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Rupert Murdoch's Grip on Power Put to Test in Fox Upheaval

Published on .

Rupert Murdoch, co-chairman and founder of Twenty-First Century Fox Inc.
Rupert Murdoch, co-chairman and founder of Twenty-First Century Fox Inc. Credit: Peter Foley/Bloomberg

The eighth floor at 1211 Avenue of the Americas in Manhattan is where 21st Century Fox's top executives sit, which is why it's all the more significant that Rupert Murdoch is spending so much time six floors below.

The 86-year-old media mogul moved to the second floor and into the office vacated when Fox News chief Roger Ailes was ousted last July. Last week, Murdoch gathered staff to reveal plans for adding reporters and physically making over the newsroom, spending millions to install an open floor plan with giant data screens and a TV studio. In a statement, Murdoch described the investment in personal terms, calling it "a sign of my unwavering confidence" in Fox News.

His dedication to the project is a reminder that Murdoch is still leaving his mark on Fox even while his sons are upstairs managing his media empire. Murdoch promoted Lachlan and James two years ago to top roles, and they have worked in concert with their father on key personnel changes -- evidence that some transfer of power is happening, slowly but surely, at 21st Century Fox.

The next few months will determine whether that change in control is happening quickly enough at Fox, the $50 billion media giant Murdoch built from a single newspaper in Australia. U.S. federal investigators are examining Fox's legal settlements of sexual-harassment allegations. Executives are trying to reverse declines in ad sales, non-sports TV ratings and box office revenue. And U.K. regulators are evaluating the Murdochs' fitness as media owners as part of a review of Fox's $15 billion takeover of Sky Plc -- putting the elder Murdoch's management of Fox News front and center.

Having Murdoch run Fox News "seems counterproductive and probably not helpful in sending messages about changes in culture," Claire Enders, founder of media research firm Enders Analysis, said in an interview.

So far, the Murdochs' power-sharing structure has helped Fox weather a tumultuous period, though its stock hasn't kept up with rivals' gains. Since July 6, when a lawsuit filed by former anchor Gretchen Carlson set the harassment scandal in motion, 21st Century Fox shares have gained 1.4%, compared with a 13% increase for the S&P 500 Media Index.

But it would be better for Murdoch to gracefully step back to a role like Microsoft Corp. co-founder Bill Gates did, becoming a board member and adviser, said Jeffrey Sonnenfeld, senior associate dean for leadership studies at the Yale School of Management. Murdoch is "way too brilliant" to lose, "but he needs to give some clear sailing to the next generation to be the standard bearers now of the enterprise," he said.

Otherwise, he said, Murdoch risks joining the long list of corporate monarchs who held onto the throne too long and made mistakes that hurt their empires, from William Randolph Hearst to Sumner Redstone. The scandal at Fox News is the second major management crisis Murdoch has faced over the last decade, following the phone-hacking scandal that in 2011 derailed his first attempt to buy Sky.

Fox declined to make the Murdochs available for comment on succession and long-term strategy.

Public companies like Fox or Facebook, whose founders have voting control, are more tolerant of risk, which can be an advantage, Martin Sorrell, CEO of WPP, said in a statement with the advertising giant's most recent annual report.

"I find him as engaged as ever," Sorrell, who has known Murdoch for over 30 years, said in an interview. "He is a founder and he has a passion for the business that will continue until his dying day."

Nashville Trip

Executives who work closely with Murdoch describe a man of boundless energy and curiosity who they say shows no signs of dialing back. Robert Thomson, CEO of Murdoch's publishing company News Corp., described a trip with Murdoch in January to Nashville, Tenn., to see the HarperCollins Christian Publishing unit. Your average octogenarian media baron might not be enthused about such a trip, but Murdoch was full of questions about the tiny division. The billionaire, who spends much of his time in New York and Southern California, considered the visit a rare opportunity to get insight into trends in middle America, an audience he aims to reach with other parts of his entertainment and news businesses.

"He uses his experience from one company to inform elements about another," said Thomson, who credits Murdoch for cultivating his career and that of other successful media executives such as Peter Rice, head of Fox's Networks, and Stacey Snider, its new film studio chief.

Murdoch's public profile had been diminishing until last year. He last appeared on an earnings conference call in August 2014. The following year, he handed over leadership of 21st Century Fox to James and Lachlan, replacing his long partnership with Chase Carey, who had spent a decade as Fox's chief operating officer. Last year, Murdoch gave up weighing in on politics via his Twitter account as he went off on honeymoon with his new wife, model Jerry Hall.

Then last July, the Murdochs decided Rupert would replace Ailes as CEO of the most-watched news network, the jewel in Fox's crown, assuaging fears that Fox News might lose the distinctive conservative tone that has made it so popular. Ailes, who died last week at 77, was brought down by allegations by Carlson and other women that he retaliated against them for refusing his sexual advances. Fox has run up $45 million so far on legal settlements and provisions related to Ailes's departure, and the company is defending itself in numerous discrimination lawsuits, including three filed Monday.

Murdoch, meanwhile, started running a newsroom again -- overseeing all major decisions about talent and programming and the financial and operational aspects of Fox News.

Trump Tweets

At the same time, Murdoch has improved relations with Trump, who once eyed Fox News with suspicion, famously butting heads with former host Megyn Kelly during a 2015 campaign debate and calling the network "unfair and unbalanced" in a February 2016 tweet. Murdoch was equally critical of Trump, asking in a July 2015 tweet, "When is Donald Trump going to stop embarrassing his friends, let alone the whole country?"

But as Trump's run for president gained traction, he was spotted in public with Murdoch at Trump Tower and on the golf course. Earlier this month, Murdoch introduced the president, who he called "my friend," at an event hosted by the American Australian Association to commemorate a World War II battle. Trump, arms wide open, greeted the media baron with a hug and proclaimed, "There's only one Rupert." The president now tweets often about things he sees on Fox News.

Questions remain about how Murdoch's heirs will share power after he dies. All that has been reported is that his eldest four children -- James, Lachlan, Elisabeth and Prudence -- have voting shares in a family trust. "What happens post-Rupert, I have no idea," said Rich Greenfield, an analyst at BTIG who has a neutral recommendation on the stock and has been covering the company since 1995.

Investors have grown comfortable with the idea of Murdoch and his sons working together on Fox's strategic direction, Greenfield said. The triumvirate of James, Rupert and Lachlan ushered in an orderly change of leadership at the film studio, hiring Snider and eventually promoting her to replace Jim Gianopulos. Contract renewals with cable carriers helped increase fees from pay-TV companies last quarter by 8%, a trend the company expects to accelerate. Murdoch still spends part of his time in his office on the eighth floor with his sons.

The trio decided on a call together to let go of O'Reilly last month amid sexual-harassment allegations. Despite the seriousness of the claims, O'Reilly's dismissal was still a remarkable decision given the host had claimed the top slot in cable TV news for a decade. Fox News co-president Bill Shine was ousted shortly after, part of an attempt to show Fox was taking drastic steps to address the situation.

"Don't try to separate Rupert from Lachlan from James," said BTIG's Greenfield. "This is the Murdoch family ownership and you will live or die in the stock based on their vision and success."

-- Bloomberg News

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