Murdoch & Sons: Lachlan, James and Rupert’s $62bn Media empire

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1991

Matthew Garrahan

On a cold winter morning last month, James Murdoch took to the stage at a digital media conference in a skyscraper overlooking Central Park and sat down on a beige sofa. The room was packed — members of the Murdoch family tend to draw a crowd. Dressed in the media CEO uniform of jeans, suit jacket and open-necked white shirt, he deftly parried questions about the political leanings of the Fox News Channel.

Asked if the network was, as its slogan claims, “fair and balanced” — a question that elicited some giggles from the audience — Murdoch pointed to the difference between its news reporting and its opinion shows, where conservative warriors such as Bill O’Reilly command big primetime audiences.

     If Rupert Murdoch’s second son was nervous about the multibillion-pound deal he had been secretly putting together — a deal that would reignite a political storm dating back to the 2011 tabloid phone-hacking scandal — he certainly didn’t show it.

Less than 48 hours later the news was out: 21st Century Fox, the entertainment company run by James and jointly chaired by his elder brother, Lachlan, and their father, announced an £11.7bn proposal to buy the 61 per cent of Sky that it didn’t already own. Critics ranging from former Labour leader Ed Miliband to Hacked Off, the press reform pressure group, immediately spoke out against it, citing the behaviour of Murdoch-owned tabloids during the phone-hacking scandal.

The Guardian ran an editorial with the headline: “The fox is in the henhouse again”, and more than 100,000 people signed a petition urging the government to refer the proposed takeover to Ofcom, the UK media regulator. “Rupert Murdoch . . . already has too much influence over our news,” the petition stated. “This new power grab would give him even more.”

This is the second time the Murdochs have tried to buy all of Sky, having withdrawn their first bid almost six years ago in the face of public outrage around the hacking scandal. It is unclear if they will succeed this time around, although executives inside Fox are privately confident. What is more certain is that a gradual transfer of power from Rupert Murdoch to his sons, a process that began when he gave them big new jobs in the summer of 2015, is picking up pace.

When Fox confirmed a week after the Business Insider conference that it had made a formal offer to Sky about a takeover, it was James and Lachlan who laid out the company’s plans on a call with investors: Rupert, the press baron who founded British Sky Broadcasting in 1989, was absent.

When the former Fox News presenter Gretchen Carlson sued the channel’s chairman Roger Ailes for sexual harassment last summer, it was James and Lachlan who swiftly authorised an independent investigation by an outside law firm into the allegations — something that led to Ailes being forced out of the network he had founded 20 years earlier.

Rupert, returning from a holiday with his new wife Jerry Hall, joined the discussions later. This is not to say that the 85-year-old Rupert has detached himself from the empire he spent more than half a century assembling. In some respects, he has more direct involvement now than he has had in years. He has been running Fox News since Ailes’s departure (a permanent successor has yet to be found) and was also closely involved in coverage of the Brexit campaign at The Sun, Britain’s best-selling daily newspaper.

Still, 18 months after he began the orderly transfer of power to his sons (there was no official role for Elisabeth, his daughter) James and Lachlan, 44 and 45, are making their mark.
The brothers oversee an enviable collection of businesses — a movie studio, cable channels and a publishing house worth a combined $62bn. But that does not mean they have nothing to worry about.

Their newspapers have been walloped by an industry-wide collapse in print advertising, while Fox’s television networks are grappling with the “cord-cutting” phenomenon — the cancellation of pricey cable subscriptions by a generation that prefers binge-watching on demand. For owners of channels such as Fox that means fewer viewers and pressure on advertising.

The competition is also beefing up. Time Warner, one of Fox’s main rivals and the owner of HBO, CNN and Warner Bros, has agreed a blockbuster $85.4bn sale to AT&T, which will create a giant that dwarfs Fox. If it is cleared by regulators, the combined company will be able to deliver Time Warner movies and TV programming direct to more than 160 million AT&T customers around the US — something Fox is currently unable to do. Add these challenges to the scrutiny and opposition that their Sky deal will generate and the younger Murdochs find themselves in a challenging environment.

Their father overcame considerable obstacles to become the world’s most influential media mogul, battling political establishments on both sides of the Atlantic and making risky bets along the way, buying The Sun, launching Sky and Fox News, to name but three.

The question now facing James and Lachlan is this: do they have what it takes to fill his shoes? *** Like any family, the Murdochs have had their share of rows. The difference is that the Murdochs control a vast array of global businesses and brands, so, if and when they fall out, the stakes are somewhat higher. “It’s like Game of Thrones,” says one person who knows them well. “Or The Hunger Games.”

In 2005, Lachlan abruptly left a senior position in New York running News Corp’s television stations and moved to Australia. The catalyst for his departure may have been Rupert siding with Roger Ailes over him in a programming-related matter.

The decision would not have been taken lightly: his exit appeared to end his chances of one day succeeding his father. Rupert had once remarked that of all his children, Lachlan was his most likely successor because, “He was the one who was always most interested . . . when he was a 13-year-old kid, he worked as an apprentice with the printers in the pressroom, cleaning all the oil and the grease off the press.” When Lachlan returned to Australia, he embarked on several new business ventures — including investing in Nova Entertainment, a radio group.

He had started his career in Australia in the mid-1990s, where he learnt the ropes at News Corp’s print and broadcast operations. Then, in 2000, he led an investment by News Corp in REA, an Australia-based real estate listings company. The company later increased its stake to 61 per cent, paying a total of about $100m. Today, News Corp’s investment is worth more than $3.3bn.
With a tribal tattoo on his left forearm, Lachlan is not as buttoned-up as the typical corporate executive. Passionate about photography, mountain climbing and the great outdoors, he returned to Fox in 2015 after a decade in Australia, driving on to the company’s studio lot in Los Angeles in a pick-up truck.

According to Peter Macourt, the former chief operating officer of News Corp Australia who worked closely with him in the late 1990s and early 2000s, Lachlan shares many traits with his father. “They are both very open and like to get people’s views,” he says.

Lachlan wasn’t someone to rush around barking orders. “It was always a two-way conversation rather than a dictatorial way of approaching management.” There has always been a competitive streak to Lachlan and James, who are 15 months apart in age, but close observers say there have been no real fireworks since James was made Fox chief executive and Lachlan chairman (alongside his father) in the summer of 2015.

“I don’t think they are close but I don’t think they are fighting,” says one. A colleague puts it more bluntly. James and Lachlan “are figuring out how to get along. It’s not a secret that they are not big fans of each other.” One person close to Fox insists the brothers’ relationship is good. “The family had some complicated issues years ago but are in a great place now.”

James did not always seem destined for a career in the family business. He attended Harvard as an undergraduate, where he contributed to The Harvard Lampoon magazine, writing a comic strip called Albrecht the Atypical Hun. He left before finishing his degree and started Rawkus Records with two friends: the label, located between a falafel restaurant and a porn shop in New York’s Tribeca district, would claim a place in hip-hop folklore because of the role it played in launching several top acts, including Mos Def and Talib Kweli.

News Corp ultimately acquired Rawkus and, while James no longer has any direct involvement in it, he continues to be interested in hip-hop. He raved to me about Hamilton, Lin-Manuel Miranda’s acclaimed hip-hop musical, shortly after its Broadway debut in 2015 and urged friends and colleagues to see it.

Jason Hirschhorn, who now runs the MediaREDEF news letter, first met James Murdoch at Horace Mann School in New York. “His first day on the bus he had a shaved head and an earring,” he tells me. “He was reading Catcher in the Rye and wearing Chuck Taylor sneakers.”

The two bonded over a shared love of sneakers and are friends to this day: Hirschhorn, who has worked at MTV and was co-chairman of MySpace, says James understands that content and distribution “are being married together” and that Fox content “has to be where the audience is”.
The brothers may have the top two jobs at Fox but it was their older sister, Elisabeth, who was once the favourite to get a big role running the family businesses. The 48-year-old is a seasoned executive and founded Shine, the independent television group behind MasterChef, which was later acquired by Fox.

Her father admired what she had achieved but their relationship soured during the phone-hacking scandal. She was critical of James’s and Rupert’s response to the unfolding drama, which upset Rupert, who expected her to stand with the family, according to an insider.

Elisabeth distanced herself further in her 2012 MacTaggart lecture at the Edinburgh television festival in which she criticised aspects of James’s lecture at the same venue three years earlier and defended a regular Murdoch punchbag — the BBC. Murdoch’s increasing hostility to Elisabeth’s then husband, the London PR man Matthew Freud, complicated matters. People with knowledge of the situation say that Freud’s ongoing friendship with Tony Blair angered Rupert after allegations emerged that Blair may have had an affair with Murdoch’s ex-wife, Wendi.

Freud and Elisabeth separated in 2014 and friends note a marked improvement in her relationship with her father. They spent part of last summer and Christmas together and are said to be the closest they have been in years.
Still, the chances of her returning to the fold with a formal role look remote. In a 2015 interview with the Hollywood Reporter, James said Elisabeth’s decision to leave Shine after it had been acquired by Fox was a “regret”, adding: “We’re a close family but she’s doing other things now.” A source told me Rupert would “love to have her back in” but the word from people who know Elisabeth is that she has no interest in returning. *** It has been 18 months since the brothers were given their new roles and the verdict from people who know them is that so far they have handled the transition well.

“They are well suited to assuming the mantle and will do a very good job,” says Sir Martin Sorrell, chief executive of WPP, which buys advertising for its clients at News Corp titles and on Fox channels. He has known the family for years.

“It’s a triumvirate, because Rupert is still very much involved. I’m told he was in the office every day over Christmas.” Triumvirates are not common at the head of large companies for good reason: someone needs to take responsibility for the big decisions.

Lachlan is the co-chairman of News Corp alongside his father, but former Times and Wall Street Journal editor Robert Thomson, who is its chief executive, makes day-to-day decisions.

“[At Fox] the way it tends to work is that the movie studio is Lachlan and Rupert, anything to do with international television — Sky, Star — is James,” one executive says. “Then a little bit of the US television stuff is up for grabs except Fox News, which is all Rupert.”
A person close to Fox puts it differently, saying major decisions are made jointly: “It is a true partnership between Lachlan and James.” Another executive scoffs at this: “The big issue is the dynamic between the three of them . . . it’s very weird,” he says. They are rarely together in one place: Lachlan works out of the Fox studio in LA, while James is at the building it shares with News Corp in midtown Manhattan. (He is also developing a property that a colleague describes as an “end-of-times house”, with its own water and solar power supply, in a remote part of Canada.)

“What they haven’t worked out is a clear line of authority,” the executive continues. “It’s really management by committee or James and Lachlan trying to get Rupert to agree to something.” The brothers will manage the Sky bid with the aim of avoiding the fate of the last offer they made for the company.

Back in 2010, the family couldn’t have handled things much worse, according to Claire Enders, the media analyst. She points to the aggressive posture taken at the time, particularly by James, who in his 2009 MacTaggart lecture lambasted the BBC, calling the scale of its activities “chilling” and describing the regulation of UK broadcasting as “authoritarianism” that limited choice and freedom of expression.

This disdain carried over into the first Sky bid a year later, with “hectoring” phone calls by the Murdoch camp to government ministers, Enders says. It was, she goes on, “an extraordinary farce”.

It’s a triumvirate because Rupert is still very much involved . . . he was in the office every day over Christmas Martin Sorrell, chief executive, WPP The bid this time has been made in less charged circumstances. There has been no antagonism towards Ofcom or the government and no backdrop of a criminal investigation. “The previous bid was highly politicised but this bid is very deliberately not politicised at all,” says Enders.

The Murdochs, she adds, “are being patient and understanding and they are not hectoring”. David Yelland, a former editor of The Sun who now runs Kitchen Table Partners, a communications firm, agrees there has been a change of tone. “I don’t think they’ve ever done a better-timed transaction and they’ve done it in the right way.” He says Fox and News Corp are using more professional advisers and that corporate governance standards at the two companies have improved.

“There used to be people who ran Sky who would get calls from Rupert and he would tell them about something Sky was going to do. And they would say: ‘Great, have you spoken to the board?’ And he would say: ‘I am speaking to the board, aren’t I?’” The Sky offer that landed just before Christmas has an air of inevitability about it, Yelland suggests. “It could have been incredibly controversial but by the time it got dark in London that night you knew it was a done deal.”
Not everyone shares this view and there are plenty of people for whom phone-hacking memories still linger. Ed Miliband was leader of the Labour party in 2011 when what had been a minor scandal about a few rogue tabloid journalists erupted into global outrage about institutional corruption at UK tabloid newspapers.

The catalyst was The Guardian’s revelation that journalists at the News of the World, Murdoch’s best-selling Sunday tabloid, had hacked the voicemail of Milly Dowler, a murdered schoolgirl. With his empire in crisis, Rupert Murdoch closed the newspaper.

The revulsion at the time was widespread and focused attention on the contentious bid for Sky. Miliband led the attack, tabling a motion in the House of Commons calling for the bid to be blocked. It was unanimously approved by MPs.

The Murdochs dropped the bid and, in that same summer of 2011, James and Rupert appeared in front of a House of Commons select committee, where they apologised for the phone-hacking scandal. Rupert told the committee it was “the most humble day of my life”. Miliband is incredulous that the Murdochs have come back for a second tilt at Sky.

“Politicians from all parties agreed that phone hacking and the events that had taken place at Murdoch newspapers were shocking and shouldn’t be allowed to happen again,” he told me. “Here we are six years later and they think they can come back and try and take over Sky again as if nothing ever happened.” He points to a 2012 report by Ofcom into whether Sky was sufficiently “fit and proper” to hold a broadcasting licence. This was before the Murdochs had split their assets into two companies, so all of their businesses and investments — including the 39 per cent stake in Sky — were at that point housed within News Corp.

The Ofcom report concluded that Sky was indeed fit and proper but censured James, who was then running News Corp’s UK arm, saying he “repeatedly fell short of the conduct to be expected of him as a chief executive officer and chairman”.
“It was clear from the Ofcom report that its basis for ruling Sky to be fit and proper to hold a licence was that the Murdochs were minority and not 100 per cent owners — and that James was not in an executive role,” Miliband says.

“What we see now is James is the chief executive of Fox and that the Murdochs are trying to take full control of Sky. Ofcom has a continuing duty to assess fitness and it seems to me that it should revisit that report given the changing circumstances.” Miliband and other opponents of the new offer, such as deputy Labour leader Tom Watson, have also voiced concerns that the sale would threaten media plurality: in other words, it would concentrate ownership and reduce the diversity of views in the marketplace.

Fox insiders disagree and say the media landscape has shifted significantly since 2011. Platforms such as Facebook and Google now dominate the distribution of online news, while a new generation of digital publishers that includes BuzzFeed, Vox and Vice attracts large audiences. Fox executives are also privately confident about their chances because the company has not owned newspapers since its demerger with News Corp in 2013. And yet the family that ultimately controls those two companies is still the Murdochs. Miliband says the deal cannot be allowed to proceed. “This is a big test of government and regulator.

Will they act without fear or favour, even in the face of such a powerful company? The Murdochs may think that this will be waved through by a friendly government. I intend to give them a run for their money.” *** There is little doubt that the Murdochs are using different tactics this time, with Rupert assuming a much lower profile.

It is unclear if this is by default or design: elsewhere in his companies he has been more engaged than ever. He was in The Sun newsroom on a near daily basis in the weeks leading up to the Brexit referendum and was often spotted in the office of the editor, Tony Gallagher. He has always taken a close interest in the layout, design and content of the paper and, in Gallagher, has someone who shares his view that Britain will be better off out of the EU.

While The Sun backed Brexit, The Times, another News Corp paper, did not: Murdoch was decidedly unhappy about the editorial line it took and made his feelings known, according to another insider. He was even more hands-on at Fox News after Ailes was forced out last summer, stepping in as interim chief executive — a position he continues to hold — and leading the network through its coverage of the presidential election. Alongside Brexit the Trump victory must have ranked, according to Yelland, as “the two great moments for Rupert as a populist.”

Recent moves show that Rupert has his eye on the next four years and the Trump administration. When, after a public spat with Trump, Fox News star Megyn Kelly left the network this month for a lucrative deal at NBC, it was Murdoch who selected her replacement, Tucker Carlson, to take Kelly’s coveted 9pm slot.

Wedged between Bill O’Reilly at 8pm and Sean Hannity at 10pm, it means that the network’s three primetime hours are now hosted by pro-Trump presenters.

Compared with its rivals CNN and MSNBC it also devoted less time to last weekend’s anti-Trump women’s marches, with its pundits dismissing their significance. “The reason you get big marches in cities is that’s where the left lives,” said one presenter, Greg Gutfield.

Murdoch is in regular contact with Trump, according to two people familiar with the situation, and is also friendly with Ivanka, the new president’s daughter, and her husband, Jared Kushner, the top Trump adviser who helped steer the winning campaign.

New York Magazine recently reported that Trump had asked Murdoch to suggest candidates to run the Federal Communications Commission, which regulates the media industry — and which is likely to scrutinise the AT&T-Time Warner deal. Murdoch had, in return, requested restrictions on AT&T’s proposed purchase of Time Warner, the magazine claimed. A Fox spokesperson declined to comment.

James told more than one friend of his dismay at the Trump presidency Murdoch’s support for Trump distinguishes him from some of his children, including James, who told more than one friend of his dismay that his father was backing the Trump candidacy. James’s wife, Kathryn, backed Hillary Clinton during the campaign and has been a vocal critic of the new president on Twitter.

In September Kathryn tweeted: “A vote for Trump is a vote for climate catastrophe”, while on the night of the president’s stunning election victory she wrote: “I can’t believe this is happening.

I am so ashamed.” James and Kathryn are committed environmentalists: she is on the board of the Environmental Defense Fund, which a Fox News report recently labelled a “leftwing group”, while James wrote in The Washington Post in 2009 that “conservation-minded conservatives” were “missing in the heated partisanship of today’s politics”. “His passion for the environment is real,” says Gary Knell, president and chief executive of the National Geographic Society.

It recently expanded an 18-year partnership with Fox that gives the Murdoch company effective ownership of the society’s publications and cable channels. National Geographic, which champions science and conservation, is an unusual stablemate for Fox News, where Greg Gutfield said on air last year that public figures such as Alec Baldwin who had spoken out about climate change had “a lot in common with Isis because they . . . want to go back to the seventh century”.

I don’t think anyone wants to acknowledge that he is about to be 86 years old A Murdoch family friend Knell is unconcerned. “There may be parts of the organisation I don’t agree with but my view is that a company like Fox has partnered with us to expand our scope and that works fine,” he told me.

“I can tell you personally that I wouldn’t have suggested the deal to our board if a [prospective] co-owner did not respect science or the environment.” He says James attended the White House screening of Before the Flood, a documentary on climate change that National Geographic produced.

“We did a [magazine] issue on global warming and climate change and [James] told us that he reads the magazine with his kids,” Knell says. “Lachlan has been very supportive as well.” Their father has a rather different view of climate change.

In 2015, when he was still using social media, Rupert tweeted that he was a “climate change skeptic, not a denier”. He — and Fox News — also differ with younger members of his family when it comes to Trump. A senior Murdoch executive tells me there is no pressure to fall into political line. “You don’t have to agree with Rupert.

During Brexit, there were people around who were passionately for the Remain campaign.” This is true of the Fox movie studio too, where most employees are Democrats. “We are all united by our anti-establishment beliefs,” the executive says.

“I’m not sure it’s a bad thing if people disagree with each other.” *** Rupert may have taken a backseat role in the Sky deal but he still rules the roost.

He personally selected former DreamWorks chief executive Stacey Snider as the new chairman of Fox’s movie studios. An insider says Rupert was lobbied to appoint her by David Geffen and Jeffrey Katzenberg, two of Hollywood’s most influential players and the co-founders of the DreamWorks movie studio alongside Steven Spielberg.
Rupert also has the last word on the biggest decisions. Sky was among several companies exploring an offer for Formula One last autumn when Chase Carey, Rupert’s former top lieutenant at Fox — and a Sky board member — asked to be recused from board meetings. Carey had been approached by John Malone’s Liberty Media to run Formula One if its own offer was successful and wanted him to join its bid. James, who was intent on buying Formula One, didn’t want Carey to do so.

But Rupert didn’t object. That Carey left “tells you Rupert still calls the shots”, says one person familiar with what happened. Liberty won the bid: Carey, now installed as the new Formula One CEO, is drawing up grand plans to overhaul the sport.

For how much longer Rupert will be able to call the shots is unclear. “I don’t think anyone wants to acknowledge that he is about to be 86 years old,” a friend says. “The big question is going to be what happens when he steps aside.”

There are other pressing questions. The proposed AT&T-Time Warner deal, if approved, poses a clear competitive threat. Fox’s purchase of Sky will give it similar direct access to millions of consumers in Europe — assuming the deal is cleared. But Fox still lacks a direct route to viewers in the US, the world’s biggest media market, which means it will continue to be beholden to the cable and satellite companies that distribute the channels that make up the bulk of its profits.

Murdoch’s Sun newspaper, which advocated Brexit, on June 14 2016 Fox does own a stake in Hulu, a video-streaming service that has more than 12 million paying subscribers in the US and which is about to launch a virtual cable service — a collection of broadcast and cable channels bundled together and accessed over the internet.

Viewers will be able to subscribe to the Hulu live service without having to shell out for cable or satellite television. Fox has high hopes but it only owns 30 per cent of Hulu, as do Disney and NBCUniversal, with Time Warner owning the rest. Buying all of Hulu would be tricky, given that its co-owners are rivals, but if the future of media is about selling subscriptions directly to consumers then Fox doesn’t have many other options.

Another possibility — following Time Warner’s example and selling itself to a big telecoms company — is unlikely to be considered. “Do you really want to be James and Lachlan and say: we’re the guys who decided to sell the family company?” one friend says.

Whatever they decide, the younger Murdochs have their work cut out if they are to emulate their father who, more than 60 years since he started out in Australian newspapers, still has a feel for the popular pulse like nobody else.

“Like it or loathe it, it’s all swung Rupert’s way,” says one colleague, pointing to the role Fox and News Corp outlets played in the votes that upended the American and British political establishments last year. “The access, the influence . . . it’s all there.” Matthew Garrahan is the FT’s global media editor Illustration by Hellovon Photographs: Austin Hargrave/August; Bloomberg; Getty; AFP

 

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Godwin Okafor is a Financial Journalist, Internet Social Entrepreneur and Founder of Naija247news Media Limited. He has over 16 years experience in financial journalism. His experience cuts across traditional and digital media. He started his journalism career at Business Day, Nigeria and founded Naija247news Media in 2010. Godwin holds a Bachelors degree in Industrial Relations and Personnel Management from the Lagos State University, Ojo, Lagos. He is an alumni of Lagos Business School and a Fellow of the University of Pennsylvania (Wharton Seminar for Business Journalists). Over the years, he has won a number of journalism awards. Godwin is the chairman of Emmerich Resources Limited, the publisher of Naija247news.

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