The Man Who Owns the News (53 page)

His sister Prue, with whom he forms a likely voting bloc of two on the Murdoch family trust, refers—half affectionately, half mockingly—to his OCD. (The first to have children, Prue noticed James’ horror one day as they ate dinner on his yacht and her youngest child, Clementine, then age five, ate her spaghetti with her hands. “Because James is almost obsessive-compulsive, he started having contortions,” Prue recalls. “I had hoped that he would learn the lesson about children when he had his own. But no, James’ children are perfect. Elisabeth’s children are perfect. Lachlan’s children are perfect. And I have got the ragamuffins.”)

Each of James’ siblings, and perhaps his father too, seems to view him as having particular Martian qualities—which may complicate things when he needs their support on the trust.

For one thing, he’s not much fun. Lachlan and Elisabeth are highly social creatures, if not glamour-pusses, and Prue is relaxed and insistent that what you see is what you get, while James is…remote. Harsh, intense, judgmental, deeply involved with his own perfection. He seldom goes out. (When he does, his hosts are apt to worry about whom to seat him next to.) He avoids press. He leaves the people with whom he does interact feeling invariably lesser and one-upped.

And, truly, he is rather fearsome.

His arrival at BSkyB, which was met with some serious opprobrium, required a special brazenness. This was, after all, a major independent public company, and here he was, the inexperienced, barely adult son of the chairman of the controlling shareholder being handed the top job. True, his arrival was carefully orchestrated by his father (there was Murdoch’s deal with Conrad Black that his papers would go easy on Black’s legal problems if Black’s
Telegraph
went easy on James’ appointment at BSkyB), as well as Murdoch calling in favors from investors in London’s financial community. But what finally carried the day was James’ own relentlessness. He stared everybody down. As British investors were wiping 19 percent off BSkyB stock on one day in 2004, James was adamantly telling them that he would make the outrageous target of eight million subscribers by 2006. By the time his brother announced his resignation in July 2005, it was clear James would exceed all of the company’s goals—and suddenly the non-Murdoch British press seemed happy to call him the deserved heir apparent.

And then he
really
made his bones: He faced down Richard Branson.

The Virgin chief has long bedeviled the Murdochs. He’s been an occasionally irritating force in the media world—Virgin was one of the early partners in BSB, the Sky satellite rival—and has for years tried to insinuate himself into media significance. But more annoyingly, he’s confoundingly taken the entrepreneurial outsider role and fashioned himself into a cultural hero. And if Murdoch has never needed to be or even wanted to be a hero, it is nevertheless galling that this imitation rebel gets the role—and then uses it to bother the Murdochs.

Branson was looking to invest in satellite’s nemesis: cable. Now, BSkyB had beaten out cable before, introducing digital television in 2002 and tying up key sports rights, in the process flattening dominant U.K. cable operator ITV. But, by 2006, ITV was back in the game, offering broadband service to its U.K. customers. BSkyB understood it needed a broadband option, too, but that would take some time to roll out, time it believed it had because the U.K. cable industry was so inept at marketing itself.

But then along came master marketer Branson, whose Virgin Media might give cable what it didn’t have: a consumer brand and entertainment razzmatazz. Branson proposed merging Virgin Media with ITV, which would give him control. BSkyB—and James Murdoch, if not Rupert Murdoch—saw this as a threatening alliance of two organizations it had previously defeated.

In 2006, as Virgin Media and ITV were negotiating their merger, James Murdoch swooped in, dead of night and all, and bought 17.9 percent of ITV, seriously lousing up the Virgin Media deal.

It was so Murdochian: the suddenness, the secrecy, the game-changing aspect of it, the eight-hundred-pound-gorilla-ness of it, the lack of manners and civility, the audacity. Actually, it was audacious, in part, because it was such a crummy deal. News Corp. would never be allowed to buy the whole company (it probably wouldn’t want it anyway), it paid way above market value, and it would probably be forced at some point to sell its position (and, in fact, it is eventually ordered to do so), prompting losses of more than a billion dollars.

On the other hand, this bad deal bought BSkyB probably three years to get its broadband play in place without a serious competitor. But it doesn’t really matter whether the three-year lead is worth the billion or so it costs—what matters is that the Murdoch kid did something his old man might have done.

Throughout the Dow Jones deal, James is his father’s constant confidant. In James’ telling, everybody else—Chernin and Ginsberg not least of all—is resistant. It’s he and his father toughing it out. Dow Jones is
their
move.

They’re in it together—on the same emotional wavelength.

Indeed, on July 4, when James and his father, having traveled from Jamie Packer’s wedding in the south of France, are at the America’s Cup in Valencia, when it looks like the Dow Jones deal is heading south, when everybody else is trying to calm Murdoch down, James proposes the series of ads that will later appear as the valedictory announcement—the “agent provocateur” ads—but which now James suggests as the way to tell the Bancrofts to fuck off.

The father is saying, “No, no, no, they’ll come around—we’ll just hold the line.” The son is saying, “Pull the deal—that’s the way to get them to be serious.”

His father, perhaps most of all, is wowed by the boy’s pure aggression, by his fight, by his fearsomeness. Which is why the old man figures that, as he chases the
Journal,
it’s time to move James up. Having proved his Murdochness, he’ll get, in addition to BSkyB, all of Europe and Asia too—making him number three in the company.

FIFTEEN
Putting the Deal to Bed

JULY
2007

The message being sent about the Dow Jones deal after July 4—that Murdoch is ready to walk away from the deal—is entirely wrong.

It’s true that he’s pissed off—pissed off by the hand-wringing of the Bancrofts. But it isn’t true that he’s going anywhere. This is just dealcraft: the walking-away gesture. Actually, by this point, it ought to be clear that, having so publicly endured such a bizarre and dysfunctional deal process, it ought to have been clear he’s not going anywhere. That he is as sentimentally and as fatally attached to this deal as the Bancrofts are.

But for the Bancrofts, the image of Rupert Murdoch slamming shut the iron door and pulling up the drawbridge is suddenly a very primal and threatening one. It begins to feel like an existential moment to them—to be or not to be sellers.

This figure of a mercurial and threatening Murdoch is drawn most clearly from the reporting in the
Wall Street Journal
itself and, to a slightly lesser extent, in the
New York Times
. Both papers have quite misunderstood the reality of the situation and of Murdoch’s desires. In the dominant narrative in both the
Journal
and the
Times,
the Bancroft family is resisting the deal and Murdoch is getting closer and closer to taking a hike. The real narrative is the opposite: Key Bancroft voting blocs are favoring the deal (while this represents just a handful of Bancrofts, it also represents enough votes to do the deal) and Murdoch understands that, in fact, it’s all going quite in his favor. Indeed, it’s going so much in his favor that he’s suddenly thinking he can save the sweetener he had been prepared to offer Dow Jones on the $60 offer—if need be, as much as another dollar or two.

In fact, he’s able now to use Dow Jones’ and the Bancrofts’ sudden, late-inning bid for a little more money as a pretext for his contempt and mounting annoyance—and as a rationale to walk away (or pretend to). Murdoch, with his $60 bid, is the righteous one; Dow Jones and the Bancrofts are the greedy ones. They don’t deserve him.

Such is the predicament that most of the Bancrofts, or at least the Bancrofts not directly involved with the deal process—which is most of them—come to understand: Their family’s greed and bad behavior have made Murdoch mad.

At the
Journal,
the main reportorial sources are the most resistant, and most vocal, Bancroft family members: Christopher Bancroft and Leslie Hill, two of the four Bancroft family board members. The third family board member, Lisa Steele, who controls one of the most significant voting stakes, isn’t talking much; nor is Michael Elefante, the trustee with the most clout, who favors the deal. Reporters at the
Journal
and at the
Times
are also talking to the bankers and lawyers, all of whom are pushing the deal and, accordingly, the idea that Murdoch will walk away if it doesn’t happen soon.

The family “farted around, they were dysfunctional.” Nobody “could corral the cats, and it dragged and it dragged and it dragged, and Rupert got pissed. We started losing Rupert’s goodwill,” one of the Dow Jones lawyers will say after the deal is done, in a reasonable précis of the message that the professionals are spreading.

And then there is the Denver Trust. The Denver Trust represents Hugh Bancroft, Christopher Bancroft, and Kathryn Kavadas, with 9.1 percent of the voting shares, but it has no family members as trustees. Its trustee, Lynn P. Hendrix, a Denver lawyer, believes he has to act in the best interests not of the family, or Dow Jones, but of the trust itself. His job, in other words, is to get the highest return possible on capital. In this pursuit, he is aided by Rob Kindler from Morgan Stanley, who, when he was at JP Morgan Chase, had represented Dow Jones, and who has struggled since the early days of the offer to get in on the deal, finally snagging the Denver Trust as his client. Hendrix and Kindler, by early July, are taking an unreconstructed financial view: The controlling shareholder should get a premium. That is, if the Dow Jones shareholders get $60 for the shares, the controlling shareholders should get more because their vote is worth more. Or if $60 a share is the total price, then the common shareholders should get less of it and the controlling shareholders more of it.

While a control premium is illegal in some states, it’s not illegal in Delaware, where Dow Jones is incorporated. Rewarding shareholders inequitably is, however, a lesser practice, a gaucherie, not a blue-chip way to go. The Dow Jones board—including the Bancrofts on the board—says it won’t approve a control premium deal. The Denver Trust’s initiative rattles many of the Bancrofts, highlighting the conflict between their ideas of fairness and their desire for more dough. In some sense, fairness wins out. In an inversion, not asking for a control premium and just selling the company for $60 a share actually begins to feel like a virtuous thing to do.

Inside News Corp. they’re counting votes. Murdoch has his only off-the-record meeting with a Bancroft family member. Billy Cox, accompanied by his wife, Beatrice—who are, via Andy Steginsky, News Corp.’s most prolific source of information about the Bancroft family—stop in at Murdoch’s office. Murdoch, dressed in a tux, is in an ill humor not because of the Bancrofts but because he has to go to the opera.

After seeing Billy, Murdoch calls Tom Hill in Boston—because Murdoch understands, through Billy, that the Hill brothers are in favor of the deal. He tries to get Hill to put him in touch with his mother, Jane Cox MacElree, whose vote controls her family’s trust, and who is still stubbornly resisting the deal. Tom Hill says he doesn’t think this is such a good idea and that he’d be uncomfortable in the middleman role.

News’ due diligence at Dow Jones winds up. One of the key rationales of the deal—that the
Wall Street Journal
could become an important pillar of the new Fox business channel—falls apart during the due dilly. It turns out that the
Journal
’s content-sharing deal with CNBC is much tighter than anybody at News Corp. thought (there’s a lot of oohing and ahhing at News at the legal drafting that went into the agreement). The
Journal
as an advantage to a television network, it turns out, is effectively owned by News’ competitor until 2012. But pay no attention…

The other problem element that the due diligence foreshadows is the fundamental nature of Dow Jones—it’s a vastly encumbered, bureaucratic, hierarchical organization, whereas News Corp. thinks of itself as a cowboy shop. “It’s run like an old Detroit car company,” John Nallen, the number two News Corp. financial guy, will conclude about Dow Jones. “There are twenty-six grades of people. Your aspiration as a grade thirteen is to become a grade eleven. That’s just not the way a News Corp. company operates.”

Oh, and the printing facilities. It’s not only that full color is going to be difficult, but the entire structure of the print process at the
Journal
is obtuse and antiquated—designed, in fact, for a business newspaper rather than for Murdoch’s dream of a national beat-the-
Times
paper. “There are seventeen printing sites,” Nallen will sigh. “The fact that you have to go to bed at eight o’clock, you can’t get any breaking news. There’s an election tomorrow night and you’re not going to read about it in the
Journal
on Wednesday.”

But no matter…