With a 77-year-old chairman at the helm and an entertainment and media landscape in full mutation, the media monolith News Corp faced the start of a critical transition on Monday with the news that the company's top lieutenant, Peter Chernin, was leaving after 12 years as president and COO.
Chernin, 57, told Rupert Murdoch of his decision over Oscars weekend, as the specialty division Fox Searchlight covered the company in glory with an indie hit from India, "Slumdog Millionaire," sweeping the Oscars.
But the morning after the celebration, the news of Chernin's departure sent a chill of anxiety through the Fox lot on Pico Boulevard. "People are nervous, from Peter on down," said one executive who, like others who spoke to TheWrap, declined to speak on the record.
The anxiety stemmed not just the prospect of the loss of a stable leader like Chernin in an industry notorious for turnover. It was equally the timing of his departure that jangled nerves -- in a severe economic recession and as media companies like NewsCorp face fundamental destabilization from new technologies introduced by the Internet.
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Chernin presided over a period of exceptional growth at News Corp, where he oversees the Twentieth Century Fox movie studio, Fox television and a set of cable properties.
Murdoch had sought to convince Chernin to stay over the past several months, without success. Chernin knew that he would never replace Murdoch, and insiders said he wanted to leave while he was at his peak -- and while Chernin had plenty to cite as accomplishments.
He does. News Corp has experienced 15 to 20% growth in profits per year since 2003, a period when the movie studio has been consistently strong in racking up profits and when Fox has become the leading television broadcast network.
The executive also spearheaded many innovations at the company, from the creation of Fox Searchlight to the company's purchase of MySpace in 2005 for $580 million and its co-founding of the television streaming service Hulu with NBC-Universal.
After the news leaked onto the Internet on Monday morning, Chernin released a statement saying, "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."
Murdoch himself seemed keenly aware of the anxiety that Chernin's departure would engender as well as the likely negative reaction on Wall Street, and stressed that he would personally step into the breach.
"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," said Murdoch.
But it is an unusual time, as Murdoch noted. "We are in the midst of a phase of history in which nations will be redefined and their futures fundamentally altered," he said in the letter noting Chernin's departure." 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."
Murdoch said that News Corp would embark on a "streamlined management structure between our Los Angeles-based business units and the rest of the company."
Several executives, and members of Murdoch's own family, seemed likely candidates to vie for Chernin's position. Among them will be Jim Gianopulos, co-chairman of the movie studio, and James Murdoch, chairman and chief executive of NewsCorp Europe and Asia (see related story [7]).
But the decision not to replace Chernin was not only because of the strength of Fox's executive ranks, Murdoch said. "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," he wrote.
Still, News Corp's biggest problems have much less to do with the part of the company managed by Chernin. The print and publishing properties that report to Murdoch, including The Wall Street Journal and The New York Post, continue to bleed red ink as newspapers all over the country suffer from competition of digital age in a bleak ad market.
That is a problem that even the entrepreneurial genius of Rupert Murdoch has been unable to solve.
Now he has to also solve the looming question of his own succession. "I'm not nervous about Peter Chernin's leaving," said Hal Vogel, a veteran observer from Vogel Capital Management in New York. "The real question is the old question: Who succeeds Rupert? That hasn't been answered. And it wasn't going to be Peter."