News Corp.'s second-in-command, Peter Chernin, was promised as much as $30-million (U.S.) a year when chairman Rupert Murdoch renewed his contract a year ago. Mr. Murdoch's investment already is paying off.
Mr. Chernin, 55, is the main reason New Corp.'s class A non-voting shares barely budged, dropping 19 cents to $16.38, when Mr. Murdoch's oldest son and heir apparent, Lachlan, resigned on July 29 as deputy chief operating officer, says Morris Mark, president of Mark Asset Management Corp. in New York.
"Looking at it over the next three to five years as a business, I know who's going to be running the company," says Mr. Mark, whose firm owns about 1.1 million shares in the fourth-largest U.S. media company.
Mr. Chernin will continue to increase sales of home videos, lift ratings at the Fox television network and raise cable TV subscription fees, says Andrew Baker, an analyst at Cathay Financial in New York.
Yesterday, News Corp. said fourth-quarter profit rose 67 per cent after sales increased at cable-television networks including Fox News Channel.
Profit was $717-million, or 23 cents a share, compared with $429-million, or 15 cents a year earlier.
Investors saw Mr. Chernin's presence as more important to the company's fortunes than the question of which of Mr. Murdoch's children will succeed the 74-year-old Australian.
"Clearly, he is Rupert's right-hand man," says Monik Kotecha, who helps manage $5.5-billion Australian ($4.2-billion U.S.) in stocks, including News Corp., at Investors Mutual Ltd. in Sydney. "He understands the business, he has a history of handling media assets."
News Corp.'s fourth-quarter results were bolstered by higher advertising sales at cable television units such as Fox News Channel.
News Corp.'s cable-TV unit, which includes FX, Fuse and regional sports networks, posted a profit gain of 14 per cent, its 11th consecutive quarter of rising earnings.
Hired in 1989 to run News Corp.'s Fox television, Mr. Chernin oversaw development of TV shows such as The Simpsons. He was promoted to run Twentieth Century Fox Film Corp. in 1992 and became chairman and chief executive officer of Fox Filmed Entertainment, which includes all of Fox's movie and home-video units, two years later.
As chief operating officer he helped oversee the development of new cable channels such as Speed, Fuel and National Geographic, adding them at a pace of about one a year. He also helped bring American Idol, the talent-search contest that was the most-watched U.S. television show in the season ended in May, to the broadcast network.
Mr. Chernin's challenges include adding hit shows at Fox television, where ratings typically drop in the months when American Idol is off the air, and maintaining home-video profits in a maturing DVD market, says Cathay Financial's Mr. Baker.
Mr. Chernin declined to be interviewed for this story.
Mr. Murdoch, who was born in Melbourne and controls 29 per cent of News Corp.'s voting stock, appointed Mr. Chernin president and chief operating officer in 1996. He retains that title; Mr. Murdoch is chairman and chief executive officer.
News Corp. Class A non-voting shares almost tripled from the end of 1996 to early 2000, then gave back those gains by mid-2002. They've surged 43 per cent to $16.16 since the end of 2002 and are down 13 per cent this year. By comparison, the 16-member Standard & Poor's 500 Media Index has fallen 6.2 per cent this year.
Lachlan Murdoch, 33, said he planned to move back to Australia with his wife, former model Sarah O'Hare, 33, and their 9-month-old son, Kalan. The departure leaves his younger brother James as Mr. Murdoch's probable successor, says Merrill Lynch & Co. analyst Jessica Reif Cohen.
"After Rupert, it's pretty clear Peter Chernin will take over, and then James," says Ms. Reif Cohen.
James, 32, became chief executive officer of British Sky Broadcasting Group PLC in 2003 after spending three years as chairman and chief executive officer of News Corp.'s Hong Kong-based Star Television, which distributes programming in China and India.
Though James has been successful in both jobs, he probably hasn't had enough experience to run the parent company, says Michael Florin, an analyst at TIAA-CREF Investment Management LLC in New York, which owns about 24 million News Corp. shares.
"Rupert knows his kids need to mature as executives," Mr. Florin says. "If they're not ready I don't think they'd be put in charge without Peter's oversight."
Investors Mutual's Ms. Kotecha says Lachlan, who will remain on News Corp.'s board, may return.
"In 10 years' time he may be highly motivated and successful in his other ventures and come back," she says.
Mr. Murdoch, who built the company after inheriting a newspaper from his own father, has said he wants to be replaced by one of his children. He has two sons and four daughters from three marriages.
Mr. Chernin started his new, five-year contract on Aug. 1, 2004.
Under the agreement, Mr. Chernin is eligible for annual bonuses of as much as $25-million a year, linked to the company's annual earnings per share. That is on top of a salary of $3.8-million and an annual contribution of $4.3-million to a vested savings account.
Mr. Chernin's salary is the highest of any chief operating officer at U.S. companies with annual sales in the range of $15-billion to $135-billion, according to data compiled by New York-based Aon Consulting's eComp, which tracks executive salaries at more than 12,000 public companies.