In­her­it­ing a chang­ing em­pire

An­a­lysts say the younger gen­er­a­tion may be bet­ter equipped to nav­i­gate the changes roil­ing the in­dus­try

Los Angeles Times - - THE NATION - By Meg James and Ryan Faugh­n­der

Ru­pert Mur­doch’s sons will face far dif­fer­ent chal­lenges from the ones he en­coun­tered dur­ing the last 60 years.

The en­ter­tain­ment em­pire Ru­pert Mur­doch is turn­ing over to his sons James and Lach­lan will face far dif­fer­ent chal­lenges from the ones he en­coun­tered dur­ing the last 60 years.

Mur­doch’s me­dia com­pa­nies, 21st Cen­tury Fox and News Corp., were built on news, tele­vi­sion and film. All three of those ar­eas are con­fronting gen­er­a­tional and tech­no­log­i­cal changes that are up­end­ing tra­di­tional busi­ness mod­els.

Young peo­ple are in­creas­ingly get­ting their news and en­ter­tain­ment from the In­ter­net and so­cial me­dia sites — and less from tele­vi­sion chan­nels and mul­ti­plex cine­mas, which have seen per­sis­tent de­clines in view­er­ship and at­ten­dance. The au­di­ence of one beach­head, Fox News Chan­nel, is grow­ing older, and the com­pany’s Los An­ge­les-based Fox broad­cast net­work has strug­gled to find a new gener-

ation of hits be­yond this year’s sen­sa­tion “Em­pire.”

The 84-year-old Mur­doch plans to soon re­lin­quish his ti­tle of chief ex­ec­u­tive of 21st Cen­tury Fox to his younger son, 42-year-old James Mur­doch, ac­cord­ing to peo­ple familiar with the changes who were not au­tho­rized to dis­cuss them pub­licly.

Older son Lach­lan Mur­doch, 43, also is ex­pected to as­sume a larger cor­po­rate role by be­com­ing ex­ec­u­tive co-chair­man of the com­pany, work­ing with his fa­ther, who will main­tain his ti­tle as ex­ec­u­tive chair­man. Lach­lan Mur­doch is ex­pected to work in part­ner­ship with his younger brother but fill a more strate­gic, big-pic­ture role.

“This trans­fer of power to a younger gen­er­a­tion should make Fox more sen­si­tive to the needs of mil­len­ni­als and more re­spon­sive to chang­ing con­sumer habits,” said Need­ham & Co. me­dia an­a­lyst Laura Martin. “Wall Street is go­ing to need to be shown that [the sons] de­serve the seat, and that it’s not just be­cause of their daddy’s name. Wall Street is go­ing to be very sus­pi­cious at first, be­cause there’s not much of a track record there.”

Some an­a­lysts said the younger Mur­dochs might be best equipped to nav­i­gate the changes fac­ing me­dia to­day.

“It’s time,” said Jef­frey Cole, chief ex­ec­u­tive of the Cen­ter for the Dig­i­tal Fu­ture at the USC An­nen­berg School. “This move po­si­tions things so that the money-mak­ing part of the em­pire — Fox — is on a steady and for­ward path. But Ru­pert is not go­ing any­where. He seems to be en­ter­ing the Don Cor­leone stage of his life af­ter he turned the busi­ness over to Michael.”

James Mur­doch has been ris­ing through the ranks for more than a decade. In re­cent years, he has served as the No. 3 ex­ec­u­tive, co-chief op­er­at­ing of­fi­cer, be­hind his fa­ther and long­time Pres­i­dent and Chief Op­er­at­ing Of­fi­cer Chase Carey. Carey, who is well re­garded on Wall Street, is ex­pected to step down from the or­ga­ni­za­tional struc­ture to take on an ad­vi­sory role.

Wall Street an­a­lysts on Thurs­day noted they would be sorry to see Carey leave Fox be­cause he pro­vided a steady hand through a chal­leng­ing era for the com­pany.

The Mur­dochs have weath­ered a spin-off of the Wall Street Jour­nal, New York Post and other news­pa­per hold­ings into a stand­alone com­pany, News Corp., and the dev­as­tat­ing Bri­tish phone hack­ing scan­dal. Carey also was a force­ful and wel­come pres­ence last sum­mer when Fox aban­doned its pro­posed takeover of ri­val Time Warner when Fox share­hold­ers be­gan sell­ing shares.

For James Mur­doch, the pro­posed new struc­ture firmly es­tab­lishes him as the day-to-day leader of the com­pany — no longer the ap­pren­tice to Carey.

“It sig­nif­i­cantly clar­i­fies the ques­tion of man­age­ment suc­ces­sion and cor­po­rate gov­er­nance,” Tuna Amobi, me­dia an­a­lyst with S&P Cap­i­tal IQ, said in an in­ter­view.

Lach­lan Mur­doch is ex­pected to spend much of his time at the com­pany’s West Coast head­quar­ters in Los An­ge­les, while James Mur­doch is ex­pected to con­tinue to be based in New York.

The Mur­doch sons will have to fig­ure out how to best po­si­tion the com­pany for the dig­i­tal age, a realm that Fox has strug­gled with — a no­table ex­am­ple be­ing the $580-mil­lion ac­qui­si­tion and later sale of Mys­pace.

The com­pany’s ca­ble net­works — its largest source of profit — will have to find ways to re­main rel­e­vant amid cord-cut­ting by younger con­sumers and pay-TV providers who want to trim their pro­gram­ming packages.

“It’s go­ing to be about their abil­ity to pro­duce high­qual­ity, dif­fer­en­ti­ated con­tent that is go­ing to de­ter­mine how well they make it through this,” said Cowen & Co. me­dia an­a­lyst Doug Creutz. “It’s not go­ing to be easy for any­body, but the guys who have good con­tent are go­ing to make it through.”

The pro­posed new struc­ture, which con­cen­trates power among three fam­ily mem­bers, is un­usual in to­day’s cor­po­rate world. It is al­most un­heard of for pub­licly traded com­pa­nies.

“There’s not one clear leader, and that’s a big chal­lenge,” Martin said. “Ru­pert’s go­ing to be in charge of some things, Lach­lan’s in charge of some things, and James is in charge of some things. That’s a huge chal­lenge that al­most no other big me­dia com­pany faces.”

In­vestors seemed un­moved by the news. Fox shares closed down just 6 cents, to $32.90.

“They’re fac­ing the same tough en­vi­ron­ment as are all the other me­dia com­pa­nies,” Creutz said. “I would say Fox is rel­a­tively on the bet­ter side be­cause they do have a fair amount of good con­tent. They have a very strong in­ter­na­tional foot­print, which a lot of their peers don’t have.… They’ve got some­thing to work with.”

The Mur­dochs and Carey, through a spokesper­son, de­clined in­ter­view re­quests.

“The mat­ter of suc­ces­sion is on the agenda at our up­com­ing, reg­u­larly sched­uled board meet­ing,” a Fox spokesman said in a state­ment.

The board meet­ing is ex­pected to be held next week. The Mur­doch fam­ily con­trols 39% of the vot­ing shares of Fox.

Creutz, the Cowen & Co. an­a­lyst, noted that Fox’s earn­ings this year haven’t met Wall Street’s ex­pec­ta­tions, and that the com­pany might have an­other down­ward re­vi­sion.

“A CEO tran­si­tion at the same time would give James a chance to start with ex­pec­ta­tions hav­ing been re­set to a pre­sum­ably low bar,” he said.

In ad­di­tion, Carey’s con­tract that was signed a year ago was short-term in na­ture, which prompted spec­u­la­tion that Mur­doch was pre­par­ing to hand over his me­dia em­pire to his sons sooner rather than later.

“Should Mr. Carey elect to con­clude the term of em­ploy­ment, he agrees to pro­vide non-ex­clu­sive con­sult­ing ser­vices to 21st Cen­tury Fox through June 30, 2016,” Carey’s con­tract says, ac­cord­ing to a reg­u­la­tory fil­ing.

Kevork Djansezian Getty Images

ME­DIA MOGUL Ru­pert Mur­doch, cen­ter, is f lanked by sons James, right, and Lach­lan as they ar­rive at the Allen & Co. an­nual con­fer­ence at the Sun Val­ley Re­sort in 2013.

Rob Kim Getty Images

TOM BROKAW, left, talks with host Sean Han­nity on the set of Fox News Chan­nel’s “Han­nity” in May.

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