News Corp. Scandal: Why Chase Carey Could Emerge as New Leader (Analysis)
Rupert Murdoch's No. 2 has huge Wall Street support as the company's stock plunges more than 12% amid a widening phone-hacking scandal and government probes.
However the News Corp. phone-hacking scandal plays out, it will leave Rupert Murdoch’s reputation tarnished and his son James’s future role in the global conglomerate in question, at least in the short term.
But despite the evolving problems, the reputation of one top News Corp. executive has actually been enhanced by his role in the messy affair. He is Chase Carey, the tough-minded deputy chairman, president and chief operating officer.
Carey’s return to News Corp. as Murdoch’s No. 2 following the exit of Peter Chernin in 2009 was hailed by Wall Street, where he is respected for his business acumen. Now with the News Corp. stock down more than 12 percent as the scandal widens and various government probes heat up, Carey is seen in the business community as someone who could be trusted to keep News Corp. on course while the Murdochs, who hold a controlling interest, deal with the unfortunate affair.
In the meantime, Carey, 57, has stepped up and become even closer to Rupert Murdoch, who turned 80 earlier this year. A number of news outlets reported Thursday that the decision to abandon the bid to buy all of BSkyB was made by Rupert Murdoch and Carey while James Murdoch, who has been a strong supporter of the biggest acquisition in company history, was only consulted after the decision was made.
That suggests James' role may be less than was originally planned. The Murdochs also face a big distraction as they prepare to endure parliamentary scrutiny in the U.K., where James is said to have been the one who approved payments to hacking victims. The FBI has opened an investigation into allegations that News Corp. tried to hack into the phones of Sept. 11 victims, and there may even be new inquiries in the U.S. as the contagion spreads.
Carey, in fact, may have been happy to get out of the BSkyB deal, even though it promised to gush cash for News Corp. Back when it was still being discussed earlier this year, Carey said, "I want to reiterate one more time that we'll be very disciplined about this process and we will pursue other options for our capital if we can't reach a reasonable deal."
Sources on Wall Street also credit Carey with the decision to buy back an additional $5 billion in News Corp. stock in the wake of the falling share price, as a way to bolster investor confidence and dampen concerns about the company’s future. Collins Stewart analyst Thomas Eagan said in a report on Thursday that News Corp.'s buyback has Carey written all over it: "To us, the buyback reflects News Corp. becoming more shareholder friendly and is undoubtedly due to the impact of COO Chase Carey."
Wall Street also credits Carey with the decision to sell the online social network MySpace at a fire-sale price because it had become a drain and a distraction. Carey had said months ago in an earnings call with stock market analysts that if losses at MySpace were not stemmed, the company would face a sale. That is what happened.
Carey did support the decision to buy Elisabeth Murdoch’s company, Shine Group, for $674 million earlier this year, but he seemed to be towing the party line, not cheering for the pricey acquisition.
For years, News Corp. stock has traded at what is called the “Murdoch discount,” meaning that investors pay less for the stock because it is controlled by one family, which means no outsider can come in and attempt a hostile takeover that would raise the price. That control has also given Rupert Murdoch the power to push through deals that some investors thought cost too much and brought too much risk.
On Wall Street, the idea of Carey taking a bigger role elicits the opposite effect, what might be called the Carey dividend. That’s because of confidence that he will operate the company to maximize profits. The feeling is Carey will be a counter weight to Rupert Murdoch’s penchant to make big expensive acquisitions like The Wall Street Journal, which resulted in a $3 billion write-down in 2009.
Murdoch, who started his career by taking over his father’s newspaper in Australia when he was only 22, has always had a warm spot in his heart for newspapers. That is why many believe has not only overpaid for the Journalbut also kept alive the New York Postfor years even though most of that time it has lost money on an operating basis.
What newspapers do for Murdoch is give him enormous political power. He has used his papers for years -- in Australia, the U.K. and the U.S. -- to promote his political allies and put down those who don’t agree with his politics. That political muscle has contributed to the current backlash in the U.K., where politicians were afraid to take the Murdochs on for many years. Now those gloves have come off.
One theory being circulated is that the scandal could lead to a split of the News Corp. empire between News International, the newspapers worldwide; and everything else, including the broadcast and cable networks, 20th Century Fox, Fox News and much more.
Carey is believed to support such a split, because he sees newspapers as slow-growth assets and, in light of the scandal, as a potential political headache that could hinder the company’s continued growth in TV, cable and news media.
Rupert Murdoch, it is said, still wants to keep the company intact, newspapers and all.
While Carey’s role at one of the most important show business conglomerates in the world has risen and grown, he has purposely kept a low profile in public. He grants few interviews, only occasionally makes speeches (and then usually to bolster the company to investors or the industry) and is rarely seen in Hollywood.
In a March profile, the L.A. Times wrote that “Carey’s idea of the perfect night is a six-pack and a Yankees game. Unlike Chernin, who enjoyed the glitz of the entertainment industry, Carey ducks the limelight and seldom pops up on the fundraiser and award show circuit.”
Carey, however, is well known in the broadcast industry, and not just for having helped create the Fox network and having run DirecTV. Carey is famous for his tough negotiating tactics and fierce focus on the bottom line.
Earlier this year, it was Carey who took on the Fox Broadcasting affiliates demanding a significant share of their retransmission revenue (money paid by cable operators to carry the Fox stations in each local market). If they wanted to continue carrying shows like American Idol and Glee, as well as major sports like MLB baseball, NFL football and NASCAR, he made it clear they would pay more -- or else. And Carey has kept his word, stripping network affiliation from those who won’t live by his show-me-the-money approach.
Carey has been equally tough on cable and satellite operators who carry the company’s services like FX, Fox Sports and those local signals. Carey was at the helm for a high profile showdown with the big New York area cable operator Cablevision last fall, which resulted in some cable customers having baseball playoff games blacked out for a time.
A native New Yorker, Carey attended Colgate University and first went to work at News Corp. in 1988 just in time to help launch the fourth American TV network, becoming CEO of Fox Broadcasting. He also was COO of Fox, Inc and CEO of Fox Sports, playing a role in launching Fox’s extensive sports programming on broadcast and cable, as well as the wildly successful Fox News Channel. He was also co-COO of News Corp. with Chernin before departing to become CEO of DirecTV after News Corp. took a controlling interest in then-parent Hughes Electronics.
At DirecTV, Carey was credited with helping add more than 1 million news subscribers during his six years and returning the company to profitability.
In 2009, when Chernin stepped down, Carey was welcomed back to News Corp. by Murdoch, who said at the time: "Chase has been one of my closest advisers and friends for years."
If Murdoch is forced by the scandal, age or circumstances to give up his CEO title in the near term -- possibly keeping his title as chairman -- it is expected by many that Carey would be the one to take over, not James or Elisabeth Murdoch.
His ascension could lead to big changes in the structure of News Corp. and an even more bottom-line orientation, all of which would be fine with Wall Street. His steady, business oriented leadership would also be likely to lower the risk that the global powerhouse will be wracked by more scandals any time soon.
Georg Szalai contributed to this report.