In House of Murdoch, Sons Set About an Elaborate Overhaul

2017-04-22 18:29:02

 

In House of Murdoch, Sons Set About an Elaborate Overhaul

The sun was setting in New York as James Murdoch, looking confident in cream pants and a dark blazer, stepped before 350 guests in a glass-walled concert hall and waxed poetic about his pet TV channel and its dedication to “scientific literacy.”

The event on Wednesday night was an advertising showcase for National Geographic, which Mr. Murdoch, 44, has doted on since becoming chief executive of its parent company, 21st Century Fox. As a person who cares deeply about “issues related to the environment, conservation, exploration and education,” he told the crowd, “I’m personally grateful for the important work National Geographic does.”

Across town at that same moment, his 86-year-old father, Rupert — who once called climate change “alarmist nonsense” — was still dealing with fallout at his most cherished channel, Fox News. Bill O’Reilly, the pugnacious and top-rated talk show host, had been ousted that day after allegations of sexual harassment involving multiple women.

It was James Murdoch — the one looking so unperturbed at the NatGeo presentation, posing for photos as waiters milled about in yellow suspenders and guests ate skirt steak and shrimp cocktail — who had most aggressively moved against Mr. O’Reilly. The same had happened in July, when Roger Ailes, who founded Fox News with Rupert Murdoch, was forced to resign amid his own sexual harassment scandal.

This is what generational change at one of the globe’s most powerful media conglomerates looks like.

With James and his elder brother, Lachlan, 45, who is the executive chairman of 21st Century Fox, firmly entrenched as their father’s successors, they are now forcibly exerting themselves. Their father remains very involved, but his sons seem determined to rid the company of its roguish, old-guard internal culture and tilt operations toward the digital future. They are working to make the family empire their own, not the one the elder Murdoch created to suit his sensibilities.

“They are both young enough to see and understand that the company has to change,” said Doug Creutz, a media analyst at Cowen and Company. “At some media companies, there is a feeling that people are being dragged kicking and screaming into the digital future. I don’t get that sense with the brothers at all.”

Fox executives either did not return calls or declined to comment for this article. But a picture of a new Murdoch era emerged in interviews with more than a dozen people who work at the company or are friendly with James and Lachlan, most of whom spoke anonymously for fear of reprisals.

Over his storied career, Rupert Murdoch repeatedly showed that he was willing to trade workplace culture for profits — ride people hard, overlook putrid behavior as long as the results are there, reward infighting. When his sons took over two years ago, however, they immediately set about creating a warmer and fuzzier workplace, at least in parts of the company, and moving away from an anti-politically correct environment that, at least in the case of Fox News, seemed to enable the kind of behavior of which Mr. Ailes and Mr. O’Reilly have been accused. Both men deny the allegations.

Employees at the Fox broadcast network said they were pleasantly surprised, for instance, to be summoned to a town-hall meeting — something that had rarely if ever been done under the archly conservative Rupert Murdoch — where the brothers espoused transparency, workplace diversity and greater cooperation between divisions. In the fall, James and Lachlan introduced additional benefits, including more paid vacation, vastly enhanced reproductive coverage for women and “expanded coverage for our transgender colleagues.”

The brothers concluded the memo on a jaunty note: “Enjoy!”

James and Lachlan overhauled their international networks business, a collection of some 350 channels; changed leadership at their film studio, home to the “X-Men” movies; and poured money into National Geographic. They culled the company’s entertainment ranks of roughly 400 employees, something James described at the time as a “ventilation.” (While some people in Hollywood saw the move as ageist, grumbling was minimal; Fox offered relatively lavish buyout packages.)

The brothers have even shaken up 21st Century Fox’s profile in Washington, replacing their father’s Republican lobbying chief with a Democratic one. One Hollywood friend equated their mind-set to moving into an outdated house and looking for wood rot.

Still, some of the most dramatic changes at 21st Century Fox over the last two years, including the ouster of Mr. O’Reilly, have been forced on them.

When they first took over, they stepped gingerly around Fox News. James and his progressive-minded wife, Kathryn, have long been embarrassed by certain elements of Fox News, associates said, while Lachlan’s views of the network have been more in line with his father’s. Both sons were willing to tolerate the freewheeling Fox News culture because of the enormous profit the channel generates. Analysts estimate that the division generated 25 percent of 21st Century Fox’s operating income last year, which was $6.6 billion.

Only last summer, when the former Fox News anchor Gretchen Carlson filed a sexual harassment suit against Mr. Ailes, did James and Lachlan, and eventually Rupert, force change. And even then the overhaul at Fox News was limited; control was given to longtime Ailes lieutenants, and the company continued to support Mr. O’Reilly in the face of repeated allegations of sexual harassment, even giving him a contract extension.

It was not until The New York Times disclosed financial settlements, which involved multiple women who alleged that Mr. O’Reilly had behaved inappropriately, and advertisers began leaving his show in droves, that the company forced him out. Maintaining a culture based on “trust and respect,” as 21st Century Fox promised when Mr. Ailes left, was easier said than done.

As James and Lachlan move to modernize their company, several questions have emerged. The biggest: Can you truly change the culture without losing what made it so successful? It was Rupert’s band-of-pirates mentality that willed the Fox broadcast network into existence, and turned Fox News into a source of astounding profit and political muscle.

Rupert Murdoch spent decades plotting and re-plotting which of his children would take over his empire. In 1997, Lachlan became the crown prince. When Lachlan quit in 2005 after sparring with Mr. Ailes, James ascended. But James was seen as badly mishandling the phone-hacking scandal at family-owned tabloids in Britain. For a time there was speculation that Rupert’s daughter Elisabeth, who founded the Shine reality TV juggernaut, had a shot.

The brothers eventually rose back to the top. Yet they have not entirely convinced Wall Street analysts that their pairing is workable in the long term. Some people do not see James and Lachlan as equals.

“James has a lot of experience in senior management, and he is capable of running a business,” said Mr. Creutz, the analyst. “Lachlan? I don’t know. People don’t know him as well. He is looked at a bit more skeptically by investors.”

Anthony DiClemente, an analyst at Nomura Instinet, challenged that notion. “As a manager, Lachlan has grown and developed quite a bit,” he said. “I think the brothers get along well, and that Lachlan’s views are falling into line with James’s.”

The brothers are radically different in style. James is a speed-talking, tightly wound technophile — cool and calculating, to the degree that he can come across as slick, several associates said. Fashion forward, James socializes with young technology kingpins like Elon Musk, a founder of Tesla Motors and SpaceX.

Lachlan, with his tattooed forearm, avoids the spotlight, rarely popping up in Hollywood watering holes like Tower Bar, where James has a signature table. Lachlan comes across as a more grounded guy’s guy. On his first day as executive chairman, he rolled onto the Fox lot in Los Angeles in a pickup truck.

Friends say the brothers don’t spar with each other, or they at least keep any disagreements hidden, but they don’t seem to have much of an affinity for each other, either. Lachlan lives in the fashionable Mandeville Canyon area of Los Angeles with his wife, Sarah, a former model, and their three children. James’s family uses New York as home base. (James and Kathryn Murdoch — whose Twitter feed shows disdain for President Trump — are also building what has been called a survivalist compound in rural Canada that has its own water and energy supply.)

James, the youngest of Rupert Murdoch’s four adult children, has always been seen as bright and willful. He was an earring-wearing rebel in his younger days, dropping out of Harvard in 1995 to found a hip-hop record label, Rawkus Records.

But once in the corporate fold — Rupert bought the rap company — James made a rapid ascent. At 24, he was put in charge of digital publishing in the United States. At 27, he was sent to Hong Kong to run a television service, Star, which was ailing at the time. (He turned it around, in part by expanding into India.) Three years later, James was installed as chief executive of another family business, British Sky Broadcasting. (Subscriptions soared.)

It was at Sky that James pushed through an initiative to make his part of the Murdoch empire carbon neutral. “A lot of people are worried about climate change but are waiting for someone else to do something about it,” he said in a 2006 news release. “We are showing that you can take action.” He framed it as good business — to make employees feel good and to win customers by showing that the company’s values were in tune with the times.

Kathryn Murdoch has been seen as driving his interest in environmentalism. She worked for the Clinton Climate Initiative and is a trustee of the Environmental Defense Fund.

But then came the British phone-hacking scandal, which shut down the family’s News of the World tabloid in 2011. James was never found to have had direct knowledge of the hacking by members of the paper’s staff. But a parliamentary committee investigating the scandal accused him of “willful ignorance” after he acknowledged that he had failed to read emails that referred to settlement payments made to hacking victims.

Lachlan was raised in the United States, graduating from Princeton in 1994. He then spent six years working at his father’s Australian businesses, doing so well that Rupert anointed him “first among equals,” which was interpreted as meaning that Lachlan led the succession brigade. (At the time, Rupert also spoke lovingly of Lachlan’s interest in the family news businesses, noting that his son, even as a teenager, would tinker with greasy printing presses.)

Lachlan rose to become his father’s deputy chief operating officer and publisher of The New York Post. But he resigned abruptly in July 2005. Lachlan said publicly that he wanted to spend more time in Australia, but most Murdochologists chalked up his departure to friction with his father. Rupert, a workaholic, sided with Mr. Ailes in a turf war and was also annoyed that his eldest son enjoyed lengthy sailing and mountain climbing vacations.

Working together will be crucial if 21st Century Fox is going to navigate the shoals ahead.

The conglomerate, like its competitors, is facing an extremely uncertain future. Consumers are canceling or forgoing cable hookups and instead subscribing to streaming services like Netflix and Hulu, which 21st Century Fox co-owns. The movie business continues to grapple with piracy, rising costs and flat domestic attendance. Fox also has special problems: With competitors getting bigger — AT&T’s $85.4 billion purchase of Time Warner being Exhibit A — where does that leave the Murdochs?

“That’s a question I think they asked themselves and moved them to try to buy the rest of Sky,” said Michael Nathanson, an analyst at MoffettNathanson, referring to a pending $14.3 billion deal for 21st Century Fox to take full control of the British satellite TV giant.

At the moment, 21st Century Fox’s portfolio is relatively healthy. Fox News has continued to dominate in the ratings. The FX cable channel has found a steady stream of hits, including “Atlanta” and “The People v. O. J. Simpson.” The Fox broadcast network has struggled to find new must-see shows, but the company’s overseas channels and sports networks are thriving. In its most recent quarter, 21st Century Fox reported income of $856 million, a 27 percent increase from the same period a year earlier.

Speaking of those results during a call with analysts in February, Lachlan noted moves the company had made to strengthen its business.

“We’ve been saying this for a while,” he said, “but actions and outcomes speak louder than words.”

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