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If not, the phone hacking scandal could prove a blessing in disguise for News Corp shareholders, writes MoneyShow.com senior editor Igor Greenwald.

News Corp (NWSA) Chairman and CEO Rupert Murdoch is obscenely flush, but the irony surrounding his fall from grace is even richer.

This is a media magnate who has spent decades buttering up politicians, buying their loyalty and friendship, and enjoying unprecedented access to the highest councils of government, in the UK and beyond.

This is a newspaper tycoon whose tabloids are famed for their keen sense of the lowest common denominator.

But when (at least) one of those tabloids itched to know what was really going on, all that high-level access and the famous common touch apparently helped little.

The hacks got their scoops by hacking voicemails. Their shadowy private eye, a character straight out of LA Confidential, allegedly violated the privacy of thousands of people—among them politicians, celebrities, and families touched by notorious tragedies.

Most scandalously, the recently shut News of the World evidently hacked the voicemail of a murdered 13-year-old girl, interfering with the frantic police search and providing false hope to her family.

The latest arrest in the case came yesterday, when Murdoch’s top UK editor and newspaper executive, Rebekah Brooks, was questioned and briefly held on suspicion of corruption and conspiring to intercept communications. Brooks, a Murdoch favorite and confidant, resigned her job Friday, 48 hours after News Corp hired a crisis-management PR firm and stepped up damage-control efforts.

Since then, Rupert Murdoch has abased himself in person before the parents of the murdered girl, while striking a defiant tone in an interview with underlings at The Wall Street Journal, insisting that the company has handled the crisis “extremely well,” with only “minor mistakes.”

Among the “minor” mistakes so far are claiming that the hackings were the work of a single rogue reporter when they’ve now been exposed as well-organized and pervasive. After an internal whitewash, News Corp settled several related private suits out of court, effectively paying hush money to keep the scandal contained.

Rupert Murdoch and his son and heir-apparent-no-longer James are due to be grilled by a UK parliamentary panel tomorrow. No doubt further indignities await. A US probe is brewing over unsubstantiated claims that News of the World tried to buy access to the phone messages of 9/11 victims.

As a media giant, News Corp depends heavily on the goodwill of national regulators and the politicians who appoint them. That’s one reason Murdoch has spent a lifetime ingratiating himself to the movers and shakers.

Little wonder then that the scandal has News Corp investors running for cover, if not for a shower. As of mid-morning, US-traded shares were down more than 17% since July 5, the day after the murdered-girl revelation broke.

That means News Corp’s traditional discount to rival media empires such as Viacom (VIA-B) has just gotten a little wider. News Corp now sells for just 11 times forward earnings, despite the fact that UK newspapers contribute a negligible share of corporate earnings (satellite, broadcasting, and films dominate the bottom line).

News Corp has already had to scuttle its takeover offer for the 61% of UK pay-TV giant BSkyB (London: BSY, OTC: BSYBY) that it doesn‘t already own, under pressure from UK lawmakers and regulators.

It has clearly been thrown on the defensive. Yet its most lucrative subsidiaries operate from very well defended positions of strength.

Better still, as far as News Corp shareholders are concerned, the scandal could seriously crimp Murdoch’s ambitions, potentially putting Rupert out to pasture and liberating a servile board of directors to represent all the shareholders, not just the founding family.

For all the value the elder Murdoch created with the Fox infotainment network and Asian satellite operations, he’s also destroyed plenty. Take the costly and ill-advised social-networking failure via MySpace, ditched recently for a song.

Or the vanity trophy purchase of The Wall Street Journal, which required overpaying for WSJ parent Dow Jones by so much that even the family owners (who couldn’t stand Murdoch) couldn’t turn him down.

It’s notable that the really successful parts of the empire were built in the 1980s and 1990s, while the expensive duds are of more recent vintage.

If the Murdochs—or at least the sullied patriarch—are sidelined, and if a talented outsider is brought in to sell the newspapers, defend broadcasting turf and win a future in the era of Facebook and Twitter, the scandal may mark a turning point for the better.

Those are some big ifs, of course. And in the meantime, News Corp will pay heavily for the snooping and the subsequent cover-up. But if the controlling family is forced to give up some control, shareholders should ultimately benefit.

Tickers Mentioned: NWSA, VIA-B, BSYBY

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