Playing Good Cop to Rupert Murdoch

How Peter Chernin, News Corp.'s affable No. 2, keeps the wheels oiled at the sprawling media empire

Rupert Murdoch couldn't make the media schmoozefest that investment banker Herbert A. Allen holds every July in Sun Valley, Idaho. Murdoch's third wife, Wendi Deng, was expecting their second child, and the 72-year-old News Corp. (NWS ) chairman decided to stay close to home. That may have been for the best: Without Murdoch there bigfooting the other moguls, his No. 2, Chief Operating Officer Peter Chernin, had a chance to sweet-talk them. The affable, 52-year-old Chernin tried to assure the other media barons that the boss, only months away from closing his $6.6 billion deal to buy control of DirecTV Inc. satellite service, wanted to play nice. He wouldn't muscle out competitors or drive up the cost of his company's Fox movies, TV shows, or sports programs. At lunch with Brian L. Roberts, the head of cable giant Comcast Corp. (CMCSK ), Chernin promoted several Fox channels that Comcast could carry. And he promised Walt Disney Co. President Robert A. Iger that DirecTV intended to carry new channels from Disney's ESPN network.

Peter Chernin is Rupert Murdoch's alter ego: a soothing presence who balances the autocratic, often intimidating tycoon. Chernin, a big political contributor, is even in the Democrats' good books. As Murdoch builds a global empire, Chernin's behind-the-scenes role has never been more crucial.

Chernin deals with Hollywood, a state of mind as much as an industry that Murdoch disdains and admits he doesn't fully understand. Chosen by Murdoch to run Fox Entertainment Group (which is 80% owned by News Corp.) in 1998, Chernin is stepping up production of programs and launching cable channels that Murdoch's satellite armada will beam to Asia, Europe, and now the U.S. At the same time, he is trying to keep the peace with the cable and satellite operators who fear News Corp.'s growing clout. The company is at odds with EchoStar Communications Corp.'s combative Chairman Charles Ergen, a longtime Murdoch foe, over Ergen's refusal to pay more for cable channel FX. Rather than pull the channel -- and "go to war," as Chernin puts it -- he has twice extended a grace period while the two companies negotiate. Chernin is also working to keep the DirecTV deal on track in Washington. "He's a great salesman," says Murdoch. "And there are things he can do that frankly I'm not as qualified to do."

That includes impressing Wall Street, which had watched with dismay as Murdoch made one expensive deal after another, bringing the company close to bankruptcy in the early 1990s. "Peter gives us a lot of confidence that the place is run well," says Merrill Lynch & Co. (MER ) analyst Jessica Reif Cohen. To increase News Corp.'s film and TV production, Chernin started low-cost units that found such low-budget hits as the film Bend It Like Beckham and today are replicating the popular reality-TV show Joe Millionaire in several other nations. He also makes Fox's disparate operations work together. To help promote the DVD releases of the second season of the TV show 24, he pressed marketers to delay the introduction so that star Kiefer Sutherland could hawk the DVDs on Fox's first weekend of NFL games in September.

Chernin's strategies have helped turn Fox Entertainment into the fastest-growing part of News Corp., accounting for 75% of its overall operating earnings. For the year ended June 30, the company recorded net income of $1.1 billion on revenue of $17.5 billion. Last year, its profits came to $636 million before a $6.9 billion writedown for investments in Gemstar TV-Guide International Inc. and other companies. Since January, News Corp.'s stock is up 25%, to around 33, better than the Bloomberg Media Index average return of 14%. Indeed, for his programming smarts, organizational discipline, and singular ability to get along with Murdoch, Chernin earned $14.6 million in salary and bonus last year, plus $2.6 million in stock options.

His role at News Corp. has not gone unnoticed by the media Establishment. Industry insiders say that when Disney's Michael D. Eisner was under fire last year, some board members sounded out Chernin about the job. He was also mentioned as a possible CEO for Vivendi Universal's (V ) Hollywood unit. But as for running News Corp., that's another story. Murdoch, who controls 30% of the company, is grooming his 31-year-old son, Lachlan, now Chernin's deputy, for the top job. And Chernin seems O.K. with that, for now. "I'm running a company as large as Vivendi and having a great time doing it," he says.

That's hardly what those who knew him when he was growing up in the 1960s in Westchester County, N.Y., would have thought. TV viewing in the Chernin household was restricted to an hour a week. As for media pretensions? "He was the AV guy, who ran the overhead projector," recalls movie producer Lynda Obst, a high school friend. An English major at the University of California at Berkeley, Chernin went to work as an editor at Warner Books in New York.

From there, Chernin moved to Hollywood to make TV movies of the week for producer David Gerber. After stints at Showtime and Lorimar Films, he was hired by former Fox Chairman Barry Diller in 1989 to head programming for the company's two-day-a-week TV network and produced shows such as In Living Color and Beverly Hills 90210. He also became a Murdoch favorite: When the boss asked Chernin for a ride back to Los Angeles after a company retreat in Santa Barbara, the young executive impressed Murdoch with his grasp of TV economics.

Chernin moved up the ranks at Fox, displaying political smarts that insiders say allowed him to stay on the right side of Murdoch even as the Fox network's ratings faltered. In 1992, Murdoch moved him to the film studio where Chernin oversaw production of such hits as Speed, Independence Day, and Titanic, a film that became notorious for how far over budget it ran. "It cost $115 million for about five minutes," recalls Chernin, who was forced to sell off half the rights to Paramount as its budget climbed to $210 million. The film eventually became one of the most profitable in Hollywood history.

By then, Chernin had become Murdoch's second-in-command and primary trouble shooter. It was Chernin who forced studio chief Bill Mechanic to resign in 2000 after a string of flops. Last year, Chernin negotiated the forced resignation of Henry Yuen, the embattled chairman of Gemstar, in which News Corp. holds a 42% stake. Yuen has since been sued by the Securities & Exchange Commission for allegedly inflating Gemstar's earnings. Yuen denies the charges.

Chernin's most notable achievement as the enforcer, though, was getting the best of Disney in a big deal. Chernin sold the Fox Family Channel to Disney in 2001 for $5.2 billion, holding his own against Eisner, a famously tough negotiator. Later, Eisner admitted he overpaid -- by some $1 billion, according to industry experts. "Peter just kept his cool, even when Eisner and those guys started doing their stuff," recalls Haim Saban, News Corp.'s partner in the channel.

The deal was a classic demonstration of the Murdoch-Chernin modus operandi. Murdoch struck the deal with Eisner; Chernin kept it from falling apart. The question now is how long the partnership can last. Chernin has pushed for more visibility lately, taking the lead on Hollywood's effort to rein in piracy and appearing at investor conferences instead of Murdoch. Both Murdoch and Chernin downplay the succession issue, but Chernin knows that if he wants to be boss, he'll most likely have to go somewhere else to do so. And then the man who's known as "Murdoch lite" would get to take on Murdoch himself.

By Ronald Grover in Los Angeles

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