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Rupert Murdoch’s Fox downsizes, forges a different path in tumultuous media world

Rupert Murdoch’s Fox downsizes, forges a different path in tumultuous media world
Rupert Murdoch, center, poses with sons Lachlan, left, and James in London in 2016. (Andrew Parsons / TNS)

Rupert Murdoch began his restless quest to build one of the world’s most influential media empires 65 years ago, when his father died unexpectedly, leaving him a tiny newspaper in southern Australia. In the decades since, Murdoch’s appetite seemed insatiable as he gobbled up more and more newspapers, a Hollywood movie studio, television stations, TV networks and satellite TV operations that circle the globe.

Thursday, however, the 86-year-old tycoon walked away from some of his most significant properties. He sold much of his 21st Century Fox media company to Walt Disney Co. for $52.4 billion in an all-stock deal that will slenderize Fox at a time when Disney and other media companies are bulking up.

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“Are we retreating? Absolutely not!” Murdoch told Wall Street analysts on a conference call Thursday. “We are pivoting at a pivotal moment.”

One thing is clear. Murdoch is drastically downsizing his empire and charting a far different path forward than what Disney Chief Executive Bob Iger is pursuing.

Murdoch has long been a contrarian, never a sentimentalist.

Now, facing a more fraught media environment — and challenges by deep-pocketed technology companies like Netflix, Google, Facebook and Amazon — he and his two sons will retrench and begin to reconstitute what they are calling “new Fox.”

The slimmed-down company will be made up of the mogul’s cherished Fox News Channel, Fox Business Network, the Fox broadcast network, dozens of television stations, including Los Angeles-based KTTV-TV Channel 11 and KCOP-TV Channel 13, and a few cable sports channels. The company will hold onto its lucrative real estate, the Fox Studios lot on Pico Boulevard in Century City.

Murdoch, according to those familiar with his thinking, simply lacked confidence that Fox in the future could be as dominant as it has been in the past.

“Times have changed,” said Robert Wright, the former chief executive of NBCUniversal. “It is a clear retreat. ...It clearly is the end of an era of expansion for Rupert.”

Murdoch and his family could still have influence for years to come through their newspapers and Fox News Channel. Fox News’ ability to shape public opinion has intensified with President Trump in office. Trump regularly cites Fox News as his favorite information source, and Murdoch has become an informal advisor. The president even called Murdoch on Thursday to congratulate him on the deal, White House spokeswoman Sarah Huckabee Sanders said.

And the Murdochs also will retain a second company, News Corp., which owns the Wall Street Journal, the New York Post, the Times of London, dozens of papers in Australia and the HarperCollins book publishing house.

The Disney-Fox deal is not expected to close until 2019 because Disney needs time to secure required regulatory approvals in the U.S. and overseas. The Murdoch family then would become the second-largest shareholders in Disney with about 4.4% of Disney’s stock.

But such a stake would not give the Murdochs the sway they are used to. “They don’t own Disney,” Wright said. “Rupert was all about being a major player in the areas he wanted to be in, which was newspapers, then it was broadcast television, and then movies and sports.”

On Thursday morning, despite the blockbuster deal that could bring two storied companies together, each set of executives displayed its independence. They issued separate statements and held separate calls with analysts — with Fox tucking in behind Disney.

“The world of media has obviously been undergoing rapid change,” Rupert Murdoch said. “New technologies, competitors and shifting consumer preferences have redrawn the whole media map. … We are paving the way for the new Fox and a transformed Disney to chart a course across a broad frontier of opportunity.”

One longtime Murdoch ally, who did not want to be identified, described the sale to Disney as “an elegant solution” to the various problems vexing Murdoch. The entertainment businesses have become more challenged in recent years with escalating programming costs as companies such as Fox, CBS, Time Warner Inc. and NBCUniversal are forced to spend to keep up with Netflix, which has said it will spend $8 billion next year on content.

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Television programmers used to spend about $3 million to $5 million to make one hourlong TV show episode. But with Netflix and Amazon.com waving big bucks, the cost has soared to about $15 million for an hourlong episode of a premium show like “The Crown.”

The Murdochs are jettisoning the glitzier and capital-intensive Hollywood part of their business — the 20th Century Fox film and television studio, regional sports networks, FX, National Geographic and its international outposts, including its 39% stake in European pay-TV giant Sky and the fast-growing Star television service in India.

“Rupert Murdoch is taking a minority interest [and] letting someone else, Disney, manage the bulk of what he’s built, and a big chunk of his net worth,” said Laura Martin, a media analyst with Needham & Co.

With what’s leftover, Murdoch and his two sons, James and Lachlan, plan to build a scrappier company that is expected to take advantage of consumers’ increased appetite for news and live sports, including NFL games and the World Series of baseball. Such live programming is particularly attractive to advertisers because viewers don’t skip the commercials.

“The new Fox is about returning to our roots as a lean, aggressive challenger brand,” his oldest son, Lachlan, told investors.

And in one way, the sale of assets to Disney could help clear the way for British regulators to approve Fox’s $15-billion purchase of the remainder of Sky, the European pay-TV service that Rupert Murdoch helped launch in the late 1980s. Fox owns 39% of the satellite TV service, but it has been striving for more than a year to buy the remaining 61%.

The Murdoch family’s unpopularity in some British political circles, and the lingering stain of the British tabloid phone hacking scandal from six years ago, has become a drag on that deal. The more recent sexual harassment scandals engulfing Fox News — including allegations against Roger Ailes and Bill O’Reilly — have also slowed the process.

Murdoch said Thursday that if Fox fails to win British regulators’ blessing next year for its Sky deal, then it will be Disney’s problem — not his. (Disney will take over Fox’s stake in Sky as part of the deal.)

Murdoch may also have been “thinking about his family going forward,” Wright said.

He has long intended to leave his expansive empire to his sons to manage. But for the last year and a half, the three Murdoch men have been managing Fox in a power-sharing arrangement that has been awkward at times. By selling so much of the assets to Disney, the eventual management of the company should be less sticky.

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The family may want to consolidate the slimmed-down Fox and News Corp. and “go back to where they were,” with one or more of the sons being in charge, Wright said.

The new setup could ease conflicts that could arise when Lachlan and James Murdoch are left alone to jointly manage the business. Murdoch has long wanted his sons to collaborate to run the company.

“But it’s always difficult for two people to share one job,” observed one Fox insider who was not authorized to comment.

Many analysts have speculated that James Murdoch, the ambitious younger son, who has served as Fox’s chief executive might move over to Disney. Iger, for his part, didn’t rule that out.

“James and I have had a lot of conversations about the future of these companies,” Iger said on a separate conference call. “He will be integral in helping us integrate these companies over the next months and, during that time, he and I will continue to discuss whether there is a role for him here or not."

But even as Rupert Murdoch jettisoned a huge chunk of his company, the billionaire still seemed to show his moxie during his conference call with Wall Street.

“Those of you who know me know I am a newsman with a competitive spirit,” he said. He delighted in telling analysts that when satellite TV mogul Charlie Ergen briefly dropped Fox News Channel from Dish Network during a contract dispute a few years ago, “he lost 150,000 customers.”

“He didn’t sound like a man who was looking to play more golf," said Michael Nathanson of MoffettNathanson.

Martin, the Needham & Co. analyst, agreed.

“Never put a billionaire in a corner,” she said. “I’ll be very interested in seeing what he does with Fox News and the broadcast [network]. .. Do not count him out. I think he’s going to surprise us.”

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