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January 12, 2010

Freud vs. Ailes: A battle for the soul of News Corp

By Peter Kirwan

So here’s the sequence of events. In February last year, Peter Chernin, the boss of film and broadcast operations at Fox, quits News Corporation after 12 years.

This was followed by Roger Ailes, the newly-liberated chairman of Fox News, making a move against News Corp’s top PR man, Gary Ginsberg, who was an ally of Chernin.

Ginsberg and Chernin, we’re told by Michael Wolff, ‘saw themselves fighting the good fight‘as ‘News Corp reformers’with a liberal bias.

Now we’ve got Matthew Freud, husband to Elisabeth, redressing the balance. Freud tells the New York Times that the Murdoch family is ‘ashamed and sickened’by Roger Ailes and his ‘horrendous and sustained disregard [for] journalistic standards’at Fox News.

The Daily Beast suggests that Freud ‘often maneuvers behind the scenes’on behalf of James Murdoch, chairman and chief executive of News Corp in Europe and Asia.

Wolff tells us that Freud’s statement was ‘a declaration of war”. Apparently Wendi, Rupert Murdoch’s wife, hates Ailes, too.

There’s only one problem with all of this, of course: Fox News currently brings home the vast majority of profits inside News Corp.

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Last year, Ailes’ baby generated a reported $700m in operating profit. The Times speculates that Fox is more profitable than “CNN, MSNBC and the evening newscasts of NBC, ABC and CBS combined”.

Happily, News Corporation has $8bn of cash in the bank. For now, that’s a blessing: It would be enough to pay off every call a banker could make between now and 2015. But those cash reserves are piling up rapidly.

A recent analyst report from Deutsche Bank described the company’s ‘refusal to return capital to shareholders’as a ‘major hindrance”. Big decisions loom. In any kind of recovery, the company will be expected to put its dollars to work.

Most shareholders would prefer if these didn’t include an effort to buy the New York Times. Hence, no doubt, James Murdoch’s recent speech suggesting that broadcast entertainment is a ‘vastly more profitable and bigger opportunity’than news journalism.

The minimalist explanation for all of this politicking suggests that News Corporation is still struggling to re-establish equilibrium in the wake of Peter Chernin’s departure.

The maximum scenario involves something different: a struggle for the soul of News Corporation, post-Rupert.

With this many factors in play, Murdoch himself, who will be 79 in March, would be well advised to avoid walking under a bus at any point in the near future.

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