Terry McCrann: Murdoch’s 21st Century Fox is out and running

THE earth is clearly moving in, around and under the 21st Century Fox arm of Rupert Murdoch’s entertainment and media, content and distribution, empire, in a fundamental way, writes Terry McCrann.

News Corp executive chairman and 21st Century Fox executive co-chairman Rupert Murdoch. Picture: Reuters

THE earth is clearly moving in, around and under the 21st Century Fox arm of Rupert Murdoch’s entertainment and media, content and distribution, empire, in both a fundamental and dynamic way unlike anything seen before in his 65-year journey from and out of Adelaide.

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As indeed it is moving for everyone and not just in entertainment and media — the 6000 jobs that are going to disappear at NAB tell us that — as the Four Horsemen of the Digital Apocalypse — Amazon, Netflix, Facebook and Google — sweep across the globe. Five, if you add Apple.

First, it’s important to explain the structure of the Murdoch empire. Despite the name and its business, the Australian pay-TV arm Foxtel no longer has a direct link with the US Fox. Nor do any of the other Australian operations — the papers and REA (Real Estate dot com).

When Murdoch opted in 2013 to split the empire into two parts, all the Australian operations plus the newspapers in Britain and the US went into News Corp. All the US TV, pay-TV, movie and, importantly, the British version of Foxtel, Sky, went into the US Fox company.

All the speculation relates to a major reshaping of Fox and a possible — and I stress that word, possible — recombination of a consequently smaller and more focused Fox with News Corp.

News Corp executive chairman and 21st Century Fox executive co-chairman Rupert Murdoch. Picture: Brendan Smialowski

There are a number of threads. The Fox model developed by Murdoch was to combine content generation, mostly out of Hollywood (plus premium sports) with distribution, through conventional (20th century) free-to-air TV (Fox, the fourth network in the US; Ten, the third network in Australia) and movie theatres; and 21st century terrestrial and satellite pay-TV (Sky in the UK, Foxtel here).

It was a dynamically interactive model. You gathered the eyeballs to generate the revenue to pay for the content. You built premium content (sports and movies) to gather the eyeballs.

But it is a model that is breaking down under a series of societal and technological tsunamis. The eyeballs are being leached away by Netflix and Facebook and customised broadband delivery and use more broadly, and the smartphone and fundamental changes in consumer lifestyles, time-usage and spending patterns.

The integrated model of content generation and conventional distribution ownership is becoming unsustainable. Further, there’s no clear path to any future.

Hence the clearly well-informed suggestion of Fox selling its entertainment content generation — the movie studio and its pay-TV entertainment channels — to Disney; leaving Fox focused on sports, Fox News (FNC) and the Fox FTA-TV network. That’s a much leaner, focused combine of eyeballs, content and distribution.

The 39 per cent stake in the UK Sky would also have gone to Disney. It certainly has to 'go' to someone.

Rupert Murdoch with his sons, Lachlan and James. Picture: AFP

MURDOCH has made two attempts to buy the outstanding 61 per cent. It is now clear this will never be approved, with both sides of politics in the UK opposing such a move. And in the world of Netflix and Amazon there’s never going to be a better time to sell.

This also goes to the suggestion of a re-merger of Fox and News Corp. The separation in 2013 made great sense, both in geographic and operational terms; there are even less synergistic gains to be found in their re-merger.

Just as there is no way the UK political establishment will countenance a 100 per cent Fox-owned Sky, there is even less chance it would countenance a reunion of Sky and the British papers.

The only logic in a re-merger would be in aggregating the Murdoch holding in the two companies into a bigger, more assuredly controlling, stake in one. But it would be at the cost of ending up with a camel of a company.

All these drivers have been obvious and building for some time.

Another has come straight out of left-field; straight out of the Arabian Desert. In recent years, an important — at critical points, vital — support for the Murdoch control of both companies has been the significant shareholdings of Saudi Prince Alwaleed bin Talal. He sold out of News Corp some time ago, but kept his Fox stake although cutting it from around 7 to 5 per cent. That though has been sufficient — vital? — in supporting the 39 per cent of the voting shares held by the Murdoch family for Murdoch control.

Former longtime Fox operative Chase Carey.

But two things have suddenly happened. Talal has fallen victim to a supposed anti-corruption purge sweeping Saudi Arabia and he’s now under house arrest. Also — while unclear whether it’s the 'caused effect' — he’s sold his entire stake in Fox. Suddenly the Murdoch control looks vulnerable.

Another thread is the succession planning. When the two companies were separated we saw what looked like a workable, sustainable, modus vivendi between James and Lachlan, with Lachlan taking the chair of both companies and James becoming CEO of Fox.

It was also a three-way 'interregnum' with the now-86-year-old Rupert remaining co-chairman with Lachlan of both companies. In Rupert’s case, executive chairman of both, Lachlan executive chairman only of Fox.

The 'regnum', though, has got further complicated by two things.

The return of former long-time Fox operative Chase Carey and the departure, for want of a better word, of FNC’s founder and driver Roger Ailes (who subsequently died).

Carey came back as Fox vice-chairman. On Ailes’ departure, Rupert went to FNC — the single most (and for the moment, still fabulously) profitable part of Fox — as its executive chairman. He was, genuinely, the only person that could pick up from where Ailes, abruptly, left off.

There are too many dynamic volatilities now in play. The Fox components have also become very attractive not only to the Four/Five Horsemen but the conventional giants (Disney, CBS, etc) struggling to fight them. Murdoch will be both driver, as always over those 65 years; but also, unusually — uniquely? — for him, driven.