The Man Who Owns the News (7 page)

By the end of Election Day, George Bush is once again president, and John Malone has a menacing 19 percent voting stake in News Corp.—a stake second only to the Murdoch family’s 30 percent.

Almost immediately the calls start going out to the Murdoch circle. It is a breach of all systems. The walls have been stormed. Malone’s options for wreaking havoc in the company are now wide-ranging. He could become an activist shareholder—an entirely foreign notion at News Corp., where the only man of action has been Murdoch himself. He might demand seats on the News Corp. board, a heretofore famously compliant body. He could continue to buy more shares until he goes head to head with Murdoch himself. He could begin a long siege, a war of nerves and lawsuits, to destabilize News Corp. and weaken the Murdoch family’s control. Malone’s presence is no less threatening given his reassurances that he does not mean to be a threat. It is most of all threatening because Murdoch is a man in his mid-seventies.

Malone’s intent is likely to wait out Murdoch. In a world, without Murdoch he’d have maximum leverage. He could stand clearly in the door and prevent Murdoch’s children from running the company that was started by their grandfather and built by their father.

Within days a poison pill is put in place at News Corp., making it impossible for Malone to up his stake from 19 percent and for any other outsider to amass a stake larger than 15 percent. But, in turn, that provokes shareholder suits, particularly by obstreperous investors in Australia.

He’s handled worse than this—much worse. And yet the very fact that it has happened, that he didn’t do the simple thing of buying the company’s shares, is another indicator of News Corp.’s perhaps mortal flaw: that a $40 billion company is always waiting on one man to do what needs to be done.

But don’t go there—nobody goes there.

Murdoch himself is perfectly straightforward about what has happened. He messed up. It is his fault. He’s kicked himself for it. “I was asleep or something,” he will tell me three years later. But everybody around him is terrifically eager, desperate even, to put the blame somewhere else: on the banks, on the Australian regulators, on the index funds.

They can’t let it be the old man’s fault. They can’t let that be suggested, because if it’s the old man’s fault it might mean…

The single largest factor in News Corp’s future is almost never discussed. He thinks it embarrasses everybody else when he brings it up. And everybody else thinks it embarrasses him.

Other people’s old age is a perfectly acceptable topic. His former wife Anna—the mother of three of his children—married “a nice old man.” He gets a particular kick out of telling stories about Sumner Redstone, the eighty-five-year-old not-always-composmentis chairman of Viacom, one of News Corp.’s chief competitors. And then there is his longtime banker and former board member, Stan Shuman, with him since 1976, who, he feels, is past his sell-by date (Shuman will become a board member “emeritus”). John Kluge, the former head of Metromedia, “must be a hundred or ninety or something—and looks it,” Murdoch happily will note, recalling the man from whom he bought his first American television stations.

It is not just his age that is a verboten topic for the people around him but all other suggestions of his vulnerability as well. This is out of an old-fashioned sort of respect due the patriarch. And it is out of a pervasive sense that he
isn’t
vulnerable (indeed, as to his age, his ninety-nine-year-old mother is still alive and well in Australia, as everyone regularly repeats and reminds themselves). And the fear that he is.

Nobody mentions his obvious hearing problems. If an outsider brings it up, the insiders are careful to downplay it—“No! Why do you say that? He hears fine.” If he loses his train of thought, this is just a sign of his deeper concentration. And his prostate cancer—a carefully controlled story in 2000—is now, when it’s mentioned, and it’s rarely mentioned, a further demonstration of his indomitability, isn’t it? He’s recovered, hasn’t he? And never missed a day of work.

They can and will continue to rationalize. No one around him, for instance, would say, or even consciously think (or if they did they’d suppress it in a hurry), “You old fool, why are you buying such a vanity apartment?” Or “You senile turkey, how could you miss something so basic as a mother lode of voting shares coming on the market?”

Perhaps the apartment is a new phase of his personal development: The outsider has taken over the inside. Possibly Murdoch and News Corp. are about to transition from their perpetual not-of-our-class status into the elites. As for Malone, that son of a bitch, people at News Corp. understand that sometimes Murdoch has to put himself into a corner in order to get out of a larger mess—he functions well when it’s do-or-die.

And yet existential dread is existential dread—there will be an end. Sometime. Which they know. Sort of.

SPRING AND SUMMER
2005

Actually, Malone’s stake isn’t the only thing threatening his family’s future. Murdoch has, by early 2005, more immediate problems. His two key executives—Peter Chernin, the COO and president of News Corp., and Roger Ailes, the head of Fox News—are ganging up on Lachlan.

It is Murdoch’s deepest and most atavistic desire that one of his own will run the company in the future. This is problematic for a number of reasons, not least of all that none of his children is remotely qualified. Unless he himself appoints one of his children CEO—that is, uses his power and influence to supersede himself, which for him would be a kind of suicide, no more likely than the Queen of England turning over the throne—the Murdoch family, with him out of the picture, doesn’t necessarily have enough control over the company to dictate succession. Post-Rupert, the board of News Corp.—even though its members are abjectly loyal to Rupert—would have other issues to consider, like shareholder suits. Such a succession plan—from the grave, as it were—is going to take a great deal more finesse on Murdoch’s part. It isn’t helping that Chernin and Ailes are agitating against Lachlan, who, after a mostly successful chapter running News Corp.’s Australian operation, has come back to the United States as the company’s number three executive, behind Chernin.

News Corp. has been, for most of its history, distinguished by its self-effacing, if not weak, executives. What you understand as a member of the News Corp. family—even as a well-loved member—is that there is one father who is sui generis and irreplaceable. Without the father there is no family. It is a company without competing power centers. Without, strangely, even competing egos. All power and personality and even need exist in relation to the greater power and personality and need. Everybody is in the service of what Murdoch wants. This is almost freakishly out of the norm of any large organization—all of which are most characterized by their political intrigues and plots and competing power centers.

Not News Corp. The only time an executive ever really tried to insist on his value independent from Murdoch himself was in the early nineties, when Barry Diller, then the head of Fox Studio and the Fox network, suggested he ought to receive a meaningful stake in the company. Murdoch and Diller, acknowledging the insuperable conflict, worked out the terms of Diller’s departure.

Chernin has succeeded at News Corp. precisely because he never wanted to succeed in the terms in which he seems to have now succeeded. He has been a man content making many millions a year. But suddenly Chernin’s affable Everyman style has become all the rage.

In an industry that was dominated for a generation by extreme figures and megalomaniacs, Chernin is suddenly a major relief and the new role model. There is the sense of a whole new generation of nice, reasonable, and, well, normal guys ready to run outsized media businesses: Chernin at News; Jeffrey Bewkes, the number two at Time Warner; Bob Iger, the number two at Disney. It’s the age of the number two.

Chernin looks like an actor, but he’s too pretty, too bland, to be a star. A lack of distinction envelops Chernin. He’s frictionless. Smooth. He is by nature and temperament not quite even a number two, just a supernumerary. That’s how he’s described by virtually everybody—or, at least, that’s how he was described until he became many people’s candidate for number one at other companies.

Chernin had cemented his power at News Corp. months before the Malone problem. For six months the rumors had been everywhere—not least of all because of Chernin’s own deft promotion of the story—that he was a candidate to replace Disney’s embattled and unpopular CEO, Michael Eisner, who had pushed up his retirement.

Disney’s feelers to Chernin (whether or not it was an outright offer or great poker playing on Chernin’s part) had put Murdoch on the spot. His departure would have left News Corp. without even the appearance of a successor—except for Lachlan, and that’s precipitous (not to mention highly presumptuous, if not downright obnoxious and ridiculous, for many shareholders, least of all John Malone). It would have meant that Murdoch, at seventy-four, would lose the person he’d come to rely on most—from a certain point of view, although not Murdoch’s, his co-CEO—and it would have cost the company dearly in market value. Billions, possibly. News Corp. would not just lose Chernin but have to compete against him as well.

Chernin’s ascendancy to the COO spot at News in 1996 has helped normalize the company. The most significant divisions of the company report directly to Chernin, leaving Murdoch free to play the role of wide-ranging, visionary-ish CEO. That’s the way it’s done. Let the CEO think great thoughts, let the operator keep the lid on. Under Chernin, News Corp. has become less omnivorous, less restless, less unpredictable—less Murdoch.

Chernin would certainly argue that this has been good for the company and good for Murdoch too. The company has become rather a good neighbor—no longer on a constant acquisition spree. Murdoch himself, in the last five or six years, has become less a figure of controversy and more the ultimate elder statesman. Fox News, which rubs Chernin, a Democrat, wrong, is still an irritant, but Murdoch, with a little help from Chernin and Gary Ginsberg, has even been warming up to the Democrats.

On Wall Street, which has always been suspicious of Murdoch, investors have something like a crush on Chernin. He’s restrained the beast—and by the summer of 2004, with his contract up for renewal and the Disney talk rife, he had cornered Murdoch. What Chernin wanted was straightforward. He wanted it understood that if, perchance, the company needs a new CEO during the term of his next four-year contract, it will be him.

It was galling for Chernin that Murdoch continued to single out Lachlan, even before his thirtieth birthday, even before he had any serious management experience at all, as his likely successor. Along with running the Australian newspapers (if this was the historic core of the company, it is no longer germane to the big picture), Lachlan got himself involved in a disastrous investment in a telecommunications company involving a partnership with Jamie Packer, the son of one of Murdoch’s longtime rivals, Kerry Packer—together they lost a billion dollars. Not long after that, Murdoch brought Lachlan back to New York. His main responsibility is the
New York Post.
For more than thirty years the
Post
has been News Corp.’s flamboyant, money-losing (up to $50 million a year), and eccentric flagship property in the United States. It has no business reason for being other than to prosecute political and business grudges and to entertain Murdoch himself, but it remains the sentimental heart of News Corp.

Chernin, with an astute sense of his own power base, began a campaign of nearly open disparagement of Lachlan. The disparagement was Hollywood-style—that is, the veneer of smoothness, even courtliness, of deniability, of the deftest political behavior, and gracious accommodation remains the norm. But beyond that façade, the triangulation took place.

Chernin enlisted Roger Ailes, the Fox News chief and possibly the one man of whom Murdoch is afraid. Chernin and Ailes do not particularly get along, partly for political reasons, and partly for temperamental ones, because Chernin is deft and smooth and Ailes is glowering and bullish. But in this, against the prince designate, whom they both find callow, insubstantial, and, ironically, un-Murdoch-like, not to mention standing in their way, they were glad to double-team. If they both block him, then Lachlan has nothing to do besides run the
New York Post,
which neither Chernin nor Ailes care a whit about. Indeed, which because it is a newspaper—a newspaper!—neither thinks should even be part of this vast modern media enterprise.

Murdoch understands he is going to have to choose between his top executives and his son.

There are other frictions too between father and son. The family situation, which became so fraught in 1998 with the elder Murdoch’s breakup and then, in 1999, with his remarriage, and which for a time was back on an even enough keel, has again hit the rocks.

When he divorced Anna in 1999, Murdoch agreed that in exchange for her giving up her community property claim to half of his assets, the trust under which his four children would inherit their father’s interest in News Corp. would never be changed. Now, pressured by Wendi, he wants his older children to
voluntarily
agree to admit his two new children into the trust. Lachlan and his siblings—still bitter about the divorce—are resisting.

It’s all too much for him, this emotional stuff. He always has to move the emotional to the tactical.

It’s at this moment, in the spring of 2005, that an idea begins to take shape for him. As with so many of his notions, the more unexpected the thing he does, the bigger it is, the more it shakes everything up and lets him start again. It changes the conversation. It orders the mess. It’s like shock therapy. This is often how he deals with his own troubles—he changes the game. He does something so epic and transformative that everybody else is stuck following his lead.