Chernin Reveals Strategy for News Corp.

News Corp. coo reveals his strategy to grow TV, Film and Web in digital era
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Peter Chernin has come a long way from his days as an editor at Warner Books in the 1970s. An English major whose parents rationed TV consumption, he had little interest in television. Today, the News Corp. president/COO pulls the strings in a portfolio of TV, film and Web properties that’s the envy of the media industry. The company’s most recent get: social-networking site MySpace. The company’s cable networks—Fox News, FX and the Fox Sports regional channels—are growing strongly as rivals fade. The strength of Fox’s broadcast network and its monster American Idol—whose audience averages 30 million weekly—is enough to have Chernin humming Kelly Clarkson songs. Still, Chernin faces plenty of hurdles. Video over the Internet threatens to drain broadcasters’ ad revenues. News Corp.’s core businesses are in maturing sectors facing slow growth, notably its newspapers, broadcast stations and network. And despite his ascent, he may never be named CEO at News Corp. if Chairman Rupert Murdoch is succeeded by one of his children. As Chernin is inducted into the Broadcasting & Cable Hall of Fame, he spoke to B&C Business Editor John M. Higgins about News Corp.’s digital strategy and his lack of a MySpace page.


Broadcast networks and stations are tough businesses. News Corp.’s cable networks are strong right now, but that sector is starting to slow down. How do you operate a maturing sector?

We have had a very clear strategy which has allowed us to grow at a faster rate than just about any other media company. We’re trying to have assets at three different stages. We have a bunch of core assets which some may call mature but are the generators of enormous stability and predictability and cash flow, probably including some of our broadcast properties, some of our print businesses.

We try to take the profits from those and make sure that we are aggressively investing those in the next generation of growth drivers. The high-momentum drivers are our cable channels, of which there’s no better example than Fox News, where we invested a lot of time and energy. We have satellite platforms and other foreign businesses that are generating tremendous growth now that we’ve been investing in them over the past five or six years.

Then you have the next generation we’re investing in right now, which are the MySpaces of the world, the IGNs of the world, some of the things we’re doing in Eastern Europe. We’ve bought broadcast stations in Indonesia recently. I believe that those will be the growth drivers of this company three to five years down the road.


MySpace is proving to be a great acquisition, but it doesn’t constitute a digital strategy for the whole company. How do you see the TV and movie worlds moving into digital and making enough to offset possible lost TV-ad sales?

The second part of the question is the most important part. The challenge and mandate is making sure that you’re building new businesses faster than old businesses may potentially decay.

If people decide they want to watch our content in different forms than they have, that’s fine with me as long as I get adequately paid for it.

The strategy of most media companies should be disseminating our content widely on as many new platforms as we can. We are doing almost any deal that makes sense, provided two things: One, we can get our margins protected, and two, we feel confident about the copyright protection. That ranges from various video-on-demand things to iTunes to MySpace to Movielink.

All the networks are experimenting with various ad-supported streaming efforts, shortly after the network window. There’s a tremendous scarcity of video advertising on the Internet, so you can get pretty high prices for it. Further, it’s generally all additive. It takes place after your network airing. And given the decline in reruns for most of these shows, that’s important.


How long will it stay additive, considering that the shows ABC is touting for online viewing—Lost and Desperate Housewives—have seen their TV audience shrink?

There is absolutely no correlation between them. First of all, the online numbers are so tiny. I certainly don’t want to say anything negative about the company, but, to the degree franchises like Lost or Desperate Housewives see declines—in my opinion, with absolute certainty—have nothing to do with the move of those shows onto various digital platforms.

No one’s been more aggressive than we have on a show like 24 about getting it out there on DVD, getting it out there on iPod, getting it out there on various digital iterations. And the ratings have grown every year. Unfortunately, in this life, most declines tend to be driven by creative issues. God knows, when we have declines in shows, I wish I could blame them on something else, but there are creative problems; the audience is unhappy with the storytelling. There are extraordinary opportunities for high-profile, successful shows. I have no concerns that various digital platforms and additional platforms are anything but a positive.

Conversely, I do think that what digital and what every other advance has done in the business is lead to more fragmentation. And the net result of more fragmentation is that successful shows get stronger and weak shows get weaker, because people have more choices.


What are the biggest misperceptions of MySpace?

One is, there’s a desire to see this as some sort of passing fad. We’ve 100+ million registered users around the world, 60 million-70 million people here. It’s been growing exponentially, both before we bought it and since we bought it. And the amount of time that consumers want to spend on it has been growing enormously. So I don’t think this is a passing fad at all. It is a real, in its own way, media platform. People are spending hours on this thing every day in order to essentially both entertain themselves and communicate.

The second misperception is, a lot of people want to think that somehow this signifies a complete sea change in the way young people are. I don’t think that’s true at all. First of all, it’s much broader than just young people; in fact, its age has been advancing. It’s actually the way young people have acted certainly for decades, which is that young people want to feel connected with as many of their friends as possible, feel popular; they want to express themselves.

People want to say, “Oh my God, have you seen what’s on there?” In the time I’ve spent on the site, I’m always amazed at the number of people who list under their heroes their parents. They list what their dreams are, and I think it’s actually fairly heartening.


I’ve searched, but I haven’t found your MySpace page.

Well, I don’t think you will be finding my page.


Is it a media platform, or does it only become a communications platform?

It’s whatever platform its users want it to be. It is a media platform if they decide. But it is one of the advantages our company has. All the networks have now started putting their current shows up on the Internet the day after they air, ABC.com, CBS.com, etc. We put ours on what’s essentially the single largest Internet site in the industry by putting them on MySpace. It gives us a huge traffic advantage over anybody else.


What does the YouTube/Google deal say to you? I assume you looked at buying it.

Yeah, we did look at it. As a content company, we see it as just one more validation of the value of content. Wider distribution of video on the Internet will be good for content companies because I think they will get generous and positive revenue splits.

The other side, given that, in MySpace, we have the No. 2 video site on the Internet behind YouTube, is that it just further validates the value of MySpace. We’re going to put our head down and continue to invest to hopefully close the gap and be a real competitor.


Why didn’t you buy it?

Look, I don’t want to be negative, because we look at it as being very attractive, but I think probably, at that price, given that we already had one, we weren’t buying.


And what do you think of the price?

It makes me feel good about all of MySpace for the $580 million we spent for it.


Are you surprised that no “old-media” company bought it?

Clearly, one of the complicating issues inside there is the degree of copyright infringement. It’s easier for a third party like Google to come to some accommodation with the industry than it is for a content company to softball those issues.


How long can American Idol last?

Hopefully, forever.


Do you think it can?

Well, I have no idea, right? You sit here in October, and it sure feels like it’s been a long time since Idol has been on the air. And you feel like, “Wow, I really would love to see that.” There’s still a little bit more than three months to go before it comes back. Whether by intelligence or accident, the strategy we came up with to schedule it only once a year has been one of the smartest things we’ve ever done in this company. That gives Idol a really good chance of lasting a really long time.

Interestingly, you’re seeing a real sea change in the television business in that sense, which is virtually every one of these shows that has scheduling scarcity comes back stronger than ever every time. We’re seeing it with Idol, 24. Nip/Tuck, which was just off the air for six to eight months, is having its strongest season ever. The Shield, Rescue Me—these shows have scarcity in a world in which it feels like everything is shoved down your throat as a viewer.


What’s behind Fox News’ ratings slide?

The ratings are still remarkably strong. We still have a huge leadership position over our competitors, and we still have phenomenally talented people both on the air and running the channel. There’s maybe a little bit of burnout in the current news cycle right now. Americans are a little worn down by the war, a little worn down by whatever this week’s Washington scandal is.


How much does the political cycle, the decline in Bush’s popularity, affect Fox News’ ratings?

Probably not as much as people think. There is a core political audience, and maybe they’re a little burned out right now. But what tends to really drive the ratings of these things are sort of non-political stories, human-interest stories, whether it’s Katrina or Natalee Holloway in Aruba.


How do you feel about the weak start of MyNetworkTV?

I see it pretty straightforwardly. We’re in the game. We’ve gotten these shows up. We’ve got an audience, probably a smaller audience than we’d like right now but not necessarily a smaller audience than we would’ve expected. If the concept is appealing and we do a good job on these shows, we have a base to grow from. And if we don’t do a good job, we’ll stagnate here, and we’ll have a problem.


What are your thoughts about DirecTV right now? It was such a big priority for you all for a lot of years, and now you’re talking about selling it to Liberty Media’s John Malone.

I certainly don’t want to talk about any potential transactions or deals. But DirecTV is a great business and has a lot of growth in front of it. [DirecTV CEO] Chase Carey and the management have done a terrific job dramatically improving the financial performance. It is something that we’re obviously in the middle of discussions about, and I don’t want to talk about it publicly. But I don’t think it has any impact on what I think the value of DirecTV is and what a valuable property it is.


How is it working for a family-controlled company with a lot of family members hovering around the company?

Well, of course, there’s only one family member involved in the company right now. There’s a lot of advantages to working for a family-owned company. One of the great strengths of this company has been its ability to be focused on the long term and not to react to quarter-to-quarter pressure. It’s one of the reasons why we’ve been able to build it so aggressively and grow it so aggressively. I happen to respect the family members that I’ve worked with and have good relationships with them.


Does the ouster of Tom Freston over at Viacom give you pause about your own position?

There’s no relationship between what happened at Viacom and what happens here. Like most people in life, I have a boss; so did Tom. If I contribute to the company, which I believe I have and hopefully will continue to do, I’m quite secure. And if I don’t contribute to the company appropriately, then I’m as replaceable as any other person on earth. And I don’t think anyone in any one of these jobs has any illusions that they’re not replaceable.

That said, I don’t think there is any evidence or ever has been that [News Corp. Chairman] Rupert [Murdoch] is particularly capricious about these things. Rupert, who I think gets mischaracterized by a lot of things, is a very steady force. And if Rupert believes in you, he’s not a guy who is likely to be swayed because he doesn’t think the stock moved in the last three months.


When you were approached by Disney and other companies to become CEO, how far did those talks get?

I have enormous affection for this company and particularly enormous affection and allegiance to both Rupert and the board and people that employ me—probably just as much, if not more, for the people. And this company is significantly better-positioned than any other media company going forward.


How so?

If you look at almost any of the things that I view as important for the growth of a media company—a balance between traditional media and new media, growth prospects, a balance between domestic operations and international operations—this company is better-positioned than anybody right now.

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