Rupert Murdoch is losing his longtime lieutenant, Peter Chernin, News Corp. said in a statement Feb. 23. The News Corp. (NWS) president is leaving the $30 billion-a-year media company at a particularly difficult time, with its stock underperforming that of many of its peers, in large part due to falling ad sales and the company's 2007 acquisition of the Wall Street Journal. Chernin's potential departure was first reported in Nikki Finke's Deadline Hollywood Daily. Chernin is leaving to start his own production company, where he will make films and television shows at News Corp.'s Fox studio, News Corp. said in the announcement.
The departure of Chernin, who for 12 years was Murdoch's second in command, would break up one of Big Media's most long-standing—and successful—tag teams. Under Chernin, whose responsibilities mainly included News Corp.'s entertainment assets, the Fox studio became one of the most consistently profitable in Hollywood. On his watch, the company also launched FX and other profit-generating cable channels. "This is not a decision that came easily, but after more than 12 years in my current job, 20 years at News Corp., and 30 years of corporate life, I am ready for new entrepreneurial challenges," Chernin said in a memo to his staff that was obtained by BusinessWeek.
Murdoch says in the announcement that the company is "fortunate to have such a strong and seasoned group of leaders at our Fox companies." Chernin's departure will nonetheless set tongues wagging again about potential succession at a tumultuous time in media; newspapers are struggling amid a drop-off in circulation and advertising, while entertainment companies are combating accelerating competition from the Web. Murdoch, 77, has made no secret of his desire to be succeeded by one of his children, most likely his 36-year-old son James, currently in charge of the company's far-flung newspaper, TV, and digital operations in Europe and Asia. In the interim, it's likely Murdoch will continue to vest a great deal of autonomy in division heads, having them directly report to him or to a committee of top executives that might constitute an office of the chairman.
Chernin's contract expires on June 30, and he had been locked in negotiations for weeks with Murdoch. During the past two quarterly earnings conference calls, neither man would comment on those talks. At one point, Murdoch called them a private matter and refused to take further questions. Although there have been rumors for months that Chernin was looking for another job—he was mentioned briefly as a candidate for the then-open CEO slot at Yahoo! (YHOO)—it is more likely that Chernin will leave the studio at the outset to take a lucrative job as a movie executive.
Under Chernin's existing contract, the News Corp. No. 2 can require the company to give him a six-year contract to produce movies and TV shows for the Fox studio, and must buy "at least" two movies a year from him and pay him a fee "at least as favorable as the most favorable agreement" the studio has with other producers. That could easily mean $1 million or more per film and a large percentage of a film's revenue. Moreover, under his contract, Chernin has the right to use the News Corp. private airplane for 50 hours a year during the six-year contract (which the company has pegged with a value of $1.65 million) and the use of a company car (valued at $210,000). Chernin, who last year made $28.8 million in salary, stock, and other awards, is sitting on a pot of nearly $27 million in deferred compensation and $11 million in pension, dating back to when he ran the Fox TV network.