Lachlan Murdoch Returns as Contender for Top Role at News Corp.

Lachlan Murdoch’s Australian sojourn is over.

Rupert Murdoch’s eldest son is back in contention for control of the family’s global media empire, propelled by closer ties with his father and insulation from a business scandal that tarnished the reputation of younger brother James two years ago.

Lachlan is becoming non-executive co-chairman of News Corp. and 21st Century Fox Inc., returning to the fold after he had ventured out to operate his own business in Australia. James, who was with his father’s company throughout a phone-hacking probe, was also elevated as Fox’s co-chief operating officer.

Rupert, 83, remains in strategic control of both companies, and his move ensures, at a minimum, that the family business stays in the family. Now Lachlan will have a chance to influence the companies’ strategy from the highest level, proving his mettle by the side of his father while James continues to demonstrate his operational prowess.

“Lachlan appears to have been catapulted above,” Doug McCabe of Enders Analysis said by phone following yesterday’s announcement. “He genuinely does seem to have a great interest in the publishing side of the business.”

Lachlan’s fortunes have risen even as he struggled to make his own way as a businessman in Australia, where he took over a money-losing, low-rated TV broadcaster and later brought in a News Corp. executive to help turn the company around.

Family Feud

His return to the family business gives the Murdoch empire two leaders with different personalities. Lachlan is the more easygoing and amiable of the two, while James is a skilled technocrat who can spout detailed operational figures off the top of his head, according to people who have worked with both brothers.

Lachlan had resigned from News Corp. in 2005 following disagreements with his father, who had overruled him on programming decisions. He moved to Sydney and started his own investment company, Illyria Pty, while remaining a director of his father’s New York-based media company.

In 2010 he teamed with billionaire James Packer to buy almost 20 percent of Ten Network Holdings Ltd., Australia’s third-largest commercial broadcaster. In 2011 he became the company’s acting CEO before relinquishing the role to become chairman, a position he stepped down from yesterday.

Ten’s Struggles

The TV company posted a loss of A$285 million ($263 million) last year as it recorded a reduction in the value of its broadcast license amid a ratings slump. Hamish McLennan, a News Corp. executive vice president, was brought in as chief executive officer early last year to help improve viewership.

In one sign of the company’s ratings struggles, “Everybody Dance Now,” a talent show hosted by Lachlan’s wife Sarah, was canceled within weeks of its 2012 debut.

The family, meanwhile, was entering a fractious period over the U.K. hacking scandal that erupted in 2011 and led to the closing of one of News Corp.’s most profitable publications, the News of the World. It was Lachlan who showed up in London to aid Rupert during his testimony to government officials about hacking. The relationship between the two had become much better since their falling out, according to people who have worked with both.

Family Trust

While James was a focus of initial inquiries by the U.K. government over his role in the company’s practices, media regulator Ofcom eventually cleared him in the scandal, concluding he had not “deliberately engaged in any wrongdoing.”

James argued with the rest of the family over the scandal, specifically with his father and sister Elisabeth. He expressed concern he was being singled out in the scandal despite his lack of knowledge about the hacking, according to people familiar with the matter who asked not to be named because the conversations were deemed private.

The controversy became much more than a family feud, scuttling the company’s plans to take over British Sky Broadcasting Group Plc, the U.K. pay-TV company in which Murdoch owns 39 percent. James resigned as its chairman in 2012, his biggest sacrifice during the scandal. He has publicly denied any knowledge of hacking at the company’s newspapers.

The new appointments mark a rapprochement of sorts within the family, according to one of the people. Even so, daughter Elisabeth’s role in the future of either company remains unclear. She is chairman and founder of TV production company Shine Group Ltd., which is owned by Fox.

Voting Power

As co-COO, James still wields power over parts of a media behemoth. Fox is more than seven times bigger than News Corp., with a market value of about $73.8 billion, compared with News Corp.’s $9.9 billion. Fox includes the film and TV studio, Fox broadcasting and cable channels F/X and Fox News. Murdoch split Fox last year from his News Corp. publishing unit, which holds assets such as the Times of London, the New York Post and the Wall Street Journal.

James, who will continue to report to Fox COO Chase Carey, will have direct responsibility for the Fox Networks Group, and the strategic and operational development of the Sky and Star pay-TV units in Europe and Asia. He has been at the company for 17 years and is a director of both Fox and News Corp.

“Our management team has always been one of our core strengths, and there is no doubt that we become even stronger by building on James’ and Lachlan’s collaboration,” Rupert Murdoch said in a memo to Fox employees.

Lachlan’s Career

Rupert started his media business in Australia after inheriting regional newspapers from his father. In 1985, he became a U.S. citizen as he sought to add TV assets and in 2004 moved the media company to the U.S.

Rupert has faced challenges from investors seeking to loosen his family’s grip, leaving his sons needing to prove they can boost sales and earnings even as publishing and TV businesses face competition from online rivals.

In October, 21st Century Fox investors not affiliated with the family supported a proposal to create an independent chairman. Lachlan wouldn’t have been re-elected to the board without his father’s votes.

Both Fox and News Corp. are managed through their Class B shares, the only ones with voting rights, and Rupert controls 38 percent of those shares through his family trust. Murdoch’s four eldest children -- Lachlan, Elisabeth, James and Prudence -- have a single vote each in the trust, with Rupert retaining four votes to himself, according to people briefed on the trust’s structure.

If any of them has a leg up now, it’s the eldest son -- for the moment, said McCabe of Enders Analysis.

“He’s not tarnished by the phone-hacking scandal.” McCabe said. “I don’t think people are going to be overly surprised that Lachlan has the advantage.”

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