The power shift in the Murdoch Empire: What it really means

June 11, 2015
Category: Uncategorized

News Corp. Exeuctive Chairman Rupert Murdoch, center, and his sons, Lachlan, left, and James Murdoch Rupert Murdoch, 84, is preparing to hand over the CEO job at Twenty-First Century Fox Inc. to his son, James, 42. Lachlan, 43, currently non-executive co-chairman at Fox, will become executive co-chairman along with his father. (Photo by Dan Steinberg/Invision/AP Images)

News Corp. Executive Chairman Rupert Murdoch, center, and his sons, Lachlan, left, and James Murdoch. Rupert Murdoch, 84, is preparing to hand over the CEO job at Twenty-First Century Fox Inc. to his son, James, 42. Lachlan, 43, currently non-executive co-chairman at Fox, will become executive co-chairman along with his father. (Photo by Dan Steinberg/Invision/AP Images)

What does the transition in power at 21st Century Fox actually mean?

What might happen to the newspapers Rupert Murdoch loves so dearly, including the Wall Street Journal and New York Post?

What is the relationship of the two sons, James, who will be the clear No. 1, and Lachlan? What might shareholders think of the clear diminution of Chase Carey, the current key non-family member in the hierarchy?

How does one really explain how James Murdoch, after essentially overseeing the outrageous phone hacking scandal at the News of the World in London, survives to now essentially take over a global media goliath?

And what, really, is Rupert Murdoch’s legacy?

There’s nobody better to ask than David Folkenflik, the media correspondent for National Public Radio, and the author of “Murdoch’s World: The Last of the Old Media Empires.”

He graciously took time off from a paternity leave Thursday and offered his detailed take on most of the central questions raised by CNBC’s scoop that Rupert Murdoch has decided on the long-rumored transition.

What does the CNBC report, which has since been confirmed by others, about Murdoch stepping down mean, if anything?

The report signals that Rupert played the long game and executed ultimately as he hoped.

This was always a family enterprise, despite being publicly traded. He always wanted the sons to run it. And even though he has two adult daughters, he wanted the sons to run it. Despite Lachlan’s record being undistinguished in a previous chapter, and his retreating to Australia, and despite James being caught up and badly damaged in the phone hacking scandal, Lachlan was reinstalled at a top level and James, though it seemed like he might have to leave the company, paid more attention to television, laid low and seems to have performed capably. And he actually had a pretty decent record on the entertainment side. He’s ridden it [the phone hacking scandal] out.

You could claim this was brilliant political maneuvering by the two men and this is the outcome Murdoch wanted. And you can say the fix was in. [President and Chief Operating Officer of 21st Century Fox] Chase Carey was respected by Wall Street and there is still a place for him. And neither Carey nor Peter Chernin [Murdoch’s former second-in-command] had a desire to work for James or Lachlan and, at times, were kind of contemptuous of them.

This means the hacking scandal, though certainly damaging and revealing, is a memory that is growing fainter by the day. If James is able to become CEO, it is an astonishing turn of events. But it’s what Rupert has mapped out in his mind.

Your book title calls Murdoch’s “the last of the old media empires.” What do you mean?

This is a global enterprise and, though publicly traded, it is run by the force of personality of one person at the top. Though there are many forward looking and profitable components, what Murdoch really cared about most were the newspapers at the core. In some ways, of course, that’s the oldest medium imaginable. So this seemed to me the most fitting way to capture what we’re talking about: A sprawling empire with a Sun King at the top.

Having talked to editors and executives at many of his disparate holdings, I can tell you the tabloid editors, and more generally the newspaper editors, were constantly getting calls and feedback from Rupert. He loves newspapers and sees them as way to influence politics and further his other business interests.

What’s been the general view of who would succeed him? And given James’ connection to the phone hacking scandal, how much of a true surprise is his ascension?

In earlier times, there was seen to be a rivalry between James and Lachlan. The natural successor might have been Peter Chernin a decade ago or, more recently, Chase Carey. They are capable figures respected in the industry. And, yet, they kept coming up against a ceiling for them and the ceiling had a name: “Murdoch.” The question was which of the boys would run the shop. But it’s so large, Murdoch is saying now that both can do that and we’ll see how well that works.

They are genuinely brothers. There are some frictions and different ways of looking at the world. Rupert originally was grooming Lachlan to run the company and Lachlan ultimately resented what he felt was backstabbing from Peter Chernin and [Fox News chief] Roger Ailes and left for Australia. Rupert took it as a sign of weakness. He felt he had put Lachlan in the deep end of the pool and Lachlan had flailed. Meanwhile, James was rising and provided some credibility in entertainment, with an interest in hip-hop and television. So for a while, it looked James was the guy.

But that was exploded by the hacking and bribery scandal, where his defense was essentially that he was M.I.A. and didn’t know what his top executives were doing. And even with the poor rates of prosecutions in the matter in Great Britain, it is an enduring stain on James’ performance as a CEO and hard to believe he did not have knowledge of the payoff to silence one of the victims. Parliament certainly didn’t seem to believe his account.

All of which is to say James quietly rehabilitated himself as Lachlan took himself out of the equation.

From a strategic standpoint, what are the areas that will be interesting to inspect in a post-Rupert era?

Look, I think it is undoubtedly true that, post-Rupert, one will watch how quickly and comprehensively News Corp. moves to divest itself of newspaper holdings. Lachlan is co-chairman of board of News Corp. and said to have more affection for newspapers than James does, who is not particularly interested at all in them. That’s most interesting because, in part, the genius of the Murdoch model in the political realm is that he has had newspapers that have toggled back and forth between the two parties in these three great English speaking nations (Great Britain, the U.S. and Australia). Toggling back and forth means that he has politicians on eggshells all the time. Get rid of the newspapers in, say, the States, and you just have Fox News which is pulling the gravity of politics to the right.

Those politics don’t reflect James’ point of view. He and his sister, Elizabeth, and wife are actually embarrassed by some of the content on Fox. You will see tensions between Roger Ailes, who is aging and ailing a bit, and the Murdoch sons. James may decide Fox is so profitable, you don’t mess with it. But just as Rupert is not immortal, Roger is not immortal. Rupert has planned for a family inheritance in the sense of having them run 20th Century Fox. There is no familial pass off to occur at Fox, so that will be a major question. It is so much money.

When Ailes lets go, Fox will still make a lot of money. They will probably try to summon him up by hologram to ask what to do.

Rupert is a famously strong proponent of print journalism. He continues to lose huge sums on the New York Post and the jury is out on his purchase of the Wall Street Journal from a financial perspective. Could one foresee anything changing there?

You can see the Post being dumped or combined with the Daily News [owned by Mort Zuckerman and currently up for sale]. I believe Lachlan was publisher of the Post and may not want that part of his legacy as co-chairman of News Corp. I don’t think they are anywhere near as sentimental about the papers. Killing it might let them hold on to other things. It’s been a source of fun and amusement and a blunt object to bash political opponents over the head. They may make an exception for the two American ones [the Post and Wall Street Journal], given the platform it has provided. I would think they would get a very hard look, particularly at the Post.

What are key issues on the TV and online sides for News Corp.?

They are making a bet in several countries in investing in real estate-related digital holdings. Lachlan did an acquisition in Australia and replicated it here with a similar acquisition. I think they have to figure out ways to deal with the great unbundling everybody faces, which is happening fitfully. Fox was a big investor in Hulu. There are ways in which Hulu shows promise but ways in which is seems a duck-filled platypus. Fox has had a good run on the entertainment side. Their issues are like everybody else’s. Will people continue to watch Fox as more people look online?

Disney has other engines to drive it. You can argue that Fox’s ESPN is Fox News. Fox has used Fox News to leverage power over cable providers to carry some of its less monetarily strong channels, like Fox Business Network and FXX. Fox Sports so far has not made a big dent, but it may. ESPN obviously has a lot of horsepower and a lot of channels itself. The cost of sporting events will just grow.

He was once a pariah to mainstream newspaper journalists in the U.S. The late columnist Mike Royko called him “The Alien.” Should more of them have hoped, and even today hope, that he might buy their struggling papers?

This is the Wall Street Journal question in a nutshell. Do you fight for the fading Bancroft family and their ownership or charting a terminal case of decline? But the unified Graham family at the Washington Post couldn’t solve the problem, either. So at the Journal people feel pretty happy; they feel it is a paper that is well funded and well regarded. In some ways their foreign report and political report have expanded, as have their cultural and societal coverage. In my book, I wrote how people thought news coverage was affected on ideological lines and it was also affected in the crucible, at the moment the hacking scandal brought Rupert’s and James’ management to the front page.

In terms of political stuff, people were shaky. They felt every time they were being pulled in a rightward direction. That’s a cost. Using your news pages to advance your business interests is a cost. And they have also lost a lot, not all, but some of the really in-depth behind the scenes reporting and accountability for financial firms. And some of the whimsy they had. Not all of it. But it’s a deal many at the Journal were willing to strike in retrospect.

If you look at Britain and Australia you would see the problem is with concentration of holdings. It works out that influence at key and pivotal moments morphs into a kind of power. And power at such high levels is available for abuse. The hacking scandal was not just damaging because it showed illegal hacking into voice mail messages; it showed a pattern of criminally and morally corrupt relationships between the Murdoch press, the political establishment in both major parties and law enforcement.

Even if Murdoch’s papers weren’t the only agencies to have such issues, they dominated the terrain in that regard. That is chilling. It is not a minor moment; it is a defining one in terms of character and the gravitational pull of having that sort of dominance in the media.

In Australia what one saw in the last national elections there was the Murdoch press turning on a former ally in [former Prime Minister] Kevin Rudd, a weak figure for sure, but he had helped Australia ride out the global financial crisis better than most places. He was being torn apart on a daily basis for things ranging from the philosophical to the totally trivial on the front pages. It may be that the Murdoch press did not ultimately determine or influence the elections, but political figures there think so and that influences their stances and relationships.

Australians are entitled to vote for whomever they wanted and Rudd was a weakened figure. But the coverage was almost as if Sean Hannity was dictating the terms to which news coverage on the front pages of the major papers covered the national elections. They controlled nearly 70 percent of the major circulation in the major cities. And they then influenced talk radio and influenced the commentators who appear on Sky News Australia, which is Murdoch controlled. On one hand, you can look at the Wall Street Journal and say that is a deal you can strike. And you can say he’s done well by the Journal. But you can look abroad and say that if he had kept all the papers, and the TV stations and Fox News, and gotten Time Warner, which he wanted, the concentration of media ownership has effects. And in those other places, the impact is not so appealing.

So what would one deem Rupert’s legacy is at this point?

Well, there’s an extraordinary gift to his children almost unimaginable to all but a few. There is influence on five continents at the highest levels, the speed dials of world leaders, the proximity to celebrity and also a perch insulated enough from ups and down so they can make mistakes and experiment and see what works as the digital media age evolves, in ways that some other companies may not have the margins to do. The legacy for the boys is extraordinary. It comes at the cost of complicated and troubling family dynamics, including with the boys. It comes at the cost of common understanding of how a publicly held company should be run.

They inherit the legacy of a guy who has usually refused to take no for an answer. He overpaid for the Journal and overpaid for the stations that became the Fox network, overpaid for NFL rights in the early ’90s but became a great success. He built the largest satellite TV enterprise in Britain and a powerhouse in Europe, India and parts of Asia. And he brought ruthlessness, a cunning and meanness that are reflected in pages of papers he cares about.

I don’t see him riding into the sunset. This is still his. But sending Chase Carey out the door and not having an adult, non-Murdoch at the very highest levels at the top to reassure shareholders is for him to be confident in his own judgment and the assessment that the public no longer takes into an account what happened in the hacking scandal.