Murdoch Shake-Up: What to Expect From James and Lachlan's 21st Century Fox
While the younger Murdoch son has shown an interest in digital and younger-skewing media businesses, few expect a U-turn for Fox.
James Murdoch, expected to be named the new CEO of 21st Century Fox with his father Rupert focusing on the chairman role, has continued to take on more responsibility at the entertainment conglomerate in recent years. Recently, the younger Murdoch brother has managed to avoid the negative headlines that, during the phone-hacking trial, threatened his ascension to the day-to-day leadership role at the entertainment conglomerate.
He will be complemented by older brother Lachlan Murdoch, who is expected to rise from non-executive chairman to executive co-chair.
Sources say Rupert envisions the set-up as a partnership between the brothers, with James, 42, in a day-to-day management role based in New York and Lachlan, 43, in a bigger-picture role with a more active business role than in the past, set up in Los Angeles.
One source says if the set-up succeeds, it could work like the partnership that Rupert Murdoch has had with right-hand man Chase Carey, currently president and COO. But the father will also remain actively involved, creating a family triumvirate of sorts, as one Wall Street observer calls it.
James has a reputation for having an eye for business details and also for being sharp, decisive and digitally savvy, with detailed knowledge of the company’s businesses, including an ability to recall stats and data points. At investor conferences, he has shown more interest in covering business ground than engaging in banter.
One fan on Wall Street says that James Murdoch has a global perspective — given his experience running different parts of the far-flung Fox empire — and has an active interest in digital and emerging businesses, also noting that James is a better speaker than his father. One observer also said that while during his time in Britain, James had a reputation for being prickly, but that didn't seem to be the case since his move to the U.S.
A more critical observer points out that James sometimes discusses issues by using corporate terms that may not resonate with creatives. For example, in a MIPCOM keynote last year, he discussed the Shine, Endemol, Core Media merger, saying: "It’s important to keep a certain amount of decision-making highly empowered around a subset of things. You can’t over-synergize."
Wall Street and Hollywood have seen more of James Murdoch since his March 2011 elevation to the role of deputy COO of what was then News Corp., before the split into Fox and publishing firm News Corp, and then his appointment as co-COO in March 2014.
“We believe investors have anticipated this announcement for some time,” Macquarie Capital analyst Tim Nollen said Thursday about Murdoch’s expected appointment as CEO and a move into an advisory role for president and COO Chase Carey, who has closely worked with James on a transition.
“While Carey has been a respected leader for some time, we sense investors are getting more comfortable with James Murdoch, who has led Fox’s Star Asia and former BSkyB operations,” said Nollen.
Carey in 2011 lauded James Murdoch, who has a standing desk at Fox’s midtown Manhattan headquarters, as "a shrewd and decisive operator who can deftly navigate complex issues to transform businesses."
In 2011, James described global media firms as “gray and tired” during a speech in India. And he managed to convince his father that his companies had to take steps to help fight global warming.
In his younger years, James developed a reputation as a rebel. While he studied film and history at Harvard, he edited underground magazines and drew a comic strip for the school's satirical magazine, Harvard Lampoon. He dropped out in 1995 and then helped university friends establish hip hop label Rawkus Records with his financial backing. News Corp. acquired the company in 1998.
In comparison to James' recent Fox past, Lachlan has had a reputation for preferring to stay away from the family business spotlight ever since abruptly resigning from his News Corp. executive role as deputy COO in 2005. But he has been more involved in company planning with his brother and unit heads over the past year.
Lachlan's most touted deal for News Corp. was the acquisition of a controlling stake in Australian online real estate business REA. His corporate bio says it began with a $1 million cash investment and "resulted in a corporate asset that is currently valued at more than $3 billion."
Many have expected the brothers' rise, but some investors are expected to worry about the Murdoch family's consolidated leadership power.
“While some may grumble about power consolidating in the Murdoch family, we also think this change at the top has been pre-ordained for a long time, anyway,” Nollen said. Cowen analyst Doug Creutz contributed to that grumble in a Thursday report entitled “All in the Family.”
“The bigger issue is the appearance that he is inheriting the role largely by dint of his last name rather than exclusively due to his qualifications,” he wrote. “Corporate governance best practices would involve a search by the board to find the best candidate for the position. Therefore, investors may be concerned that company performance would be worse than it could have been under an alternate scenario where the board sought out the best professional manager available.”
Others lauded Murdoch for setting a clear succession plan early enough, with one Wall Street observer drawing a comparison to Viacom and controlling shareholder and chairman Sumner Redstone. "At Viacom, it's a guessing game still," that person said.
Creutz also raised the hacking scandal that a few years ago led some to doubt that James Murdoch would ever become CEO. While he always emphasized that he wasn't aware of hacking beyond a single rogue reporter, James later said he should have been more active in and focused on investigating the issue more fully when he oversaw News International, as the company’s U.K. newspaper arm was known then.
Most say he has since shown some smart decision-making as a top executive. Analysts cite Fox’s decision to sell Chinese businesses amid continued hurdles in the big Asian market and a $70 million deal with Vice Media that gave Fox a 5 percent stake and James Murdoch a board seat. And late in 2014, Fox agreed to acquire true[X] media, a video advertising company that specializes in consumer engagement and on-demand marketing campaigns, for a price tag approaching $200 million.
“He has proven to have an eye for emerging opportunities and an interest in digital businesses and new business models,” said one media and entertainment investor.
“We do not necessarily think that James will be the same kind of CEO that Rupert has been, as we have never been a believer in "sins of the father" doctrine,” said Creutz. “James does have extensive operational experience, and could turn out to be a good or even great CEO who is more sensitive to shareholder concerns than Rupert was.”
But he also added: “While we are willing to give James the benefit of the doubt that he can be a competent CEO until proven otherwise, the fact that the company remains a family-run business remains a significant obstacle to our willingness to become more constructive on shares.” He reiterated his “market perform” rating on the stock.
He and others expect that Fox will end up lowering its fiscal year 2016 financial guidance, something that some on Wall Street have been predicting amid foreign exchange and other headwinds.
“A reduction to the company's current fiscal year 2016 ... guidance ... on the upcoming year-end conference call is likely, so a CEO transition at the same time would give James a chance to start with expectations having been reset to a presumably low bar,” Creutz said.
Will James and Lachlan Murdoch change course completely?
“We don’t expect any radical changes in strategy; James Murdoch seems mostly aligned with the current strategic thinking and has arguably burnished his operating pedigree in his current role and interactions with analysts/investors,” said S&P Capital IQ analyst Tuna Amobi. “However, one might expect him to be slightly more adventurous regarding M&A activity, particularly on the digital and international fronts.”
In Europe, industry observers on Thursday actively debated the ascension of James and Lachlan Murdoch. In always-Murdoch-fascinated London, the big question industry watchers had was whether after its executive rejig, Fox would be more likely to sell pan-European pay TV giant Sky or take another run at buying full control. That plan was abandoned amid the hacking scandal.
While some said the younger Murdoch seemed to have an appreciation for both content and distribution assets, MoffettNathanson analyst Michael Nathanson shared one suggestion in a research note. “We would strongly urge the company to sell down its Sky holding and use the proceeds to retire shares,” he wrote. “This action would create a more efficient corporate structure, unlock long-term under-appreciated value and finish the transformation of Fox from media conglomerate to pure-play video content company.”