They have the birthright. But do they have the right stuff?
James and Lachlan Murdoch are about to face a trial sure to be as an intense as any battle ever waged by a medieval prince to consolidate power over a family’s fiefdom. Now that Rupert Murdoch is triggering the long-awaited succession plan for 21st Century Fox, his heirs are stepping into a fishbowl where their every move will be analyzed for clues to the question that may not be answered for years to come: Will the sons be as bold as their father?
“This will be the biggest generational shift of any media company,” says media analyst Rich Greenfield, with BTIG Research.
Fox was uncharacteristically caught off guard on June 11, when the news leaked via CNBC’s David Faber that 21st Century Fox chairman-CEO Rupert Murdoch was splitting his job in two, handing the CEO title to James and executive chairman duties to Lachlan. The plan was confirmed June 16 following a meeting of Fox’s board of directors. Chase Carey, Rupert’s longtime lieutenant, will step aside as chief operating officer into a new role as executive vice chairman that he will hold through June 2016.
Longtime entertainment analyst Hal Vogel is willing to bet that the value of the Murdoch DNA is better than any MBA.
“They’ve been brought up and trained, and have the founder’s line of vision. And they know the company very well,” Vogel says. Rupert Murdoch has been “very smart about grooming his heirs to take this over in the right way. Until recently, they weren’t ready. They’ve been in the hot seat. It’s time. They’ve had the glare of a little bit of scandal. They’ve been seasoned and matured.”
Rupert, Fox sources emphasized, sees his sons running the company as a partnership the way he and Carey have for the past six years, and they way Rupert did with Peter Chernin for 15 years before that. Moreover, in the near term, the 84-year-old baron will remain a force as chairman, alongside Lachlan, of the company he built. “Rupert’s not going anywhere,” sources assured — not that anyone would think otherwise, no matter what the corporate org chart looks like.
Working under the long shadow of their domineering father, Lachlan, 43, and James, 42, will be under extreme pressure to prove themselves worthy of their titles. James has been in apprentice mode for the past several years working as a deputy to Carey and his father with a particular focus on company’s global TV assets, which are considerable. Lachlan has been back in the picture for the past year after a nearly 10-year absence, although not with the same level of operational authority as James, since he was appointed non-executive co-chairman, alongside Rupert, of 21st Century Fox and the News Corp. publishing side.
Rupert Murdoch has been nothing less than the preeminent self-made media mogul of his era. He’s routinely described as “swashbuckling” and “fearless.” Will those adjectives apply to his sons? Some on Wall Street hope they won’t — at least not quite to the same degree.
“We have always viewed Rupert as an empire builder who is more concerned with accumulating assets than with delivering shareholder returns,” Doug Creutz, of Cowen & Co., wrote in a report, adding that this shortcoming was “highlighted most recently by the aborted attempt to take over Time Warner.”
The younger Murdochs come into their leadership roles at a fraught time for media and entertainment. Multiple analysts predict Fox will eventually lower its financial guidance for 2016, for the second time this year, amid the ratings slump at the flagship broadcast network.
But the challenges that Lachlan and James will confront as leaders of one of the world’s biggest media congloms go beyond Fox-specific issues.
Digital distribution is just starting to reshape the financial underpinnings of the television business that is the bedrock of Fox’s worldwide operations. Globalization has added incredible complexity to the management of the core production and distribution of content. In many respects, the decisions Fox makes in markets like India and Brazil will matter more to its long-term growth prospects than whether the Fox network is No. 1 in the U.S. next season.
Having run businesses outside the U.S., Lachlan and James presumably have an instinctive understanding of the importance of the rest of the world to the company’s American-based content engines. And as it has been frequently noted inside and outside Fox, the brothers, much more than their father, are of the age to intuitively understand what clicks in the digital media arena.
James in particular has a track record as a leader, following a successful run as CEO of Asian satellite company Star, which turned from red to black ink on his watch from 2000-03, and his stewardship of British Sky Broadcasting from 2003 through 2012. At BSkyB, James is credited with demonstrating his father’s flair for seeing around corners — recognizing early the opportunity to expand the satcaster by offering Internet access and telephone service.
The brothers also take the reins at an everybody’s-talking-to-everybody moment, when mergers are in the air for MVPDs and content companies. Since the split with the publishing side of News Corp. in 2013, 21st Century Fox is a slimmed-down company with $9.2 billion in cash on its books. That could provide the means for aggressive acquisitions if the brothers want to make a splash early on. After all, just last summer Rupert Murdoch unleashed an audacious unsolicited $80 billion bid for Time Warner. It was batted down quickly by TW, and generally frowned upon by Wall Street. But that’s rarely stopped Rupert from getting something he really wants. With the impending appointments of Lachlan and James, however, it’s unclear whether the company will be as single-minded in pursuing corporate prey.
Both James and Lachlan also have baggage to overcome. James’ star was significantly tarnished by the scandal that erupted in Britain in 2010 and ’11 involving the phone-hacking of celebrities, politicians and newsmakers at some of News Corp.’s U.K. newspapers during years when James was overseeing the division.
It is a testament to James’ drive and his father’s support that he relocated to New York from London, and soldiered on in the face of investigations and arrests of dozens of people directly tied to the scandal, amid calls for his head. “It was widely said (in the U.K.) that he was either a naif or a fool,” says Steve Hewlett, BBC journalist and longtime chronicler of the Murdochs. “If he didn’t know what was going on at the time at the newspapers, he should have.”
The rehabilitation of James began slowly but surely once he settled into an office near his father’s at News Corp.’s headquarters in Midtown Manhattan. Before the hacking scandal hit fever pitch, he’d been intimately involved in News Corp.’s plan to acquire the remaining interests of BSkyB. The political fallout in the U.K. forced James to resign as chairman of BSkyB, and News Corp. to scrap its $12 billion bid to buy the additional 61% of the company.
Post-hacking, James was knee-deep in the intricate process of splitting the former News Corp. into two separate entities, with 21st Century Fox housing the media and entertainment assets, while publishing and Australian businesses stayed under the old moniker. He has also become a regular presence within Fox’s television operations, which he directly oversees.
Execs who interact with him regularly describe James as driven and enthusiastic. As Fox debates how aggressively to embrace over-the-top digital distribution options for its cable channels, TV series and movies, the younger brother is said to have consistently urged the company to be on the leading edge of change rather than get left behind.
By early 2013, James was routinely included alongside his father, Carey and other execs on Fox earnings calls with analysts. So far, he has received generally high marks from Wall Street.
“We believe James Murdoch has matured as a leader who understands the necessary changes in the digital age,” Nomura analyst Anthony DiClemente writes. “Given his increased involvement in budgeting and long-term strategy, along with his growing relationships with the investment community, we believe shareholders will largely approve his appointment as CEO.”
Lachlan Murdoch has worked for the family business in Australia and the U.S., where he was publisher of the New York Post and deputy chief operating officer of News Corp. under Chernin. His 2000-05 stint working in New York, where he oversaw publishing and the Fox Television Stations group, was by many accounts rocky, including clashes with Fox News chief Roger Ailes on station group matters, and with Chernin. At the Post, however, he was well-liked by staffers, and known for exhibiting his father’s affection for the nitty-gritty aspects of running a newspaper.
After quitting the company in frustration, Lachlan returned to Australia, and launched an investment fund, Illyria, which has had a mixed track record. He remained a board member of News Corp. (and of Fox after the split), but had no exec role until his appointment last year.
Lachlan has been a fairly frequent presence on the 20th Century Fox lot in the past few months, but remains a lesser-known commodity. That will soon change, as he is expected to relocate to Los Angeles from Sydney.
Lachlan is said to be more ingratiating and outwardly easygoing than his brother, who is younger by 15 months. He sports a tribal tattoo on his left forearm, and is known to be enthusiastic about his Australian heritage.
James is described by colleagues as more studious and buttoned-down. He is media shy — understandably given his experiences of the past few years — and likes to be briefed with talking points in situations involving public speaking and interviews. That’s a big contrast from his father’s famous shoot-from-the-hip style.
James has impressed Fox studio executives with his familiarity in using vast amounts of audience data to great affect in branding and marketing. It stems from his tenure at BSkyB, where the satcaster mined numbers gleaned via set-top boxes to better understand viewing habits. That experience has influenced recent deep-dive brand tracking studies at various Fox outlets. He’s also been keenly engaged with the big shifts in the advertising market, and championed the acquisition last December of TrueX, a digital advertising platform that aims to innovate with new ad formats and sales metrics. The TrueX offerings have been a big part of Fox’s upfront advertising sales pitches this year.
In 2013, James pushed Fox to make its $70 million investment for a 5% stake in the red-hot Vice Media. He’s a member of the company’s board, and helped drive the deal for Vice to set up a slate of films to be distributed by Fox banners.
Execs who have observed Lachlan and James at work together say they appear to have an easy rapport and complementary skills. There’s still speculation that the two are in a run-off for the top spot. All company operations will jointly report to the brothers. James will report to his father and the board of directors; Lachlan will report to the board.
Perhaps the biggest immediate challenge for the Murdoch freres outside of the public eye will be to establish their own relationships within the company — beyond the division-head level execs. Rupert Murdoch is famous for reaching out to midlevel employees with questions and observations.
Comparisons of the sons to father will be inevitable, but they’ll also be of the apples-and-oranges variety, observers say. Lachlan and James take the reins in a wildly different environment than the marketplace that Rupert sailed into when he set his sights on the U.S. film and television businesses in the early 1980s. Back then, there were three TV networks, a handful of major movie studios (most of which were struggling) and the first glimmers of the cable revolution. It was downright stodgy compared with the contemporary landscape.
There’s also much greater scrutiny of companies and leaders now that information flows so freely via online and social-media channels. Could Rupert Murdoch have survived the company’s infamous brush with bankruptcy in the early 1990s if it had happened at a time when every decimal point of his debt load would have been dissected daily on CNBC?
“Fortune favors the brave” is known to be one of Rupert Murdoch’s favorite sayings. Fortune, he can transfer to his heirs. The brave part they’ll have to earn on their own.
James Rainey and Brent Lang contributed to this report.