Why James Murdoch could be angling for a top job at Disney

LOS ANGELES — Could James Murdoch soon be in the running to succeed Robert Iger?

That's one of several intriguing scenarios that could be at play as talks between 21st Century Fox and Walt Disney Co. gain momentum, according to two executives close to the process who were not authorized to discuss the situation.

"It would be the craziest ending ever to the Bob Iger CEO sweepstakes," said a third senior media executive who declined to be identified discussing 21st Century Fox's asset sale. "Maybe dangling a job for James might be what it takes to get a deal done."

Insiders and industry veterans say there are several reasons Disney has emerged as a front-runner in the auction for Fox's Los Angeles-based entertainment assets. Such a large transaction — estimated at more than $60 billion — would entail a stock transfer that would enable press baron Rupert Murdoch and his family to become leading shareholders in the world's most powerful entertainment brand, wielding influence for decades to come.

For Fox's chief executive, James Murdoch, a deal might also lead to a plum role within the Disney organization at a time when Disney chairman and chief executive Iger approaches his proposed 2019 retirement. Disney for years has sought a successor for Iger, whose contract has been extended three times since he became CEO in 2005.

Representatives of 21st Century Fox declined to comment. A spokesperson for Disney did not respond.

The talks with Fox are advanced but remain fluid and Disney has not promised James Murdoch a prominent role, knowledgeable people said. Disney has also tended to groom leaders from within its ranks.

But people close to Fox believe that James Murdoch's experience as a leading media executive and his desire to remain a pivotal player have become factors as Fox weighs whether to unload much of its entertainment holdings to Disney.

A deal between Fox and Disney could create "a path for James Murdoch to have a bigger role at Disney," said Tuna Amobi, a media and entertainment analyst with CFRA Research. "It could get him into the mix."

James Murdoch, Rupert Murdoch's younger son who turns 45 this month, long has been heavily involved in Fox's management team, unlike his older brother who left the company for nearly a decade. Lachlan Murdoch returned to the company in 2014 and now serves as cochairman with his father.

Rupert Murdoch might also be willing to part with key assets because Fox's legacy movie and television business has become increasingly challenged, according to two other media industry veterans.

Technology companies, including Apple Inc., Amazon.com, Netflix and Google, are focusing more on creating movies and serialized TV shows for their own streaming services. Netflix plans to release 80 original movies in 2018. Apple is planning to spend $1 billion on original video next year — deep pockets that medium-sized players soon might struggle to replicate.

Meanwhile, theatrical film attendance has been on the decline for the last decade in the United States and Canada. Wall Street analysts have long predicted that one or more studios might disappear as attendance continues to shrink.

"Rupert is 86; he might finally recognize that he's mortal. Getting Walt Disney Co. stock, and not having to pay capital gains, is a pretty strong rationale to do this deal," one longtime Murdoch ally said.

The Murdochs would be following in the footsteps of other businessmen who have added lucrative Disney shares to their portfolios by selling their companies. Apple cofounder Steve Jobs became the largest individual shareholder in the entertainment giant after he sold Pixar Animation Studios to Disney for $7.4 billion in 2006. In February, the trust that controls the stake in Disney held by Steve Jobs' widow, Laurene Powell Jobs, disclosed that it had cut its holdings in the company by roughly half to 4 percent.

For its part, Disney appears interested in the Fox assets because the Burbank company understands that its longtime business of selling its content to pay-TV providers and others may have peaked.

"Consumer habits have changed, and so media companies have to evolve as well," said Mike Kelly, former chief executive of the Weather Channel who runs a media investment and advisory firm in New York. "Companies like Fox and Disney are finding that they need to skip the middleman and go directly to consumers."

Disney in August unveiled plans to launch two direct-to-consumer streaming services: an ESPN-branded service to roll out next year and a movie and TV service to debut in 2019.

Buying Fox's film studio would allow Disney to control such lucrative franchises as "Avatar" and Marvel's "Deadpool" and "X-Men," which are produced and distributed by Fox, as well as "Ice Age" animated movies.

Fox also has built a stronger television studio than Disney's ABC Studios. Fox produces such hits as "The Simpsons," "Family Guy," "Modern Family" for ABC and "This is Us" for NBC. Inheriting Fox's TV pipeline would give Disney more popular television titles and relationships with prominent show creators.

Additionally, Disney would gain control of another promising asset, Hulu, boosting its ownership in the popular streaming service from 30 percent to 60 percent.

Fox plans to retain some of its assets, including Fox News Channel, the Fox broadcast network and Fox Sports. However, Fox would sell its 20th Century Fox movie studio, television studio, cable channels including FX and National Geographic, and its international holdings, which include a stake in the European pay-TV service Sky and operations in India and Latin America. Among the American media companies, the Murdochs have been most aggressive in building international assets.

A Disney deal also could provide a path for Rupert Murdoch to accomplish another longtime goal, according to a former Fox executive who declined to be identified discussing the situation.

"They will try to get enough cash out of the deal so that Rupert can take the remaining (Fox) assets, combine them with News Corp., and then take News Corp. private," this person said.

News Corp. is the second company that Rupert Murdoch controls and it includes the family's stable of newspapers, including the Wall Street Journal, New York Post, and the Times of London. Folding Fox News Channel, Fox Business Network, the Fox broadcast network and Fox Sports into News Corp. would create a more tightly focused news and sports entertainment company.

What's more, a marriage of Disney and Fox might not face the same resistance from regulators as other potential tie-ups. The U.S. Justice Department has sued to block AT&T's proposed takeover of Time Warner Inc., which owns HBO, CNN and the Warner Bros. studio.

Philadelphia cable TV and internet giant Comcast Corp., which owns NBCUniversal, also has expressed interest in buying the Fox assets, according to knowledgeable people, but Comcast appears to be on the sidelines as talks between Disney and Fox accelerate.

A Comcast-Fox deal would resemble the AT&T-Time Warner merger because both Comcast and AT&T provide internet service, which has invited additional regulatory scrutiny. For example, the Justice Department was prepared to block Comcast's proposed merger with Time Warner Cable — but Comcast withdrew its bid in 2015.

Disney has the market clout to make a deal happen, with a market valuation of $162 billion, compared with Fox's roughly $61-billion market capitalization, according to data compiled by FactSet.

James Murdoch, chief executive of 21st Century Fox, was coy Tuesday during an appearance at the UBS 45th Annual Global Media and Communications conference when asked about "the elephant in the room." But he offered a subtle clue why he and his family might soon relinquish much of their entertainment empire.

"It really is about value — about long term value," Murdoch said. "To the extent that we change our business … we always are going to look at what creates the most value for our shareholders."

Disney shares fell $3, or about 3 percent, to $107.22 on Tuesday. Shares of 21st Century Fox declined less than 1 percent to $32.99.