4TH UPDATE: Peter Chernin Has Decided To Step Down As No. 2 At News Corp; What Happens Next? Who Happens Next?
WRITETHRU (keep refreshing for breaking news): Predicting whether Peter Chernin would stay or go as chairman Rupert Murdoch’s president/COO, and who might replace him (if anyone at all right away), has been Hollywood’s favorite guessing game recently. But now that fun is over. Peter Chernin is stepping down with a unprecedented-for-Hollywood golden parachute. Hollywood agents are saying in internal emails today that James Murdoch, Rupert’s youngest son from his 2nd marriage, may be replacing him. But News Corp insiders insist this won’t be done “in the near future” and instead some division heads will report directly to Rupert with more authority and autonomy and probably a bump in titles.
Here’s what happened today: This morning, one of my most reliable sources phoned to tell me that News Corp’s No. 2 is “definitely leaving” when his 5-year contract expires June 30th and will become a producer there with what is undoubtedly the biggest and richest deal at the studio/network. My news was a shocker around the Fox lot this morning and soon all of News Corp. Not to mention Hollywood. Even agents were the last to know. News Corp stock fell 4.34% ($.29) today to $6.39 — more due to the stock market’s major indices falling to 1997 levels than Chernin’s departure — but went up again in after-hours trading. Because of a News Corp board of directors meeting tomorrow, Murdoch and Chernin had planned to make the announcement there and issue a statement afterwards. But my 10:30 AM scoop speeded up the timetable. This afternoon, at 3:17 PM, Chernin issued a memo about his leaving, followed at 3:21 PM by Murdoch’s memo, and a News Corp press release. (See memos below).
Then, around 4 PM, two Hollywood agencies sent out internal emails stating that James Murdoch will replace Chernin. Agency sources even claimed to me it’s a “done deal”. In terms of News Corp, the assumption has always been that the youngest son, who presently runs all of News Corp’s international assets, would eventually take over. So his being named No. 2 wouldn’t be surprising. As Chernin himself liked to tell people, “I’m just warming the seat for a Murdoch.” It would also calm Wall Street concerns about successorship at News Corp since Rupert Murdoch is 78 years old.
But News Corp and Fox are trying to shut down that speculation tonight. Nevertheless, scenarios abound. That Chernin won’t be replaced right away. That an insider like Chase Kerry, or an outside like former Viacom CEO Tom Freston, would take on the caretaker role until James was ready. Or that James may already be Chernin’s successor. Or that the more successful division heads will now report directly to Rupert Murdoch without a No. 2. Certainly among them would be Fox Filmed Entertainment’s chairmen and CEOs Tom Rothman and Jim Gianopulos, whose division has been highly profitable over recent years and even now unlike many other News Corp units.
But the James Murdoch question intrigues.
Rupert back in 2006 did announce a succession plan in which all 4 of his children from his 1st and 2nd marriages — James, Elisabeth, Lachlan, and Prudence — will assume control over the family trust that owns 30% of News Corp after he dies. (His 2 daughters by 3rd wife Wendi Deng will not assume any control of the trust, nor will Deng have a voice in how News Corp is run. His assets, however, will be divided equally among all 6 children.) But Murdoch himself wouldn’t name a heir apparent at that time. Instead, he said: “If I go under a bus tomorrow, it will be the four of them [that] will have to decide which of the ones should lead them.”
Lachlan is an unlikely candidate because an internal family squabble led to a rift, and he left News Corp in 2005 to return to Australia where he is a businessman. Prudence isn’t considered a candidate, and her husband works for one of Rupert’s newspapers. But many put money on second oldest Elisabeth, who showed her sharpness when she kept telling U.S. executives that Simon Fuller’s 2001 British monster hit Pop Idol would do just as well in America. Fox TV honchos Sandy Grushow and Gail Berman shrugged her off. Finally, it took Elisabeth’s nagging Daddy, and a direct order from Rupert himself, to get American Idol launched. Since then, her UK indie production company Shine recently bought Ben Silverman’s Reveille Productions for around $200 million.
News Corp confirmed that Chernin will launch a Fox-based production company later this year, among other ventures. In addition, he will continue his efforts as Chairman of “Malaria No More”. The 57-year-old mogul joined News Corp in 1989 and has served as prez/COO since October 1996. He occupied one of the biggest infotainment jobs in the world, what with News Corp having total assets as of December 31, 2008 of approximately $50 billion and total annual revenues of approximately $33 billion for the diversified global media company with operations in eight industry segments: filmed entertainment; television; cable network programming; direct broadcast satellite television; magazines and inserts; newspapers and information services; book publishing; and other. During his two decades with the Company, Chernin headed both Twentieth Century Fox Filmed Entertainment and, earlier, the Fox Broadcasting Company.
Last time his 5-year contract was about to expire, Chernin signed it at the 11th hour after long drawn out negotiations. The same thing looked to be happening this time around with June 30th fast approaching. One Wall Street analyst even suggested that Chernin’s uncertain status was hurting the News Corp share price. (As if the tanking of the economy and lack of advertising wasn’t doing that already.) So Rich Greenfield at Pali Research changed his “Buy” recommendation to “Sell” and dropped his stock target price to less than half what it was at the time. “We are increasingly fearful that the downturn in the global media businesses, with an increasing array of secular challenges (DVRs/TV and Maturing DVD market), will lead to Peter Chernin’s departure from News Corp. when his contract expires in the middle of 2009. While Chernin has not signaled his intent, we fear the longer time goes by, the less likely he is to renew his contract, particularly given how much News Corp senior executives would like Chernin to stay. Chernin’s departure would raise significant investor concern and could lead to other management changes at News Corp.”
Last time, Chernin negotiated an “out” clause in his contract in case he was offered something better, like a chairman or CEO job. Recently, there’s been a rumor a week about where Chernin is supposedly landing — Apple, Yahoo, the Obama adminstration. All of which have been denied officially or unofficially. On the other hand, Chernin’s total compensation package of $28.8 million made him better paid than Rupert Murdoch, who earned $27.5 million and just happens to control roughly 40% of News Corps stock. But, given the current economic crisis, it would have looked terrible for News Corp to reveal that it had to sweeten Chernin’s compensation beyond what is considered reasonable and justified.
Chernin has one of the biggest jobs in infotainment, but there is also a fatigue factor. His reluctance to step into the SAG-AMPTP mess and solve it, like he did during the writers strike, has been interpreted by the entertainment community as Peter mentally having moved on. (Not only did picketers chant, “Peter Chernin, What You Earnin’?” outside Fox, but at one rally a sign appeared with Chernin’s home address and an invitation to spend Thanksgiving there.) Also, it’s hardly fun right now and downright harrowing for him and every other Big Media boss whose business model depends on advertising. On the other hand, like so many other Teflon CEOs and COOs, chairmen and presidents, Chernin has not been blamed for News Corp’s severe downturn. Or the fact that, truly, the company’s stock has not delivered for shareholders in years because of an inchoate business strategy that revolves around Rupert’s whims — like buying the Wall Street Journal‘s parent company Dow Jones — even if they don’t make sense financially.
Interestingly, the track record for mogul-turned-producers isn’t very good, either. Then again, Chernin won’t be just any producer because of the huge golden parachute package he receives once he steps down from News Corp. According to Ron Grover at BusinessWeek, the package of goodies starts with that $28.8 million Peter earned last year in salary, stock, and other awards. He’s got nearly $27 million in deferred compensation, along with another $11 million in various pension funds, going back to when he ran the Fox film studio and TV network before moving up to the presidency. Chernin also has the right, according the filing, to “require” the company to enter into a 6-year deal to buy films or TV shows from him.
“This isn’t any window-dressing, either. Chernin, a literature major from the University of California, Berkeley, who got his show business start making movies of the week, has written into his deal that Fox would be required to buy ‘at least’ two movies a year from him, paying a fee ‘at least as favorable as the most favorable agreement’ the studio had with a producer in 2004, when he signed the agreement,” writes Grover. “That means big bucks, especially since back then Fox was making hefty pictures like X2: X-Men United that paid its producers a nice chunk of change.”
But Chernin’s golden parachute hardly stops there. “Should he decide to leave, he would continue to receive credit during his 6-year production deal for the company’s pension plan, building up his nest egg as if he had remained an employee. And his stock awards would continue to vest. On top of that, according to the company’s filing, he would have the right to use the company jet for up to 50 hours a year (a 6-year benefit estimated by the company to be worth $1.65 million), and could make use as well of a company car (another $210,000) while making deals around Hollywood.” Other perks include not only the use of the corporate jet and a car, but $18,710 in country club dues.
I do have one request for Peter now that he’s leaving: please, please, get personally involved in the SAG-AMPTP negotiations to end this prolonged impasse. Not only would Hollywood be grateful, but you’d leave a lasting legacy.
Rupert Murdoch’s memo:
From: Internal Communications Department
Sent: Monday, February 23, 2009 3:21 PM
Subject: URGENT: A Message from the Chairman
February 23, 2009
Today, we are announcing that Peter Chernin, our President and COO, will not be renewing his employment contract. Peter will be taking up the opportunity to start a new motion picture and television production venture with Fox.
Attached is the press release.
Many of us who have worked with Peter over his 20 years with the company can attest to his leadership, his diligence, and his wisdom. I can also testify to Peter’s friendship, dedication, and honesty. He has been a close colleague and an ally to me for many years.
While Peter has distinguished himself at News Corp, he has also, increasingly and tirelessly, circled the globe in support of Malaria No More, which has achieved nothing short of remarkable results. Let us all wish him the best of luck, and the greatest success, as he embarks on this new chapter of his career, both as a professional and as a role model for an executive who gives back.
As you all know the downturn we are operating in is more severe and global than anything we have seen before. No company is immune to its effects. I want to take this opportunity, today, to write to you about how we will manage such an important leadership transition, and why I am convinced that today our company is not only well-positioned financially and competitively, but is on the cusp of a new phase of growth. Remember, we began priming ourselves for a weakening economy over a year ago. We have managed expenses and capital expenditure prudently, and strengthened our balance sheet. Following the partial sale of NDS, we will have over five billion dollars in cash, and this year we should exceed $3.5 billion in adjusted operating income.
In the past, we have met downturns with vigor, often departing from the herd. We have emerged much stronger.
Achieving our ambitions will require change and renewal. So throughout 2009, I will continue to work closely with all of our companies to make sure that we are organized and resourced in the best way to take advantage of this extraordinary point in time. We will press our advantages and invest in our great franchises. And, of course, we will keep our eyes on big prizes, some of which may arise only once in a generation.
Across News Corp. we have a broad and deep reservoir of extremely able executives.
Over the years we have accomplished great things. People understand, and have acknowledged, our entrepreneurial spirit as well as our doggedness; our willingness to take risks, our contrarian investment style; and our commitment to long-term development and shareholder value.
Many of you have told me how hungry you are to work more closely across our companies. Many of us have been frustrated by the things that can get in the way of that. From systems that don’t talk to each other to incentives that struggle to capture the opportunity and aspiration of our total group. These obstacles are obvious to us all. There will be a streamlined management structure between our Los Angeles based business units and the rest of the company. Peter and I will be communicating more on this over the next few months. For the time being, of course, the talented executive team at the Fox Group will continue to report to Peter.
Now is also an ideal opportunity to streamline and enhance many of the corporate and administrative functions of the business. There will be cost savings as a result, but the more important aim is to be leaner so that we can better leverage our collective talent and expertise. For instance, and beginning immediately, H.R. functions throughout all our units will report to Beryl Cook in New York as well as their division heads. Beryl reports directly to me.
We have worked hard to develop and advance the best among us. The renewal of great companies begins within themselves. Pursuing an edge through superior talent is a priority. This will be a key focus for us in 2009.
In the coming months, I will be reaching out to you with new questions, and with new plans.
We are in the midst of a phase of history in which nations will be redefined and their futures fundamentally altered. Many people will be under extreme pressure and many companies mortally wounded. Our competitors will be sorely tempted to take the easy beat, to reduce quality in the search for immediate dividends.
Let me be very clear about our company: where others might step back from their commitment to their viewers, their users, readers and customers – we will renew ours.
The direction of the business now and over the next few years will define the character of our company for decades.
We have always thrived on change and challenge. This was true when we began building a newspaper business in Australia. Just as it was when we created BSkyB and developed a fourth US network, the Fox Network, when conventional wisdom dictated that there was room for only three players. It was true when we launched Star, now the leading network in India, and the Fox News Network and Sky Italia.
The best things we have done, and there are many examples, have defied conventional wisdom, often in the teeth of fierce opposition and near universal disbelief in our capabilities.
Over the past 12 months I have spent time with you in India and China, in Italy and the UK and many other countries. We have brought Dow Jones into the fold, extended our influence in Europe, and been at the center of reporting the arrival of a new American president and the impact of the global financial crisis. We’ve told extraordinary stories, in theaters around the world and on page and screen from Mumbai to Malibu.
Our own international reach is a profound strength. We have intelligent, creative and highly motivated colleagues around the world who are ambitious for themselves, for their countries, for our customers and for our company. The result is that where others simply seek distribution, we are building durable businesses at scale. We are also creating large franchises in marketplaces that will grow at a faster pace in the coming years and, increasingly, our businesses are based on direct customer relationships..
We must always be acutely aware of our responsibility to shareholders, and to create real value for them. This is entirely consistent with, and in many cases inseparable from, the enormous social value we have created over the decades. We provide information and entertainment to billions, enabling them to improve their lives and those of their families. There is genuine value in the values of our company – these are values that are even more important in a world confronting so much today
We believe in communities. The very idea of community is broad, and encompasses interests that cross national, ethnic and demographic borders. We are all members of many different communities, whether it be of people who are passionate about Hollywood films, or care about living in a healthy environment, or use a local jobs website, or trade commodities in Chicago and London, relish soccer whether in China or Nigeria. These communities are our communities, as they read, evaluate and create everyday
That is why, most of all, I believe in the community that is our company.
Peter Chernin’s memo:
From: Office of Peter Chernin
Sent: Monday, February 23, 2009 3:17 PM
Subject: Memo from Peter Chernin
I wanted to let you know that I have decided to leave News Corporation when my contract expires on June 30th.
This is not a decision that came easily, but after more than 12 years in my current job, 20 years at Newscorp, and 30 years of corporate life, I am ready for new entrepreneurial challenges. I would not be making this difficult decision if I were not confident in the superb management team we have at Fox and in the visionary leadership of Rupert Murdoch. I have worked closely with Rupert every day, and I know he shares my belief that Fox executives are the best in the business.
I want to thank Rupert for his remarkable support, encouragement and friendship over the years. No company in our industry can match News Corporation’s track record of creating opportunities for employees and there is no better example of that than the opportunities Rupert has given me over the years.
I also want to thank all of you for the privilege of working side by side with such a talented and deeply principled group of colleagues. I am not only deeply proud of your achievements, but even prouder of the character and integrity of the company.
Over the next several months, Rupert and I will work closely to make sure this is a smooth transition for everyone. Thank you for the dedication and enthusiasm that you have always shown and I know will continue to show as the company moves forward to even greater heights.
12:06 PM: The Los Angeles Times is now following my scoop 1 1/2-hours later to also report that its sources are saying that Peter Chernin is leaving News Corp.
10:30 AM EXCLUSIVE: One of my most reliable sources just phoned to tell me that News Corp’s No. 2 is “definitely leaving” and will become a producer there with what is undoubtedly the biggest and richest deal at the studio/network. Let me make clear this is only from a single source, and I don’t have official confirmation yet. But I’m told an announcement could come as soon as this week.