspaper arm, to hack and disseminate code for Nagra France's decryption cards.

Much of the Panorama report's evidence comes from hacker Lee Gibling, who told the BBC that he was in the employ of NDS in the late 1990s. 

Mr. Gibling says that NDS paid him to leak information about ONdigital's decryption cards on his website, a hacker community known as "The House of Ill-Compute," or Thoic, in order to undercut ONdigital's business. Gibling says his contact at NDS was Ray Adams, the source of the emails acquired by the AFR.

Why News Corp may not face legal action

This is not the first time that NDS has been at the center of legal claims over hacking. It survived at least two previous lawsuits, including one by decryption card maker Canal Plus and another by US-based satellite company Echostar. It may also survive these latest allegations.

Many of the alleged activities now being scrutinized took place over a decade ago, when digital communications laws were still in a nascent form. Only laws existent at the time could be used to bring charges or claims against NDS and News Corp, and even if an appropriate law existed at the time, the statute of limitations in Australia and the EU may bar any legal claims from being brought now.

But the possibility of an ethical scandal at the heart of News Corp's television holdings, which are far more valuable than its newspaper resources, could still prove financially damaging to Murdoch's empire if it spooks shareholders.

It may also prove more immediately problematic in Britain, where Mr. Murdoch's son, James Murdoch, has been called before parliament to explain his role in the phone-hacking scandal. While there is no evidence that he had any involvement in the TV hacking scandal, the Financial Times reports that British television regulator Ofcom is currently examining the younger Murdoch and News Corp to determine whether they are "fit and proper" to control TV broadcaster BSkyB. If they are not found to be "fit and proper," Ofcom could effectively force James Murdoch out of his position as chairman of BSkyB or even make News Corp reduce its 39.1 percent stake in the broadcaster.

British lawmaker Tom Watson, a member of the committee that has been examining the phone-hacking scandal, encouraged Ofcom to consider the new evidence in its investigation, reports the BBC.

"It seems inconceivable that they [Ofcom] would not want to look at these new allegations," Mr. Watson said. "Ofcom are now applying the 'fit and proper' person test to Rupert and James Murdoch. It also seems inconceivable to me that if these allegations are true that Rupert Murdoch and James Murdoch will pass that test."

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