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Why You Leavin' (News Corp.), Peter Chernin?

The question now is, What will News Corp. and Fox look like in a post–Peter Chernin world? Predicting whether Chernin would stay or go as Chairman Rupert Murdoch’s No. 2, and who might replace him (if anyone at all right away), had been Hollywood’s favorite guessing game recently.

But now that fun is over. Chernin is stepping down on June 30 with an unprecedented-for-Hollywood golden parachute.

Here’s what happened: On February 23, one of my most reliable sources phoned to tell me that News Corp.’s president/COO was “definitely leaving” when his five-year contract expired. My news was a shocker around the Fox lot, and soon all of News Corp. — not to mention Hollywood. Even agents were the last to know. Murdoch and Chernin had planned to make the announcement at a board of directors’ meeting the next day. But my 10:30 a.m. scoop sped up the timetable. By afternoon, Murdoch himself had issued a long, rambling memo.

Then, around 4 p.m, two Hollywood agencies sent out internal e-mails stating that James Murdoch would replace Chernin. Agency sources even claimed to me that it was a “done deal.” In terms of News Corp., the assumption has always been that the youngest son, who runs all of News Corp.’s international assets, would eventually take over. As Chernin himself liked to tell people, “I’m just warming the seat for a Murdoch.” It would also calm Wall Street concerns about successorship at News Corp., since Rupert Murdoch is 78 years old.

But News Corp. and Fox immediately shut down that speculation. I hear James simply isn’t ready: He’s a know-it-all who parties hearty and isn’t picking up the business or running it as he should.

Other scenarios abound, too: that Chernin won’t be replaced right away. That an insider like Chase Kerry, or an outsider like former Viacom CEO Tom Freston, would take on the caretaker role until James was ready. Or that the more successful division heads will now report directly to Rupert without a No. 2. Certainly among them would be Fox Filmed Entertainment’s chairmen/CEOs Tom Rothman and Jim Gianopulos, whose division has been highly profitable — unlike many other News Corp. units.

But having 16 News Corp. execs report to boss Murdoch sounds unworkable. “Even if Murdoch is able to consolidate/streamline the aforementioned reporting structure,” says media analyst Rich Greenfield of Pali Research, “we believe the company will need a second-in-command over the course of the next year.”

Greenfield noted that Murdoch in his memo acknowledged the inefficiencies at News Corp., “from systems that don’t talk to each other to incentives that struggle to capture the opportunity and aspiration of our total group. These obstacles are obvious to us all. There will be a streamlined management structure between our Los Angeles–based business units and the rest of the company.”

Whatever the heck that means.

Rupert back in 2006 did announce a succession plan in which all four of his children from his first and second marriages — James, Elisabeth, Lachlan and Prudence — would assume control over the family trust that controls News Corp. after he dies. (Under this plan, his two daughters by third wife Wendi Deng would not assume any control of the trust, nor would Deng have a voice in how News Corp. is run. His assets, however, would be divided equally among all six children.)

But Murdoch himself wouldn’t name an heir apparent at that time. Instead, he said: “If I go under a bus tomorrow, it will be the four of them [who] will have to decide which of the ones should lead them.”

Lachlan is an unlikely candidate because an internal family squabble led to a rift, and he left News Corp. in 2005 to return to Australia, where he is a businessman. Prudence, whose husband works for one of Rupert’s newspapers, isn’t considered a candidate. But many put money on second-oldest Elisabeth, who showed her sharpness when she kept telling U.S. executives that Simon Fuller’s 2001 British monster hit, Pop Idol, would do just as well in America. Fox TV honchos Sandy Grushow and Gail Berman shrugged her off. Finally, it took Elisabeth’s nagging Daddy, and a direct order from Rupert himself, to get American Idol launched. Since then, her U.K. indie production company, Shine, recently bought Ben Silverman’s Reveille Productions for around $200 million.

Elisabeth declined Rupert’s recent request that she rejoin News Corp., and turned down a seat on the board. But then she was in New York as an observer at the company’s first board meeting since the announcement that Chernin was stepping down.

Chernin, the 57-year-old mogul, joined News Corp. in 1989 and has served as prez/COO since October 1996, overseeing the diversified global media company, with operations in eight industry segments: filmed entertainment; television; cable-network programming; direct-broadcast satellite television; magazines and inserts; newspapers and information services; book publishing; and other. During his two decades with the company, Chernin headed both 20th Century Fox Filmed Entertainment and, earlier, the Fox Broadcasting Co.

But it’s hardly fun right now, and downright harrowing for him and every other Big Media boss whose business model depends on advertising.

Like so many other Teflon CEOs and COOs, chairmen and presidents, Chernin has not been blamed for News Corp.’s severe downturn. Or the fact that, truly, the company’s stock has not delivered for shareholders in years because of an inchoate business strategy that revolves around Rupert’s whims — like buying The Wall Street Journal’s parent company, Dow Jones — even if they don’t make sense financially. (In fact, Chernin’s pals reveal that it was Murdoch’s insistence on buying the newsosaur that was the last straw for Peter.)

Then there’s the fatigue factor. His reluctance to step into the SAG-AMPTP mess to solve it, as he did during the writers’ strike, has been interpreted by the entertainment community as Chernin mentally having moved on. (Not only did picketers chant, “Peter Chernin, What You Earnin’?” outside Fox, but at one rally a sign appeared with Chernin’s home address and an open invitation to spend Thanksgiving there.)

Last time Chernin’s five-year contract was about to expire, he signed it at the 11th hour after long, drawn-out negotiations. The same thing looked to be happening this time around, with June 30 fast approaching.

One Wall Street analyst even suggested that Chernin’s uncertain status was hurting the News Corp. share price. (As if the tanking of the economy and lack of advertising weren’t doing that already.) Chernin’s total compensation package of $28.8 million made him better paid than Rupert Murdoch, who earned $27.5 million last year.

As for Chernin, he’ll launch a Fox-based production company later this year, among other ventures. Interestingly, the track record for mogul-turned-producers isn’t very good.

Then again, Chernin won’t be just any producer: He has the right to require the company to enter into a six-year deal to buy films or TV shows from him. Fox must buy at least two movies a year from him, paying a fee “at least as favorable as the most favorable agreement” the studio had with a producer in 2004, when he signed the agreement.

He’ll continue building his pension. He has the right to use the company jet for up to 50 hours a year, make use of a company car, and receive tens of thousands in country-club dues. But as we know too well, only top corporate execs get soft landings in hard times.