The phone hacking scandal at News Corp.'s The News of the World is testing the effectiveness of brand architecture as a way to protect a company from conflagration when one of its units burns to the ground.
The protective possibilities of brand architecture is an argument in favor of a "house of brands" model, a model where a company's products and services are all separately branded like Tide, Crest and Gillette for Procter & Gamble. The idea being that since consumers don't know that these separate brands are all part of the same company, then problems encountered by one brand won't affect the reputation of the others.
When BP, for example, was being pilloried for the Gulf oil spill, its Arco business benefited from the fact it's a separate and unconnected brand. Whereas all of Accenture, as a single company brand, was impacted by its association with Tiger Woods when his excesses came to light. Bank of America might now be wishing that it had kept its Countrywide Financial acquisition as a separate brand until all of its problems were sorted out because, as it is, the Bank of America brand is being tarnished.
News Corp. is a veritable Spelling manor, house of brands; As the world's second-largest media conglomerate and an aggressive acquirer, it has a huge number of papers, magazines, book publishers, movie studios and assets in TV broadcasting, cable and satellite. In addition to The News of the World, these include many well-known brands like Fox, The Wall Street Journal, The Times and Harper Collins.
So, the theory is that the problems at The News of the World should not affect the rest of the organization. But the facts suggest that this theory is not working. Just one measure: News Corp's share price has fallen dramatically in the last couple of weeks wiping almost 20% off the value of the company by some estimates. So what's going on here? A couple of things have undermined the usually reliable house of brands architecture defense.
1) The story is now about Rupert Murdoch, not the paper. He was the one who became the center of attention (and the target of a pie-attack) as he testified at the UK parliamentary hearing. And one of the underlying stories about Rupert Murdoch is how he built his media empire so that means that all the other assets he owns are now in play.
2) The problems at The News of the World have been portrayed as a pattern of questionable ethical behavior that's pervasive in the whole company. One example that's been cited is News America, the in-store and newspaper insert marketing business. News Corp. has been reported as paying out over $650 million to settle corporate espionage accusations against that company.
The House of Brands may provide some risk protection but there are limits. The News Corp. story shows that if a fire is big enough, it will jump from one brand to the rest, and a house of brands model will not be able to stop it.