News Corp.’s Murdoch to lose right-hand man

Rupert Murdoch’s News Corp., which spans three continents and delivers much of the entertainment and news that people consume around the world, is facing a sudden flush of bad news.

This month the company, owner of such prized media properties as the Fox movie studio, the Fox TV network and the Wall Street Journal, reported an unusual quarterly loss amid a worsening recession. News Corp.’s stock is now trading for under $7 a share, nearly 75% off its peak, a sign that investors have lost confidence. To top it off, a new setback hit News Corp. on Monday when the company confirmed that Peter Chernin, its respected president and chief operating officer, would leave when his contract expires in June. The announcement pushed News Corp.’s shares down a further 4.3%.

For now, Murdoch doesn’t plan to replace Chernin. Instead, the mogul, who will turn 78 in two weeks, plans to take over day-to-day operations.

Chernin is the latest News Corp. executive to leave after Murdoch made clear that he’s the boss. In the early 1990s, for example, Barry Diller, who launched the Fox network, left in frustration over Murdoch’s unwillingness to share power.

This time, however, things are different. Murdoch’s high-wire act to assume a more direct role comes at a choppy time for News Corp. Investors are unhappy with the media baron’s decision to double down on newspapers. Chernin opposed the purchase last year of Dow Jones & Co., publisher of the Wall Street Journal, which came just before the industry went into a tailspin.

Moreover, Chernin’s decision to step down leaves News Corp. without its ambassador to Wall Street and Hollywood, a role that was crucial for the company’s stability, assuring investors that the $33-billion-a-year empire was more than a one-man band.

Murdoch acknowledged the difficult environment, in which a dramatic pullback in advertising and consumer spending has undercut the company’s film, television and publishing businesses. This month News Corp. posted a $6.4-billion quarterly loss, largely because of a write-down reflecting the diminishing value of assets.

“The downturn we are operating in is more severe and global than anything we have seen before,” Murdoch wrote in an e-mail Monday to employees announcing Chernin’s departure. He said he would take the opportunity to create “a streamlined management structure between our Los Angeles-based business units and the rest of the company.”

Despite Murdoch’s promise of a smooth transition, Chernin’s departure exposes a key vulnerability of News Corp. The media baron has steadfastly refused to map out a succession plan or groom an executive, beyond Chernin, who could step into the chief executive role at a moment’s notice.

“Wall Street really liked Peter. He was a great operator and great conduit for them in the company. It’s nothing but a negative that he’s leaving,” said Anthony S. Valencia, a media analyst with TCW.

Succession has been a persistent issue within the company because of Murdoch’s unbending desire to have one of his children follow him in the chief executive’s suite.

Chernin always knew that News Corp. remained a Murdoch family business. After 12 years at Murdoch’s side, say people close to the matter, Chernin believes he has accomplished all he can. At 57, he’s thinking about the next stage of his career, which could include entrepreneurial ventures. For Chernin, there is little upside in sticking around given the grim outlook for the media business.

Now, speculation centers on whether Murdoch’s youngest son, James, 36, or his daughter Elisabeth, 40, who has been building her own TV production company, will eventually run the company. Murdoch’s eldest son, Lachlan, was viewed as the heir when he was installed as deputy chief operating officer, but in 2005 he abruptly left in a clash.

James Murdoch oversees News Corp.’s operations in Europe and Asia. Chernin’s exit could pave the way for him to move to the U.S.

But Wall Street believes that Murdoch’s children aren’t seasoned enough for the No. 2 slot.

“James is still too young and inexperienced, and he’s not part of the Hollywood creative scene, which is seen as the most valuable segment of News Corp.,” said David Joyce of Miller Tabak & Co.

Murdoch plans to parcel out Chernin’s duties to other executives as part of a streamlining. Fox Networks CEO Tony Vinciquerra and Fox Filmed Entertainment chairmen Tom Rothman and Jim Gianopulos are expected to assume added responsibilities, according to executives familiar with the discussions.

Although the details are still being hammered out, Murdoch has floated scenarios including consolidating the movie and television production units under Rothman and Gianopulos, two people said. Rothman and Gianopulos, who share management of the movie studio, have kept a tight rein on costs, making pictures that score commercially, never mind the drubbing from critics.

Another executive who also could take on a bigger role is Peter Rice, head of the studio’s specialized movie unit Fox Searchlight, whose “Slumdog Millionaire” swept the Oscars on Sunday. On the TV side, Vinciquerra, who runs Fox’s entertainment cable channels, could also oversee programming for the Fox network.

There’s no executive at Fox, however, who has Chernin’s expertise in movies and television.

Chernin joined News Corp. in 1989 as entertainment president of Fox broadcasting, launching such hits as “The Simpsons” and “Beverly Hills 90210.” Three years later, he became head of the Fox film studio, which under his tenure released such blockbusters as “Titanic.” In 1996 he was named president and chief operating officer of News Corp.

His tenure has coincided with a resurgence at the 20th Century Fox film studio, as well as the emergence of the Fox network as a perennial powerhouse among younger viewers thanks to such hits as “American Idol.” Chernin also pushed for a $580-million acquisition in 2005 of social network MySpace and was a primary architect of Hulu, a joint venture that provides full-length TV shows and movies online.

Chernin played a key role in negotiating a settlement between Hollywood writers and the Alliance of Motion Picture and Television Producers that brought an end to last year’s 100-day writers strike.

“He showed great leadership during the AMPTP negotiations with the guilds,” said Leslie Moonves, CEO of CBS Corp. “He’s a very effective executive. I’ve admired him as a friend, colleague and competitor for 30 years now.”

Chernin will leave with a generous compensation package. His contract guarantees him a six-year motion picture and television production deal under which Fox is obligated to greenlight at least two movies a year, at his discretion. He plans to launch his production company later this year and to spearhead his nonprofit organization Malaria No More.

The exit deal comes on top of an already unusually rich paycheck. For the 2008 fiscal year, Chernin’s total compensation was $28.8 million, which included his base salary of $8.1 million and incentives -- more than Murdoch’s. Chernin has a pension and retirement plans worth $11 million and a deferred compensation account that had a balance of about $28 million as of June 30, according to regulatory filings.

Equally lavish was the praise Murdoch heaped on Chernin. “Peter’s contributions to the company over the past two decades have been immeasurable,” Murdoch said in a statement. “There are few executives, at any company, that combine his maturity, his experience and his skills as a communicator and leader -- I will miss him.”

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