Peter Chernin, News Corp president and chief operating officer for the past 12 years, is probably the most powerful number-two of any business executive worldwide. ³If anything should happen to me, Peter will step into my shoes,² Rupert Murdoch has said. While James Murdoch is odds-on to one day take over his father¹s media empire, the smart money is on Rupert handing the reins directly to Chernin when the septuagenarian does retire. But Chernin is not just a second-in-command. His profile as a media executive in his own right is rising, fast. This year, he took the flagging negotiations between the Hollywood studios and writers by the scruff of the neck and was instrumental in forging the settlement between both parties. He talks to Tristan O¹Carroll.
TBI: The Hollywood Writers¹ Strike is estimated to have cost the studios and writers $700 million in lost revenue. Alongside the deepening global economic downturn, how has the strike impacted News Corp?
I don¹t think the strikes and the economic situation are going to have a major negative long-term impact. The strike changed things, of course. How has it changed things for the long term? Well, we don¹t yet know. The strike was clearly a negative for the industry. No-one wants a strike. But the strike probably actually cut costs for News Corp, because we saved money by not having to cut new writer deals and we saved on production costs and by not having to make a full round of pilots. I think that the deal with the writers and directors has been a good one for the industry and now we really all, as an industry, should be focused on moving forward.
Many want to reform the way Hollywood does business. NBC Universal, for example, will no longer hold a costly annual TV upfront. What¹s your view?
You¹re not going to see Fox abandon the upfronts. The upfronts are invaluable as a means of communicating with advertisers. The upfronts are also largely about how schedules are announced. But I do not think it makes sense to necessarily stick to the traditional upfront formula and NBC is recognizing that. Recognizing the growing importance of non-linear TV, the upfronts need to better reflect changing advertiser needs. But would I want to diminish the stature of an announcement such as the upfronts? I would not.
What about the future of the TV pilot season?
I think that the pilots should absolutely change. We were moving toward making fewer pilots anyway before the Writers¹ Strike. We want to get some waste out of the system. We need to be more focused on the projects that will work.
There have been big changes at Fox TV Studios (FTVS), following the departure of FTVS President Angela Shapiro-Mathes for Discovery last year. You¹ve closed FTVS¹ UK production operation and there is a question mark over FTVS¹ French unit. What is the outlook under Emiliano Calemzuk?
I am very heartened by the progress FTVS has made since Emiliano Calemzuk took over leading the company in April 2007. First, FTVS reviewed its production operations in non-US territories, leading to the closure of our local arm in the UK. Why have we done this? Well, when we started out with FTVS eight years ago I did not want to create yet another TV production company. We already had 20th Century Fox and I did not want to duplicate that. I wanted to develop something different, something that would give us strength beyond our base of primetime network scripted programming. When we set out with FTVS we wanted to get big in cable and non-scripted.
How will FTVS¹ international presence change next year?
Now, we are taking big steps in a more refined direction and I expect that in this fiscal year we will have started work on between 10 and 15 international coproductions.
News Corp¹s US-based film and TV studios generated the lion¹s share of the company¹s $5.4 billion profits in your last financial year. What role will international operations play going forward?
One of the strengths of News Corp is its ability to be so focused on international. We know how to understand local markets. International is one of the most important growth areas for our company.
What role will Fox International Channels play in News Corp¹s international growth? Are the rumors true that you could float part or all of FIC on the public markets?
We have no plans to spin-off Fox International Channels into a separate unit. Our ambition is to be the single biggest pay TV channel provider in the world. FIC is a critical part of News Corp¹s international growth strategy. We have been operating in the international TV channels market for years now and recently have been launching channels at a rate of nearly one per week worldwide across all platforms and we expect to continue this.
Twentieth Century Fox Television recently cut an eye-catching deal with ITV in the UK, which allows both companies to redevelop each other¹s programmes for their respective home markets. What is the thinking behind this kind of deal?
The deal will produce shows that can be used in the UK and in international markets. There is a great reservoir that this venture, and others like it that we will look to pursue, can produce. We could do this kind of thing again. But it does not make sense to do it in every single market.
How will the Fox network¹s programming focus change – will there be less scripted programming?
We are not going to move away from scripted programming. Around one quarter of our network schedule is scripted and that will remain. We obviously have a great record there and we¹re well stocked going forward. I think that reality has a future in the US market for many years. But I don¹t think we are overly reliant on reality. We do not make decisions on whether we want scripted or non-scripted, but what works best for the network.
News Corp recently sold eight of Fox¹s affiliate TV stations in the US for $1.1 billion. Allied to the integration of the $5 billion Dow Jones deal, is News Corp¹s ability to make acquisitions currently limited?
We are always making decisions to improve our competitive position. So, referring to the Fox deal, we will sell assets if they do not fit with the strategy any longer. Equally, you will have seen, and you will continue to see us buying pay TV assets, international assets and digital assets. We are always looking.
The impact of the credit crunch has clearly been seen in the decreased number of private equity-led M&A deals in the media. Is News Corp well-placed to cut deals in the current economic climate?
I believe that deal-making will become somewhat easier in a way. I think it will be time to seek opportunities and there will be assets that will be available cheaper. The economic situation will be a crunch for some people. But we have $5 billion in cash on hand and low debt.
How is News Corp dealing with the challenge of monetizing MySpace?
We feel good about MySpace. We did $900 million in revenue [in the 12 months to end-June 2008] and you will see us post in excess of $1 billion [in the 12 months to end-June 2009]. We are five years into operating a social network as a business, so this challenge isn¹t new, we¹re experienced, we¹ve got the track record and we know how to make money from social networks. To reach $1 billion revenues faster than Google did will be some achievement.
Do you think a subscription model is a safer bet in the long-run?
We are big believers in the pay model and in general we believe that pay is a more viable model in the long run. But we have moved into free-to-air in certain markets, especially the fast-growing ones in Poland and Turkey so there are still opportunities there in ad-supported businesses.
2007 was a tough year for News Corp¹s Asian business, Star with key departures at Star India and a drop in overall operating profits. How would you assess Star¹s position?
With Paul Aiello [who replaced Star chief executive Michelle Guthrie last year] coming in we wanted to really make sure we had the right structure. We needed to really be ready for the competition that is really emerging in markets like India. There was more we should have been doing across the region. And I think there is a lot more that we should be doing in south-East Asia. India is Star¹s number one market and you will see us expanding aggressively. We have grown Star Plus and I would say that I am really encouraged by its performance.
Do you expect to be able to significantly build up Star¹s position in China any time soon?
We have the best position of any international broadcaster in China. But we are very patient. We are happy to maintain the current position and we accept that the pace of change and ability to do more may be slow. It will be interesting to see how things evolve following the Olympics.
You know Rupert Murdoch better than most. What do you think he would want his legacy to be?
One of Rupert¹s greatest attributes is that he is one of the least introspective people I know. He is so engaged in the world around him, he probably doesn¹t think much about his legacy. But he would want to be known, I think, as a change agent, as an innovator, as offering more choice to consumers. But he is not sitting round thinking about that.
Rupert has made no secret of his desire for one of his adult children to succeed him as CEO when he eventually retires. Your contract expires next June. Do you see yourself at News Corp in the long-term? I am happy here and I intend to be part of News Corp¹s evolution for some time.