Elisabeth Murdoch has always had to fight for her father’s attention, never easy in a family that was focused on the sons. Though she was the eldest of the three children from Rupert’s second marriage, Rupert had never taken her seriously as a possible contender to run the company some day. In 1997, he’d announced that in the competition, Lachlan was “first among equals,” and then, when Lachlan ran into troubles, he seemed to give James, now the deputy COO, the inside track. “Liz is the most overtly ambitious of the three kids,” a former News Corp. executive told me. “She was driven to prove to her dad that she could more than hold her own with the boys.”
So, over a decade ago, Elisabeth walked away from the family business to venture out on her own, starting Shine, a television-production company that she built into one of the most successful in Britain. In 2008, she acquired Ben Silverman’s production company Reveille in a $125 million deal, which made her a significant player in Hollywood. She’d loved her independence, the more because it proved her worth to her father.
When the elder Murdoch tried to bring her back into the fold, Liz, 43, played a bit hard to get, savoring the moment. Finally, this past February, she agreed to sell her company to News Corp. for roughly $670 million. Liz made more than $200 million off the deal and was promised a seat on the board alongside her brothers. “The validation was absolute,” a London media executive told me.
It wasn’t long, however, before the prize started to disintegrate in front of her. On July 4, the Guardian broke the explosive story that detailed how reporters for News of the World had hacked the phone of Milly Dowler, spinning News Corp. into turmoil. The company announced it was shuttering News of the World, the 168-year-old tabloid that had been Rupert’s first acquisition in Britain. Now the $12 billion bid for the shares of BSkyB they didn’t own, which was supposed to cement James’s centrality as heir apparent, was in doubt.
And in the space of a week, the story of the prodigal daughter, the one who’d made good on her own before returning to the fold, had been forgotten. Suddenly, she was just another Murdoch, entitled and corrupt. In the United States, shareholders had filed a lawsuit claiming Rupert had overpaid for her company and treated News Corp. like a “candy store.”
To Liz, the scandal reinforced her view of the problems with the family business and the people who ran it. She loved James as a younger brother, but she saw his ascension as undeserved. She was the talented one. And her father was of a different culture. “Rupert has had lots of tensions with Liz,” former Sunday Times of London editor Andrew Neil tells me. “She’s never liked the tabloids. She’s like her mother, Anna, who never liked the Sun’s ‘Page Three’ girls. Anna wanted to get rid of the ‘Page Three’ girls, but Rupert wouldn’t do it because he thought there was too much money in it.”
When the scandal mushroomed in the wake of the Milly Dowler report, Rupert flew to London from the annual Allen & Company media retreat in Sun Valley—and seemed to make matters worse. He told reporters his top priority was Rebekah Brooks, the flame-haired former News of the World editor who had run the paper at the time of the Dowler hacking before being promoted to News International CEO. Brooks and Rupert Murdoch were close—closer, in many ways, than Murdoch was with his own daughters (he has one daughter from his first marriage and two from his marriage with his current wife, Wendi). In photographs, he’d look at Brooks with an air of fatherly concern and love. Elisabeth found the whole situation galling. “She was concerned that was an odd message to be putting out at that time,” a friend says.
Partly, Rupert’s botched response was fueled by exhaustion. “He had just closed the newspaper that brought him into Britain,” an associate recalls. The experience seemed to age Rupert overnight. “He walked with a stoop.”
James, too, had been putting his marks on the management of the crisis—not that they were any more successful. He had never had much taste for the Fleet Street side of the business. “He was invisible,” a senior News of the World staffer said. “He was never seen in the newsroom.” As head of News Corp.’s European and Asian operations, James oversaw the company’s British tabloids, but he believed News Corp. needed to become a modern, digital media company, respected like other global powerhouses. When he lobbied to shut News of the World, he was, in a sense, trying to kill two birds with one stone.
When Rupert landed in London on July 10, NotW had published its final edition—but closing the paper was an act of desperation. That week, Parliament was preparing to vote against News Corp.’s $12 billion BSkyB bid, which would be a humiliating defeat to Rupert, but especially to James.
If News Corp. hadn’t bought Elisabeth’s company, she would have essentially been an observer. But now she had a stake and as much right to hold her brother and Brooks accountable as anyone. So, on July 12, she arrived at Wapping, News Corp.’s fortresslike headquarters on the banks of the Thames. The tenth-floor executive offices were, at that point, more war zone than war room. “The place was going nuts,” one executive recalls. On one side of the floor, James spent the morning huddled in his office, with its life-size Darth Vader statue outside the door, drinking coffee and Diet Coke. “You weren’t in control of events,” one person close to the talks recalls. “We had no idea what was happening. The stories kept breaking all around us.”
The previous afternoon, the Murdochs had gathered for a family summit. Lachlan, the eldest son, who’d given up his operational role in News Corp. in 2005 after a clash with Roger Ailes, was flying in from Sydney on Wednesday. The family agreed that no decisions regarding the resignations of Brooks or former News International CEO Les Hinton—or James—should be made until then.
But when she arrived at Wapping, Liz had changed her mind. She marched into Rupert’s office and told him that Brooks should step down and James should take a leave, for the good of the company. But Murdoch, in the habit of making up his own mind, and in any event not in the habit of taking advice from Elisabeth, demurred. “I don’t throw people under the bus” is how he later put it.
“Rupert was protecting Brooks at all costs,” a person close to Rupert says.
At one point, according to multiple sources close to the family, Liz told James to his face that he should step down, but she got essentially the same response.
The series of meetings recapitulated her earlier anger at the family business, when she was ignored by her father and overshadowed by her brothers, frozen out of the big decisions. “She wasn’t being listened to,” one executive in the room recalls. The sense of being stifled by her father, of being passed over by her brothers, was deeply familiar. What happened that day was ultimately more about Murdoch-family dynamics than about business. “There was a lot of tears,” a senior News Corp. executive says. “It was very tense.” Finally, Liz stormed out.
In the meetings that afternoon, Liz was alone, the odd woman out. But in her struggles to claim her place in her family, she has a powerful ally, one who is in many ways as bold, iconoclastic, confrontational, gossip-loving, and deeply wired as her father: her husband, the PR executive Matthew Freud. Freud, a great-grandson of Sigmund Freud, has been Liz’s defender and private counselor, guiding her through the maelstrom. Freud runs a London-based PR firm—clients include PepsiCo CEO Indra Nooyi; Sony CEO Sir Howard Stringer; the 2012 London Olympics; and Liz’s company, Shine, but his business cannot be summed up by a client list. He was the prime mover in the Murdoch era of London that’s just ended, connecting media (not only News Corp.), Downing Street, and the celebrity world in one glamorous, monetizable scrum. And, most impressively, he accomplished this while being in conflict with large swathes of the Murdoch family and entourage—around the company, he’s been referred to as Matthew Fraud. Politically liberal where Murdoch is conservative (Elisabeth even held a 2008 London fund-raiser for Obama), Freud has taken potshots at the right flank of the News Corp. empire. “I am by no means alone within the family or the company in being ashamed and sickened by Roger Ailes’s horrendous and sustained disregard of the journalistic standards that News Corporation, its founder, and every other global media business aspires to,” he told the New York Times in 2010. But Freud has also been known to take on Murdoch enemies. According to the Daily Mirror, when Hugh Grant, England’s most committed opponent of phone hacking, deployed the C-word at him at a London society party last year, Freud attacked Grant’s white shirt with a slice of chocolate cake.
Inside News Corp., Freud is a complicated figure and a subject of much heated discussion. After his attack in the Times, Liz apologized to Ailes. But the current imbroglio makes Freud’s role even more complex. Senior executives believe it is Freud who has encouraged the negative press coverage against James. Rupert is said to openly loathe him, and relations between Freud and Rupert have gotten so bad that the two don’t even speak. But, as much as Rupert dislikes Freud’s tactics, he has so far resisted the urge to openly challenge him. “Liz is Freud’s human shield,” a media executive who knows all the players tells me.
The irony of the current conflict is that, until the phone-hacking scandal blew up, Liz and James had been the closest of the three siblings. They socialized together in London’s elite circle, imbibing the same ideas about where the culture was going and what News Corp. should become. They admired their father but shared a distaste for Rupert’s tabloid ventures, especially Fox News (even if James respected Fox’s nearly $1 billion profit). They had both grown to share the belief that News Corp. needed to shed its predatory, down-market image. “Liz and James talked all the time. They complained about Rupert together,” a London-based media executive tells me. Freud had cultivated a close relationship with Wendi Murdoch, who, like James and Liz, believes News Corp. should abandon its outlaw ethos.
But their mind-meld about the company had its limits. James, with a tattoo, a black belt in karate, and his aggressive hair, wore the trappings of a rebel. But with his father he was an insider. Whereas Elisabeth was … female, and Murdoch was “old-fashioned,” as Freud once told Vanity Fair.
It was Freud who encouraged Liz to break away from the family and strike out on her own. From the time she was a child, Liz had a complicated relationship with her famous family. Growing up on the Upper East Side, Liz attended Brearley and went to Vassar. While she was at school with the well-off set—her friends included Carolina Herrera, the actress Catherine Kellner, and filmmaker Noah Baumbach—she bartended at the Mug, the campus watering hole, and waited tables at the Dutch Cabin, a scruffy bar and restaurant in Poughkeepsie. “She was extraordinarily down-to-earth,” a classmate recalls. “She ran in the cool crowd, but she wasn’t inaccessible,” another college friend told me. “She had her 21st-birthday party at Tavern on the Green. Bryan Ferry serenaded her. That’s when people were like, ‘Oh, shit, this isn’t your average Upper East Side money family.’ ”
At Vassar, she worked for the campus television station. While conducting interviews for a show she had started, Liz ran into Elkin Pianim, the son of a prominent Ghanaian economist and a Dutch mother. They soon were dating and fell in love. Elkin was popular on campus, known for his rakish wit and charm. In 1993, they married, which was no small source of dismay for Rupert.
After a couple of low-level jobs at News Corp., Liz moved to Carmel, California, with Elkin and paid $35 million to acquire a pair of local NBC affiliates. She was determined to prove herself as a businesswoman. When a reporter brought up her father’s name several times during an interview, Liz snapped, “Is this an interview about us or about my father?”
As much as Rupert dislikes Freud’s tactics, he’s never challenged him: “Liz is Freud’s human shield.”
Her early management decisions infuriated the staff at the stations. To cut costs, she required staffers to dial an access code before making long-distance calls. Within months, several staffers had quit. She clashed with the well-liked evening-news anchor Rick Martel over a salary negotiation, leading to his departure. “She wanted to negotiate my salary over the telephone,” Martel recently told me. “She was just an ass. She was difficult.” (Liz declined to comment for this article.)
Despite the office turmoil, Liz made a killing on the deal. A little more than a year after buying the stations, she sold them for a $12 million profit and then later joined BSkyB, in which News Corp. had a large stake, in charge of broadcasting and programming. It was a time of rapid expansion for Rupert’s London-based pay-TV service. In 1992, BSkyB, then being run by the pugnacious, New Zealand–born CEO Sam Chisholm, won the rights to broadcast Premier League soccer. The business took off.
Liz pushed Chisholm to develop original programming. She’d cut deals to broadcast shows like Friends and ER on Sky, but she wanted to create her own content. Chisholm resisted. Chisholm didn’t like that Rupert had, in his view, foisted his daughter on his company. He openly mocked Liz to executives, sometimes referring to her as a “management trainee.”
At BSkyB, Liz also experienced the pain of watching the competition with her siblings play out in public. When Rupert made the first-among-equals remark to the Guardian in 1997, Liz was furious. “She called Rupert and asked him to go on the record to say he didn’t say it,” one executive recalls. “She wanted a retraction of the comment, but Rupert wouldn’t do it. She was livid.”
Around this time, Liz found out she was being passed over for the top job at BSkyB. She was upset that Rupert wouldn’t consider her for the promotion. “He never told her the job was open. It’s the reason she left,” one executive who worked for her at the time recalls.
Liz’s personal life was also blowing up. Her marriage to Elkin had been strained. Elkin was an intellectual and didn’t strike his friends as a media executive. “He was the philosopher guy,” a friend recalls. Around the time she was thinking of leaving BSkyB, Liz had started working with Freud on her PR image, and the two began an affair. Rupert was dismayed when the news appeared in the London tabloids.
In a 2001 Vanity Fair story about Liz and Freud’s courtship, Freud was quoted openly mocking Rupert. The article infuriated Rupert. A story later circulated through Freud’s London office that one night, Freud got home and couldn’t get a signal on his TV. When he called the BSkyB customer-service line to ask about the problem, the representative responded coldly, “We’ve been instructed not to turn on this account.”
Liz’s friends point to her divorce as a turning point. She’d been frustrated by her father’s imperiousness and favoritism, but she’d controlled these emotions. Freud, so much like her father, seemed to give her license to feel them.
Liz and Freud formed a powerful alliance. He persuaded her to strike out on her own, and in 2000, she quit BSkyB and then formed Shine—again with her father’s backing. She started by producing shows for British TV and eventually acquired production companies across Europe and rolled them into the Shine umbrella. “The thing that was most impressive was how she combined a strong commercial sense with what worked creatively,” a former senior Shine executive tells me. “She never made any mistakes.”
Liz, demonstrating her programming instincts, was instrumental in persuading Rupert to import the British show Pop Idol to America.* In 2008, Liz made the biggest deal of her career when she acquired Ben Silverman’s production company. The deal gave her control of lucrative franchises like The Office, Ugly Betty, and The Biggest Loser.
As much as she craved independence, Liz surely understood that her success was fueled in part by her famous last name. In London, Liz and Freud became a major power center. As Liz built her business, Freud’s reach grew. His London PR firm represented global companies, and he was close to Tony Blair and much of the New Labour political Establishment. Freud’s Christmas parties were regularly attended by the biggest figures in media, politics, and business.
And Freud saw that he could play a chess game steering the Murdoch empire in ways that would benefit his business. When the journalist Michael Wolff was writing his Murdoch biography, Freud helped push the notion that Fox News was a pariah in the News Corp. empire. As Liz’s company grew, Freud wanted to build his own firm into a global powerhouse. In 2005, he opened offices in New York. But Freud’s American venture failed, partly because the power of the Murdoch empire is more diffuse outside London, and the Freud name doesn’t have the same pull on this side of the Atlantic.
The phone-hacking scandal is not only a near-existential threat to News Corp.—Freud’s business is also in the firing line. With the failure of his foray into the American market, Freud recognized that his London power base would be harmed if Liz’s business was brought down by her connection to News Corp.
Ironically, to maintain their position, Liz and Freud had to jettison a key player in their earlier success. Before the hacking crisis, Liz had developed a close friendship with Brooks, who was a regular on the social circuit with Liz and her husband.
With their friendship with Brooks, anyone who feared crossing Rupert’s tabloids feared crossing them. There was a wide perception in London that Freud could get any story he wanted planted in the Murdoch papers—or, more important, keep unwanted stories out. “He would get stuff to Rebekah Brooks, he would just go to her and get it in,” one person close to Freud tells me (another source close to Freud disputes this). But this closeness to Brooks and James now proved to be a liability for Liz and Freud. And so Freud, according to sources close to the family, has advised Liz to break from James and Brooks. When James testified before the parliamentary committee in July, Freud and Liz skipped town, spending two weeks on a yacht.
In the weeks since the crisis exploded, Liz, with Freud as her private adviser, has worked to put as much distance as possible between herself and News Corp. Less than a week before James and Rupert testified before the committee, news of Liz’s rift with James and Brooks spilled into the press. On the morning of July 15, John Bingham, a reporter for the Telegraph, got a tip from a high-ranking editor at the paper that Liz was overheard at a party saying, “Rebekah fucked the company.” The editor told Bingham to write up the account but refused to tell Bingham the identity of the source, leaving Bingham to wonder if Freud was spreading the gossip.
A few weeks after the Telegraph report, Liz announced she was turning down Rupert’s invitation to join the News Corp. board, a snub that many saw as a way to insulate herself from the scandal. “She has to stand up for herself,” Freud confided to an executive after the announcement. “She had to point out that James and Rebekah are screwing Rupert.” In late August, Liz canceled a major appearance at the Edinburgh International TV Festival. “Certainly Liz is in a difficult position,” says a friend. “She has built a very successful media business, and she sold it back to News Corp. at a very unfortunate time. And for her, there’s been a focus on the thing she doesn’t want to talk about: that is, succession.”
Inside and outside of News Corp., it is widely believed that Freud is now waging a media campaign against James on behalf of his wife. “Everyone knows how Matthew Freud operates,” a senior News Corp. official tells me. “This is not new: He leaks to the press whenever it suits his purpose.” (A spokesperson for Freud disputes this.)
This past January, allies of James’s believe, Freud orchestrated a barrage of negative stories that suddenly appeared in the British press. “James was incredibly frustrated by his brother-in-law,” a person close to James tells me. “And he felt incredibly hurt by Liz this summer. He felt abandoned.”
There is a debate inside News Corp. over what Freud’s endgame is. Some believe he wants to marginalize James to drive him out of the company. A corollary of this theory is that his aim is to make Liz the heir apparent—which would of course place Freud at the center of power. Freud himself has signaled he has greater ambitions beyond PR. He is tiring of the spin game: “There’s nothing sadder than a 40-year-old PR person,” he is said to have told his friends.
From the start, Rupert Murdoch has maintained that the phone-hacking scandal was a minor distraction being pushed by his enemies—a view that both James and Rebekah Brooks were at pains to reinforce. “In his heart of hearts, Rupert doesn’t think the papers didn’t do anything wrong,” former Sunday Times editor Andrew Neil says. “He just thinks the British Establishment is getting him back.”
But inside Rupert’s inner circle, there was unease among some executives that perhaps the full picture wasn’t being presented. For months last spring, Lon Jacobs, News Corp.’s longtime general counsel, advocated for an independent investigation, according to two sources familiar with the matter. But Rupert had marginalized Jacobs, whom executives thought he unfairly blamed for mishandling a $500 million settlement in a scandal involving the News America Marketing department.
With Jacobs being squeezed out of the picture, Rupert increasingly turned to former New York City schools chancellor Joel Klein for legal advice. When Klein was hired last November, Rupert’s seniormost executives were caught unawares—it was an impetuous act by Rupert Murdoch. On Sunday morning, November 7, 2010, Michael Bloomberg called Klein and told him that he would be announcing that Klein was resigning that week. Klein and the mayor had been discussing Klein’s departure from Tweed Courthouse for months—but Klein was still taken aback at the timing of the decision. He had been in informal talks with several Wall Street firms, but nothing had materialized. Without a job lined up, he “panicked,” according to a person familiar with the matter. So Klein called Rupert. The two had been meeting on and off, and Rupert agreed to appoint him to News Corp.’s board of directors and put him in charge of an education division that News Corp. would launch. “We all found out [about Klein] that Monday,” says another senior executive. “Some of us had to scramble; you just can’t put someone on the board like that.”
While Jacobs and others advocated for an outside investigation of the scandal, Klein instead pushed for News Corp. to hire the powerful D.C. law firm Williams and Connolly—where his wife once worked—to conduct an inquiry. Brendan Sullivan, a senior partner at the firm, headed up the inquiry. Sullivan conducted interviews with James and Brooks and executives in London, but didn’t push for a more probing review that might have alerted senior News Corp. executives to the extent of the scandal, according to executives with knowledge of the report. In June, Sullivan delivered his report at a News Corp. board meeting and declared that both James and Brooks were “clean,” according to another executive familiar with its contents.
The tensions between Jacobs and Klein came to a head that same month. Jacobs walked into president and COO Chase Carey’s office and told him News Corp. was in breach of his contract because Rupert was using Klein like a general counsel. News Corp. agreed to let Jacobs go with four years left on his multimillion-dollar contract.
It has always been Rupert’s dream that all three of the children from his marriage to Anna would play a role in the company in the future—not that he’s always shown it. “Rather than looking for a single successor, you have three,” a family friend says. “In James you have someone who understands platform and pay television. In Liz you have someone who understands content. And in Lachlan, you have someone who understands newspapers.”
But that all-for-one, one-for-all vision for the Murdoch future seems more distant than ever. James is fighting for his corporate life. He has a new office in New York—but his future is an open question until the phone-hacking crisis reaches its denouement. Liz has removed herself entirely from the crisis, and Lachlan shows no sign of wanting to return to the fold, even though Rupert has been quietly making moves in Australia to persuade Lachlan to take over News Corp.’s Australian newspapers. “I don’t think Lachlan wants to do it,” a former executive tells me. “He’s got his own money. Why would he want to? The Australian papers are a small, declining, unimportant part of the empire.”
For James and Liz, the reconciliation has been slow. In September, when the family assembled off the coast of Spain to celebrate Lachlan’s 40th birthday, Liz left before James and his wife, Kathryn, flew in. Rebekah Brooks was invited but didn’t attend. The party took place aboard the Rosehearty, Rupert’s 184-foot yacht. Several weeks ago, James and Liz spent time together at a News Corp. digital conference. James is focusing on saving the business. On November 10, he returns to the parliamentary committee to answer allegations that his knowledge of widespread hacking at News of the World was more extensive than he first testified. His relationship with his sister can wait.
But to Liz, James’s role is one of the keys to the business. “Liz wants James to take responsibility for the actions and do something that’s redemptive. At some point, I suspect the thing that will bring them together is the love they have for their father, as a brother and a sister,” says a friend. But don’t expect Rupert to be the one to bring them to the table. “I’m not assuming Rupert will have anything to do with it.”
And many in the company believe that Freud will advise her not to be too hasty when it comes to reconciliation. Freud, according to a close friend, believes that James is a hothead, with little of Rupert’s subtlety, not fully equipped to lead News Corp., especially at a moment like this. James’s theatrical arrival in the offices of the Independent, a Murdoch competitor, in order to dress down its editor, was seen by many as a minor-league move. And his speech attacking the BBC during News Corp.’s proposed takeover of BSkyB was even worse. And nowadays at News Corp., the closing of News of the World, which had been James’s call, is seen by some as an error, signaling weakness while accomplishing little. In this view, Freud is not so much pushing Elisabeth as helping to preserve Rupert’s legacy. A few weeks ago, I e-mailed Freud to ask about what the family was going through. “Murdoch stuff seems mad and sad,” he replied.
“Freud’s whole strategy is keep her out of it long enough until James wrecks himself,” a source close to the company says. “It’s fairly transparent.”
* This story has been updated to clarify that Rupert Murdoch imported the British show Pop Idol to America.