Is The Sun king on his way out?

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(Image via @johndory49)

The announcement this week that James Murdoch will take over from his father Rupert as CEO of Twenty-First Century Fox signals the further decline of the Murdoch empire, writes Dr Martin Hirst.

THE leaked announcement this week that Rupert Murdoch is to “relinquish” his 60-year reign at the top of the News Corporation mountain has been met with some skepticism by media insiders.

It seems that Rupert is to give up executive control of the Twenty-First Century Fox entity and hand it over to his son James.

Many, like Crikey correspondent, Stephen Mayne, feel that Murdoch’s move is a feint , which, in reality, will cement his family’s hold on the lucrative cross-media business.

Mayne wrote that the Murdoch is the master of ruse when it comes to managing his family’s controlling interest in the News businesses.

…the Murdochs have made a career out of gaming media laws and bending regulators to extend their two-decade run as the world’s most powerful family.

Today’s leak to Fox News is just another step along the way in that journey for a family that is now worth about $15 billion, and carrying very little risk through either public or private debt.

Writing on The Conversation, Brian McNair describes the succession leak as a “Game of Thrones” moment for News Corp.

And what of the future for news and journalism at News Corp? One imagines that if James and Lachlan do succeed their father, they would bring to the roles his personal commitment to investment in journalism, and a readiness to lose money in an activity with overreaching political value, here in Australia not least.

On the other hand, when Rupert does eventually depart for the great newsroom in the sky, will more mundane corporate realities come to the fore, spelling trouble for the loss-making Australian, The Times in the UK, and other outlets?

To further complicate matters of ownership and financial regulation of News Corp, in 2013 the company was split into two wings; one – 21st Century Fox – controlling film and television assets, mainly in the United States, the other – News Corp – a global network of newspapers and a publishing house. But in Australia, News Corp will hold both newspaper assets and Foxtel/Sky, which is likely because of the huge losses suffered by the Australian newspaper, which could be as much as $33 million a year according to Murdoch watcher, Neil Chenoweth.

It is widely believed that the News of the World scandal was a factor in the decision to split News Corporation. Whatever the ultimate reason, the decision seems to have revived the company, or at least to have (temporarily) lifted its share price.

Further speculation about why the octogenarian media mogul would split the company he clearly loves and has devoted his life to at great cost has ranged from the mundane, but obvious – he was forced into it by shareholders – to the more exotic — it was to create a succession plan that would please his three most important children: Elisabeth, Lachlan and James.

Whatever the reasons – and they are likely as varied and complex as Murdoch’s history – the gamble initially paid off and the share prices for the film/TV company and the newspaper business both rose after the deal. In late 2014, market analysts were comfortable with the restructure and overall the business was seen to be in reasonably good shape, despite ongoing negativity around the global newspaper business.

However, that good run may have ended. The succession leak caused a roller-coaster for Fox shares on the Nasdaq, which ended the day lower than the start of trading. This is likely to indicate a lack of confidence in James’ leadership abilities.The three month trend in New York was also down.

The succession announcement has also not helped the declining share price for News Corp Australia stocks on the ASX.

News Corp Australia share price, not waving, drowning?

News Corp Australia share price — not waving, drowning?

It seems that, for a period at least, the demerged Murdoch empire will survive, even though it is a company likely, at any moment, to "choke on its own secrets", or "spin out of control" and a place where the next disaster does not seem far away.

The decision to elevate James this week is the first move in a chain reaction that will eventually see Rupert step down completely, but perhaps not for some time. It also has implications for the various arms of the empire now spread across four continents. Rupert and his son Lachlan will share the role of “executive chairman”. Although given the famous falling out between father and son a few years ago, how long this volatile partnership can survive is anybody’s guess.

It also means that Murdoch and his children will continue the family tradition of racking up millions of frequent flyer points as they shuffle between various headquarters — from New York, to London, to Hong Kong and Melbourne. This shouldn’t really bother Rupert or the kids, it has been their life for nearly half a century.

Rupert Murdoch, the itinerant media mogul

Rupert Murdoch has been an itinerant since first leaving Australia in the 1950s to earn a third class degree at Oxford. He returned to Australia in 1953 to build his first newspaper company. From the mid 1960s, he began to build a global empire by acquiring English newspapers, which meant he lived there most of the time; then, from the early 1970s, he spent 20 years building his multimedia empire in the United States, renouncing his Australian passport to become a U.S. citizen along the way.

Murdoch’s nomad status was then confirmed, but he also wanted to keep his Australian television stations. In the 1980s, he faced questions from the Australian Tax Office about his residential status forcing him to eventually sell them.

Wherever Murdoch goes, he mixes business with pleasure; a supposed family holiday to China in 1985 also turned into a commercial adventure that led to Murdoch’s doomed acquisition of Star TV. Since the 1980s, Murdoch has spent 40 years moving seamlessly between continents, appearing to be most at home when on the road, in the air or sailing to somewhere new.

In an attempt to repair his damaged relationship with the Chinese government, Murdoch moved his family to Hong Kong in 1993, but returned to Los Angeles after only a few weeks of apparently insufferable winter weather.

According to one many of his biographers, Murdoch has an an "intercontinental facility" to juggle many deals and situations simultaneously across businesses and timezones. Bruce Page’s The Murdoch Archipelago (2003) also shows that News Corporation exhibits signs of being a nomad entity that takes advantages of tax havens and profit-shifting.

Like many transnational companies, News Corp has always been keen to minimize its tax exposure. One one way to do this is to use what Neil Chenoweth describes as an ‘archipelago of tax havens’, allowing Murdoch to shift assets and profits from high-tax to low-tax destinations. In February 2014, it was reported that the Australian Tax Office had paid News Corp $882 million in rebates to settle a $2 billion Australian tax deduction claimed for ‘a series of paper shuffles between companies’ that had occurred 25 years earlier.

News Corp was also alleged to be involved in a second tax scam in 2014, after thousands of previously confidential files were leaked to the International Consortium of Investigative Journalists (ICIJ). The files revealed hundreds of global companies reduced their tax liabilities by moving profits from high-tax nations to shelf companies in Luxemburg without being effectively domiciled there.

News Corp was able to bank a US$1.2 billion profit from the 2009 sale of its controversial Israel-based technology company NDS following a favourable last minute tax ruling by officials in Luxemburg.

The nomadic genealogy of Murdoch and his family has given his companies the ability to move quickly and to find the internecine spaces between jurisdictions in which to domicile the entities he controls. This is well illustrated by the complicated ownership arrangements for News Datacom Research Limited (NDRL), a satellite company established in Israel to commercialise encrypted security access products, while the holding company, News Datacom Security Products (NDSP), was based in Hong Kong. A News Corporation company in Bermuda, News Publishing Limited, then owned 60 per cent of NDSP.

NDSP caused problems for its parent company in the 1990s when it became involved in the murky world of satellite television piracy and computer code hacking. Resolving the issues cost Murdoch billions of dollars, but eventually all of NDSP’s legal problems went away.

Is the age of Murdoch over?

"I just want to live forever. I enjoy myself too much."

~ Rupert Murdoch, 2007

There can be no doubt that Rupert Murdoch’s media power – at least in the UK – suffered a terrible blow in 2011 with the phone-hacking scandal, which caused the sudden closure of the fiesty News of the World.

The police investigation, subsequent conviction of journalists and editors on serious criminal charges, and the humiliation of seeing his most senior lieutenants pursued through the British courts has certainly taken its toll.

Yet, Murdoch continues to promote one of the most compromised of his NoTW executives. Disgraced former editor, Rebekah Brooks is now in New York, again working for Murdoch on digital investment strategies.

The hacking scandal may not have completely squashed Murdoch’s dynastic ambitions, but it has exposed the contradictions at the heart of his empire and led to increased scrutiny of his business methods.

According to Australian media researcher David McKnight, Murdoch’s own world view has ‘trapped him’ in this contradiction: on one hand he claims to support the market and to oppose the establishment, particularly the system of ‘inherited class privilege’, yet plans he’s made for succession in News Corp seem to be moving in the opposite direction.

At the time of the NoTW’s demise, on 7 July 2011, it appeared – publicly at least – that the issue of succession was settled. It was the youngest son, James, who occupied the most senior position in the business apart from his father and it was James who made the decision to close the paper. Again, it was James at his father’s side on the "most humble day" of his life in front of a Parliamentary inquiry two weeks later.

James’ older uterini siblings – Elisabeth and Lachlan – were both busy outside the immediate orbit of the News Corporation inner sanctum. Their older stepsister Prudence does not figure in succession plans.

Murdoch’s empire spans the globe, from Star TV operating in Hong Kong and the sub-continent, to a global film studio and on through to newspapers and subscription television networks in Australia, Britain and the USA.

Make no mistake, it is Murdoch’s empire. The family directly owns 40 per cent of voting stock through a trust arrangement. This doesn’t change with the announcement of James’ ascendancy.

However, the empire may be fading. The reigning emperor shows no signs of infirmity, but there must be an end to his dominance at some point. Whatever the outcome of the succession, it most likely won’t happen until Rupert is carried out of News Corporation’s new York headquarters in a pine box.

When that happens, it will signal the death of a generation too. Murdoch has no peer in the world today. Most multinational media companies, with the possible exception of the German Bauer group, are controlled by faceless board members with no familial loyalty to the business.

Murdoch may be the last of the moguls, as it is unlikely any of his children would wish to keep the loss-making print businesses going. The inevitable death of Murdoch senior may well be the end of the News Corp empire too.

You can read more by Martin Hirst on his blog Ethical Martini and follow him on Twitter@ethicalmartini.

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