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The COO's dilemma
Peter Chernin, News Corp.'s No. 2, has a big job, a big paycheck, a big (and growing) profile - and a contract that's coming up for renewal.
LOS ANGELES (Fortune) -- Peter Chernin is the most powerful second-in-command in all of media, with a $30-plus million pay package to match his status.
Yet the more success the president and chief operating officer of Rupert Murdoch's News Corp. has, the more the perennial question gets asked: whether, and for how long, he'll stick around.
After all, Murdoch has made it clear that while he has no plans to retire he wants one of his adult children to eventually succeed him as CEO. No wonder, then, that both within and outside News Corp. the renewal of Chernin's contract is a much-discussed topic despite the fact that it has nearly a year to run.
Indeed, one rumor making the rounds within various News Corp. outposts in recent weeks is that Chernin might leave if private equity money were to buy a big media concern - NBC Universal (GE, Fortune 500) gets mentioned most frequently - and he's offered a piece of the action to run it.
Chernin declined comment, but an executive who dined with him not long ago says he believes there is an "85% chance" that Chernin will stay at News Corp., though he added there's always the possibility of an offer he can't resist. "He loves it, he's great at it, it's almost effortless for him," said the executive.
In addition to his broader COO duties within Murdoch's sprawling media empire, Chernin also effectively oversees the Hollywood-based Fox film and television businesses that made up the majority of News Corp.'s $5.4 billion in operating profits in the year ended June 30.
And over the past year, as Murdoch has made it his personal mission to revamp recently acquired Dow Jones and its flagship Wall Street Journal, the division of labor between Chernin and his boss seems even more pronounced, people at the company say. So Chernin has a big part of the empire to run.
Appearing on Charlie Rose's PBS show earlier this week, Chernin was asked how long he plans to keep doing what he's doing. "As long as I find it satisfying and interesting," he replied. The context of the question was Murdoch's publicly-stated succession plans. "Rupert has always been very straightforward with me about this," said Chernin, who's been at News Corp. for 20 years. "And based on that, I think I would only have an opportunity to feel wronged if I had been given false promises, which I haven't."
Still, it's only natural that people would speculate about Chernin's plans. His name was floated two years ago when Michael Eisner retired from Disney (DIS, Fortune 500), but Fox's cross-town rival did not formally approach him. (Eisner's No. 2, Bob Iger, got the nod.)
I had firsthand exposure to Chernin's quick mind and broad intellect last month when he sat for a Q&A at Fortune's Brainstorm Tech conference. (Disclosure: some of my columns have run in News Corp.'s Times of London.)
His curiosity seems matched only by his boss's, and Chernin appeared genuinely excited, rather than daunted, by the digital prospects for his industry, even though investors have lately pummeled media stocks and News Corp (NWS, Fortune 500). is down 35% in the past year.
Chernin has taken a particular interest in recent efforts to revamp MySpace in the face of the surge in popularity of Facebook which, he admitted, "kicked our butt for 9 or 10 months."
And he seemed to feel vindicated in his decision to go into business with aforementioned NBCU to create Hulu.com, the Web video and online syndication site that, he reminded the audience, had been dubbed "Clownco" by one wag before it launched.
"What I'm thinking about a lot at News Corp. is that we're living in a world of infinite inventory," Chernin said. "Scarcity is what drives up advertising prices - I think what you have to do is create category scarcity, and the place I think that is most promising is in video, and in professionally-produced video."
Chernin's stature in the business world has only grown since he recently co-founded the organization Malaria No More and, along with Disney's Iger, took a lead role in tackling Hollywood's labor disputes.
Still, News Corp. has its share of palace intrigue and not all parts of the empire are running smoothly. There are the challenges of figuring out how to fend off rivals and make more money out of digital properties like MySpace, the local TV station business is troubled, and the economic outlook is challenging. And few subjects generate more hushed conversation in these parts than a pending contract.
Already, Chernin's current deal is the stuff of legend. He earned nearly $34 million last year, and if I read a preliminary proxy the company filed in late July correctly, he looks to do even better this year: his base salary is $8.1 million and he is entitled to a bonus of $25 million if the company's earnings per share increases more than 40%. In the company's just-released quarterly figures, EPS was up 61%. This proxy filing didn't disclose other potential bonuses which will be detailed later.
Chernin's contract also provides that if he leaves News Corp. for "good reason" - and, in his case, "good reason" is defined as anyone besides Rupert becoming his boss - he gets a $40 million severance and a six-year TV and film production deal that includes use of a company jet.
There are, let's face it, worse predicaments to be in. 
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