Rupert Murdoch has not always taken his sons seriously. As a child, James, the younger son, sometimes asked his mother, "Is Daddy going deaf?" No, came the reply, "he's just not listening."
How times change. In a rare, sweeping interview in yesterday's Financial Times, the 71-year-old Murdoch gushes over his sons' business acumen and pledges that they will share control of the multibillion-dollar News Corp. empire when he retires—though he's vague about how exactly they'll divide power. (The full interview is available online only to FT subscribers, but a news story can be found here.)
Rupert singles out James for his "great business abilities" and elder son Lachlan for his "great leadership abilities." It's remarkable that neither Murdoch nor the FT even mentions daughter Elisabeth. At 34, she's older than James and has more experience in the family business. But who turns over a media empire to a girl? Murdoch also rules out any role for his third wife, former Star TV executive Wendi Deng.
News Corp. shareholders not named Murdoch should be alarmed that Rupert, the chilliest and most unsentimental of businessmen, is being ruled by sentiment for this most important decision. It's lovely that both sons have earned their father's respect, but it's not clear they deserve Wall Street's. Murdoch père praises James' performance running Star TV in Asia, but that was a second chance after James spent the late '90s screwing up News Corp.'s interactive division in New York. It was James who in 1998 nearly committed a half-billion News Corp. dollars to buy Web flavor-of-the-month PointCast; the company sold a few months later for $7 million. Under James, the interactive division didn't need PointCast to help it lose money. Like most Internet initiatives run by traditional media companies, it was a financial sinkhole, throwing almost $2 billion out the window, according to published accounts.
And while companies like Disney and Time Warner proved they could build Web properties that people would visit, News Corp. couldn't make foxnews.com or foxsports.com into anything but also-rans. Today, Media Metrix ranks News Corp.'s online offerings as the 39th largest Web property, behind such Web luminaries as the Gator Network.
"Leadership" Lachlan is the more seasoned media executive, but he is reeling from a protracted bankruptcy trial in Australia. In a partnership with James Packer—son of Australia's second-most-famous media billionaire, Kerry Packer—Lachlan invested more than $500 million in a discount long-distance firm called One-Tel. According to trial testimony, the company botched its estimates of how much phone carriers were charging it and found itself with hundreds of millions in debt. The company's liquidators are considering suing Packer and Lachlan. (Lachlan, recently appointed publisher of Dad's money-losing New York Post, is scheduled to testify in July.)
These are the geniuses who are going to take over a $32 billion company? Sometimes blood is thicker. Rupert Murdoch has made a career of bucking tradition, but he has now made an imperial decision to run News Corp. as a family dynasty. Nobody cares about Jack Welch's kids, so why should they care about Murdoch's? Shareholders should expect News Corp. to be guided by the best executives available, not the best ones with Murdoch genes.