Murdoch Son Also Rises as Shareholders Study CEO Succession

News Corp. Chairman and Chief Executive Officer Rupert Murdoch was stepping onto an elevator at the Allen & Co. media gathering in Sun Valley, Idaho, last year, when he was asked about a $1.1 million settlement his company had just paid. The money went to resolve a claim that reporters at a News Corp. newspaper in London had illegally listened to the voicemail messages of a British sports official.

He hadn’t heard of any such settlement, Murdoch said.

“If that had happened, I would know about it,” he told Bloomberg News at the time.

Murdoch’s son, James, knew, according to two people familiar with the situation. James Murdoch, head of News Corp.’s businesses in Europe and Asia, negotiated the settlement himself in an effort to end the controversy, the people said.

“James Murdoch has been doing things to prove himself beyond his father’s shadow,” said Shahid Khan, chairman and chief strategist at MediaMorph Inc., a New York-based digital media-tracking service. “He’s been determined to show that he’s his own man.”

The younger Murdoch is the leading contender to succeed his father at the helm of News Corp., says Hamilton Faber of London- based Atlantic Equities. The 37-year-old not only bears his father’s name, he’s worked at the company for 14 years and run many pieces of the business, including a group that now accounts for about 20 percent of the company’s $32.8 billion in revenue.

‘Groomed to be Successor’

No decision has been made on the next CEO and the timing is unpredictable because it’s tied to how long 79-year-old Rupert can keep running the company, two people familiar with the situation said. Alternative candidates, such as Chief Operating Officer Chase Carey, may prove more palatable to the board if a decision must be made in the near future, they said. Meanwhile, James must show he’s capable of the top job and more than just a Murdoch, Faber said.

“James Murdoch looks like he’s being particularly groomed to be the successor,” the analyst said in an interview. “But it appears that he has to kind of prove himself.”

James works out of London for New York-based News Corp. His glass-enclosed office overlooked the newsroom of the company’s Sunday Times, until employees were relocated this month to a new site. A limited-edition Darth Vader replica, No. 147 from the Empire Strikes Back series, stood guard.

For an interview there, he wore a grey suit, white shirt and no tie. He handed out business cards with two hands, name facing his visitors, the common practice in Asia where he used to work.

BSkyB Controversy

James has plenty of opportunity to prove himself in his current post, says analyst David Bank of RBC Capital Markets in New York. News Corp. boosted revenue and profit last year on the strength of films such as Avatar and television assets including Fox News, helping shares gain 15 percent in the past year. James oversees newspapers, pay-TV operations and broadband services that generate about $7 billion in revenue -- and account for a growing number of the company’s most-pressing challenges.

One paper in his portfolio, News of the World, sparked the phone-hacking uproar. Rather than being resolved, it has escalated in the past year, with two committees in Parliament investigating. The political fallout has fueled opposition to News Corp.’s bid for full control of British Sky Broadcasting Plc, the U.K.’s biggest pay-TV operator.

This month, the British Broadcasting Corp., BT Group Plc and British papers issued a joint letter arguing that News Corp. would gain too much control over British media with BSkyB. The deal, which at 7.8 billion pounds ($12.4 billion) is already News Corp.’s biggest and may go higher, would double the revenue under the younger Murdoch’s command.

German Losses

As the fight heats up, James’ London newspapers are trying to get Web readers to pay as traditional revenue slips. So far, they’re losing more online readers than they’re keeping, according to the research firm Experian Hitwise in New York.

A satellite-TV business in Germany is another obstacle on James’ path to the CEO office, said RBC’s Bank. Sky Deutschland, in which News Corp. has taken a 50 percent stake on James’ watch, has already caused a $447 million writedown and continues to lose money as Germans resist premium pay-TV services.

In the interview, James launched into a discussion of the challenges before he was asked a question. He ticked through issues in minute detail, offering strategies and solutions for every problem.

Murdoch the son has taken on a role at News Corp. very different from his father’s, according to analysts and people who have worked with him. He’s become the pragmatic operator and the realistic strategist to complement his father’s grand -- and sometimes quixotic -- vision. He tunes up operations, culls ancillary units and steeps himself in new technologies to help ensure the company his father has built continues to flourish long after the elder Murdoch is gone.

No Plans to Retire

“Learning from my father has been the greatest advantage I’ve had in life,” James said in an e-mail following the interview. “The way he runs the company has taught me the dangers of being bound by conventional wisdom and the importance of making our own way, despite the skeptics.”

He wouldn’t comment on succession issues. Teri Everett, a spokeswoman at News Corp., which also includes the Wall Street Journal and 20th Century Fox movie studio, declined to comment.

Rupert Murdoch reiterated at News Corp.’s annual meeting Oct. 15 that he has no plans to retire. In a November interview with News Corp.’s Sky News, Murdoch said he is “sure” one of his children will “emerge” to succeed him.

“ Every parent likes to see that,” he said.

Rupert has six children, including Prudence, Lachlan, James and Elisabeth from his first two marriages. He has two daughters, 7 and 8, with his current wife, Wendi Deng, a former executive from his Asia Star TV whom he married in 1999.

Elisabeth, Lachlan

The Murdoch family trust controls 38 percent of News Corp.’s shares. The company’s second-largest individual shareholder, Saudi billionaire Prince Alwaleed bin Talal, who holds 7 percent, said in an interview on “Charlie Rose” in January he endorses James to succeed Rupert.

James is the only child now working at News Corp. Lachlan, 39, quit his job as deputy chief operating officer in 2005, though he remains on News Corp.’s board. Elisabeth, 42, left the company in 2000, and is the founder and chief executive of Shine Ltd., a television production company.

At one time, James seemed the least likely to succeed his father, say friends and former colleagues such as Dawn Airey, who worked with him at BSkyB. Born in London, James was raised in New York City and went to Horace Mann School in the Bronx.

“The first day I met him, he was reading a book and wearing a Smiths T-shirt,” said Jason Hirschhorn, who went to school with James and later worked as co-president of News Corp.’s MySpace social network, referring to the Morrisey-led rock band. “I remember him reading a lot, and he loved music.”

Earrings, Hip Hop

Though he got into Harvard University, James dropped out and headed to Rome to study archeology, sporting earrings and bleached blonde hair. He returned to New York and launched Rawkus Records, a hip-hop music label that became home to artists such as the Brooklyn rapper and actor Mos Def.

James eventually sold the record label to News Corp. and joined his father’s business. In 1998, while in his mid-20s, James took charge of News Digital Media, where the company’s U.S. Internet business was taking shape. With about 200 people working out of a loft in New York City’s Flatiron district, James led development of the websites for FoxNews.com and FoxSports.com, and managed News Corp.’s stake in TV Guide Inc.

He also created a strategic investment unit and put money into Web startups, including TheStreet.com, PlanetRx.com and an early social-networking site called Sixdegrees.com.

“He was sort of a wild man at first,” Uri Landesman, president of New York-based Platinum Partners, said in an interview. “Then he became the company’s first new-media guy.”

Hong Kong, India

Still, it was his brother Lachlan who seemed most likely to succeed their father, according to two former executives. In 1999, Lachlan took over the U.S. print business after running the company’s Australian business, where Rupert got his start. The older brother would visit the Flatiron office to see James and look for costs to cut, according to one person who worked with James at the time.

In 2000, James was named chairman and CEO of News Corp.’s money-losing Star television businesses in Asia. He was based in Hong Kong, and spent much of his time in India, developing the nascent pay-TV market there. He helped make the business profitable by launching the Indian version of “Who Wants to Be a Millionaire,” which became a major Hindi television hit.

“The guy turns up here early in his career and is given a big job,” Rob Rankin, who got to know James while running investment banking for UBS AG in Asia, said in an interview. “He’s seen as undeniably having done a good job here, especially in India.”

Youngest CEO

In 2003, when he was 30, James was named CEO of BSkyB, in which News Corp. held a stake. He received a chilly reception because of his age and lack of experience, said Paul Richards, an analyst at Numis Securities Ltd. in London. James was the youngest CEO ever of a FTSE 100 firm, and some investors argued he hadn’t been tested, Richards said.

At the annual meeting that November, 18 percent of shareholders voted against making James a director.

“There were eyebrows raised,” Richards said in an interview. “There was a lot of muttering, cries of nepotism.”

During the meeting, an unidentified investor questioned Rupert Murdoch about the selection of his son, according to a Bloomberg reporter’s notes from the meeting. “If you don’t believe in the company, if you don’t believe in the results, you ought to sell the shares,” Murdoch responded.

Call-Center Visits

In August 2004, when James presented his first annual results and a plan to spend 450 million pounds to spur growth, investors did as Rupert suggested. In one day, BSkyB lost 19 percent of its value, as its shares had their biggest drop ever to that point.

To quell concerns, James spent time in subsequent days explaining his strategy to investors, and personally contacting employees and customers, according to Airey, a former BSkyB managing director.

To learn about the pay-TV operation, the young Murdoch flew from London to Edinburgh each month to visit a call center where 5,000 employees were fielding queries from consumers. James would talk with workers, answer their questions and take calls from subscribers himself, Airey said.

“It isn’t easy being the son of Rupert Murdoch,” she said. “But he’s the real deal.”

‘Bits and Pieces’

James eventually won approval from investors, implementing long-term growth strategies, improving content offerings for subscribers and making key deals, including the 2006 purchase of an 18 percent stake in the U.K. broadcaster ITV Plc for about 940 million pounds, Richards said. “He was very well regarded by the end,” he said.

During his years at the company, James said he has been guided by one of his father’s fundamental principles.

“The idea that you can’t change the game is something that I, constitutionally, do not agree with,” he said. “Things we supposedly couldn’t do, we did.”

These days, the younger Murdoch is trying to make similar progress with his current portfolio. He’s restructuring businesses in Europe and Asia, cleaning up what he calls “bits and pieces” not integral to the company. He sold a free-to-air TV business in Bulgaria this year for $400 million; an outdoor advertising business in Russia is on the market.

Part of his focus is on Tata Sky, News Corp.’s still emerging digital TV business in India, which he said is “growing rapidly” and “could be a game changer.”

Papers and Paywalls

Newspapers are a tougher challenge. News Corp. was built on print, dating to when Rupert inherited The Adelaide News from his father and continuing through the $5 billion deal in 2007 for Wall Street Journal publisher Dow Jones & Co.

His four London papers, like many others, are struggling with soft advertising and declining circulation. The Times, for example, has seen circulation drop 15 percent to 486,868 in September, according to the Audit Bureau of Circulation.

To revive the business, James set up so-called paywalls around two papers’ websites in July, forcing readers to pay to read stories. Within three weeks, two-thirds of the online visitors disappeared, according to Experian Hitwise.

The initial loss of users was anticipated, James said, and the goal is to build a relationship with devoted users of the site. “We’re very encouraged in its early days,” he said.

Riots, Picketing

James’ earliest experiences with newspapers were different than those of his father. James remembers visiting the headquarters of News Corp.’s London newspapers as a young child and finding crowds on the street, rioting, throwing stones and picketing against his father’s management.

“It was not a typical ‘take your kid to work day,’” James said in the interview.

Sky Deutschland, in contrast, is an investment he’s been involved with from the start. News Corp. purchased its initial 15 percent stake in the company in January 2008, just after James took over Europe and Asia. News Corp. has spent a total of about $1 billion in raising its holding to 50 percent, according to financial filings and company statements.

“It is his deal,” said RBC Capital’s Bank in an interview, calling the results so far mixed.

Sky Deutschland’s net losses widened to 676 million euros last year from 52 million in 2007.

Lachlan’s Return?

Germany is likely to follow other developed countries in increasingly paying for premium TV services, James said. The market is particularly attractive because 20 million households have high-definition television sets and don’t yet receive the crisper signal, he said. To attract subscribers, the company is expanding its channel lineup, offering new services and revising packaging and pricing.

“It’s a big turnaround, but a big opportunity,” James said.

Faber of Atlantic Equities said that while he thinks James is the leading contender to success his father, it’s far from certain. Carey may be a stronger choice if a decision has to be made soon, Faber said. Rupert Murdoch has even floated the idea that Lachlan, who has been investing in media assets from Australia, could return to News Corp.

“I hope he’ll come back one day,” the elder Murdoch told Sky News in November.

Hirschhorn, who still consults for News Corp., said he likes James’ chances for further success.

“From when I met James in high school to now, I certainly wouldn’t bet against him,” he said.

News Corp. board member Sir Rod Eddington said the board is considering James as a successor to his father, though directors may be hesitant to promote him if he’s not deemed ready.

“James is very important and may well succeed Rupert in the fullness of time,” Eddington, who is chairman of J.P. Morgan Chase in Australia and New Zealand, said in an interview several months ago. “There’s a lot of water yet to go under the bridge.”

To contact the reporter on this story: Brett Pulley in New York at bpulley@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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