Murdoch Brothers’ Challenge: What Happens Next at Fox News?
By BROOKS BARNES and EMILY STEELJULY 17, 2016
Lachlan Murdoch, left, and his brother James Murdoch, the executive co-chairmen of 21st Century Fox, called for an internal investigation into Gretchen Carlson’s sexual harassment lawsuit against the Fox News chairman, Roger Ailes. Credit Drew Angerer/Getty Images
LOS ANGELES — They have shaken up 21st Century Fox’s profile in Washington, replacing their father’s Republican lobbying chief with a Democratic one. They have jettisoned film executives, overhauled foreign TV operations and dug into the evolution of cable channels like National Geographic.
Their father, Rupert Murdoch, handed them the reins of 21st Century Fox only a year ago. But since then, James and Lachlan Murdoch have been remaking the company at breakneck speed.
Yet there remains one corner of the company — a critically important one — where the generational shift has not been visible: Fox News.
The brothers have left it alone for two reasons. First, Fox News, which continues to dominate in the ratings, contributes roughly 20 percent of the conglomerate’s annual earnings, and any changes, even seemingly minor ones, could endanger that profit. Second, Roger Ailes, who has run Fox News for 20 years, has little interest in corporate oversight. He has sparred with Lachlan Murdoch in the past — and won.
But the Murdoch siblings now have little choice. Gretchen Carlson, the former Fox News host, filed a sexual harassment lawsuit against Mr. Ailes on July 6. Her charges have resulted in a public-relations nightmare for Fox News, and 21st Century Fox now faces questions about succession planning at the linchpin operation. In short, analysts say, it has become the Murdoch brothers’ biggest leadership challenge since taking over.
Moving with notable speed, the Murdochs hired the law firm Paul, Weiss, Rifkind, Wharton & Garrison to run an internal investigation. A leader of the firm’s inquiry is Michele Hirshman, a former deputy New York attorney general known for helping Eliot Spitzer fend off criminal charges in the federal prostitution case that led to his resignation as governor. Ms. Hirshman’s team, which includes multiple Paul, Weiss partners and associates, has started to interview employees and review emails.
Mr. Ailes, 76, a towering figure in media and Republican politics, has denied any wrongdoing, and 21st Century Fox has expressed its “full confidence” in him.
Even so, James and Lachlan Murdoch, along with lawyers and their father, who has been phoning in from vacation, have had daily discussions about the crisis, according to two people briefed on the discussions, who spoke on condition of anonymity to discuss private company dealings. Given the importance of Fox News to the company, the high profile of Mr. Ailes and the seriousness of the allegations, the Murdochs want to make sure impartial and thorough consideration is given to the matter.
There are also things to consider beyond the specifics of Ms. Carlson’s lawsuit. What happens if the investigation turns up nothing to support her claims but finds a hostile workplace nonetheless?
Upending Fox News with a seismic leadership change, particularly as the presidential election season intensifies, is a scenario the brothers are not eager to confront. Despite their personal feelings toward Mr. Ailes, which run cool, and despite their eagerness to modernize 21st Century Fox, the company needs Mr. Ailes, analysts say.
In addition to the more than $1 billion in profit it delivers annually, Fox News gives 21st Century Fox a weapon in talks with cable and satellite operators: Carry all of our networks, and at favorable terms, or we will withhold the enormously popular Fox News. Without the omnipotent Mr. Ailes in charge, Fox News could quickly lose its focus and become less of a juggernaut. Moreover, Mr. Ailes has no clear replacement.
A spokeswoman for 21st Century Fox declined to comment for this article.
In June 2015, when Rupert Murdoch named his sons, James, now 43, and Lachlan, 44, as his successors, the reaction in Hollywood — and even inside 21st Century Fox, to a degree — was subdued. Most people figured the brothers would be timid, at least until their father, who held on to the title of executive chairman, stepped more firmly aside. (James Murdoch was named chief executive and Lachlan Murdoch was named executive chairman, but the company says the two manage in tandem.)
There were some early awkward moments. During a conference call last year with analysts to discuss quarterly financial results, Lachlan Murdoch seemed to struggle, while James Murdoch seemed to signal that this was less a partnership than a one-man show. But the brothers swiftly fell into step and began to exercise their new power, in some instances catching their own executive ranks by surprise.
In September came a $725 million deal to buy control of the National Geographic roster of cable channels and print publications. News of the deal was met with skepticism by many National Geographic employees, who questioned whether their organization’s scientific standards would be threatened by closer alignment with 21st Century Fox — and, in particular, with Fox News, where some commentators have questioned global warming.
On the day the deal was announced, James Murdoch, a supporter of environmental causes (his wife, Kathryn, is a trustee of the Environmental Defense Fund), calmed the National Geographic troops at a town hall meeting. He apologized for some of the programming that 21st Century Fox had previously put on the National Geographic channels under a more limited partnership, saying it did not meet the brand’s standards or promise.
In January, the brothers restructured 21st Century Fox’s international channels business, a roster of some 350 channels that generates $3 billion in annual revenue, resulting in the departure of the division’s chief executive, Hernan Lopez. In February, they started a voluntary buyout program aimed at older movie and television personnel — Fox News and Fox local stations were excluded — resulting in the departures of nearly 400 people.
The moves have continued apace. In April, Michael Regan, the company’s longtime lobbying chief, was replaced by Chip Smith, a veteran Democratic strategist. Hulu, which is co-owned by 21st Century Fox, said in May that it would begin selling a bundle of cable and broadcast channels. The brothers have sought to be industry leaders when it comes to piping television directly to consumers — whether in India with Hotstar, a streaming service that now has 72 million users, or with the Fox broadcast network, which last week began testing a similar app.
The brothers recently put into motion a regime change at their film division by abruptly announcing that Stacey Snider, the studio’s co-chairwoman, would succeed Jim Gianopulos as movie chief.
“You have to have a real appetite for change,” James Murdoch said at an analyst event in June. “Our biggest risk, our single biggest competitive threat, is our own incumbency.”
And yet there Fox News has sat — an island that, until now, has fallen into the “if it’s not broke, don’t fix it” category.
James and Lachlan Murdoch have long had a complicated relationship with Mr. Ailes. About a decade ago, Mr. Ailes and Lachlan Murdoch faced off in a power struggle that eventually led to Lachlan’s unexpected resignation from his father’s empire. James Murdoch has been careful not to criticize Mr. Ailes in public, but people close to him say that he has expressed private concerns that the Fox News brand casts an unfavorable shadow on other parts of the company, particularly in Hollywood.
The friction between Mr. Ailes and the brothers came into public view last summer, when Mr. Ailes told an interviewer that he would continue to report directly to Rupert Murdoch. A week later, a company spokeswoman said that Mr. Ailes would report to Lachlan and James and continue his “longstanding relationship with Rupert.” The next week, in announcing a new multiyear contract for Mr. Ailes, the company said he would report jointly to Rupert, Lachlan and James.
A timeline for the Paul, Weiss investigation has not been disclosed. Although reported by some news outlets as an “independent” review commissioned by the company’s board, that description is not correct. The firm was retained by 21st Century Fox not only to investigate but also to provide legal advice. (The rarer true independent review would preclude legal advice.)
Even so, questions have surfaced about the firm’s independence, in part because of an unconnected case. Last year, the National Football League hired Paul, Weiss to conduct an inquiry into underinflated game balls used by the New England Patriots. The firm later represented the N.F.L. in a related court proceeding, drawing criticism from a New York judge for serving as both investigator and retained counsel. (That judge’s ruling was reversed on appeal.)
A spokeswoman for Paul, Weiss declined to comment.
