Fox & Family

What's the Murdochs' Master Plan?

James Murdoch could go with the entertainment assets, which leaves his father's master plan a mystery.
Photographer: Oli Scarff/Getty Images
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The breakup of 21st Century Fox Inc. reveals the divergent mindsets of the father and son who run it: Rupert Murdoch, the conservative mogul enamored with the political news business and the immense TV-advertising profits it generates. And James, his son, seemingly intrigued by the future of entertainment, who has looked to air out a scandal-ridden organization with the goal of adapting its content for a younger generation.

Recalculating

Fox's stock had lost momentum until word of the Disney deal. Could the Murdochs recombine their news businesses now that the entertainment channels are being siphoned off?

Source: Bloomberg

Rupert Murdoch's decision to sell the entertainment side of the empire he built to Walt Disney Co. -- in what amounts to a complex $66 billion transaction -- is telling in what it suggests about where he sees the TV industry heading and Fox's ability to sustain its viewer base without having the scale of a Disney or Netflix Inc. (He tried to get that scale with a prescient but failed bid for Time Warner Inc. in 2014).

But what's even more interesting is that a Fox heir-apparent, James Murdoch, 45, might wind up at Disney in the end. Disney CEO Bob Iger had this to say on Thursday's conference call with analysts:

James and I have had a lot of conversations about the future of these companies. He's been great throughout this process. He will be integral to helping us integrate these companies over the next number of months, and during that period of time, he and I will continue to discuss whether there's a role for him here or not. But I look forward to talking to him about it.

The Murdochs, while gaining a small stake in Disney through the deal, are left with a company comprising Fox News, their crown jewel, as well as valuable sports channels. Disney is taking just about everything else -- the younger Murdoch, too? 

I've been skeptical of the idea being bandied about that he could be primed to take over when Iger retires someday (it was supposed to be 2019, but on Thursday his contract was extended once again to 2021 with an eye-popping pay bump). It's also unclear what role, if any, Murdoch would have in Disney, though his experience would point to running the TV networks or the international assets, or perhaps helping to craft Disney's new (and late) streaming strategy.

Fox shareholders likely aren't too fussed about what a new Disney looks like -- after all, they're getting a 25 percent stake in the most stable and prestigious media company in the world. What may worry them more is what happens to the remaining Fox business that's being spun off. The prevailing belief is that the Murdochs will put it back together with News Corp., the publishing company that owns the Wall Street Journal and which was spun off in 2013. Fox's news and sports assets generate the cash that could help support the print news side as it continues to grapple with declining print advertising. That said, News Corp. has been buoyed by its paid digital subscribers and online real estate listings business, Realtor.com. 

It's also worth noting that Rupert Murdoch is 86 years old. He shares the chairman title with his other son, Lachlan, who's 46, while James is CEO. Who will run Fox should James depart? The stock is up almost 4 percent as of midday Thursday, but shareholders will want clarity. And while a rejoining of the print and TV news businesses may be appealing to the elder Murdoch, minority investors may not support the idea.

What's Next?

Analysts' forcecasts imply Fox shares may be flat in the coming year. Many may not have accounted for the Disney deal yet, but this argues for clarification of the Murdoch's strategy:

Source: Bloomberg

Fox, and in particular Fox News, have managed to hold onto subscribers better than their rivals in the wake of cord-cutting. But one reason for that is the fact that Fox has an older audience, which is helping it now but could become a challenge down the road. What then?

Lone Fox

21st Century Fox has been the least affected by cord-cutting, and it's the only media giant expected to increase its overall subscriber total in December

Data: Nielsen, Bloomberg Intelligence; graphic by Bloomberg Gadfly

For such a large and until recently, surprising, transaction, Disney has laid out a detailed plan for what the combined company looks like. As for the Murdochs, there must be a master plan that they aren't sharing yet. 

Bloomberg LP, the parent company of Bloomberg News, competes with News Corp. in providing news and information.

--Elaine He provided the "Fox in the Mouse House" graphic

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Tara Lachapelle in New York at tlachapelle@bloomberg.net

    To contact the editor responsible for this story:
    Beth Williams at bewilliams@bloomberg.net

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