Updated: Chernin to Leave News Corp.

NEW YORK  Peter Chernin, who has served as Rupert Murdoch’s right-hand man at News Corp. since 1996, will step away as president and COO when his contract expires June 30, opening up crucial questions about who will have hands-on operational control of the company.

News Corp. officially announced Monday afternoon that negotiations over Chernin’s future with the company had come to an end.

No immediate replacement was named; instead, the Los Angeles-based Fox businesses will report directly to News Corp. chairman and CEO Murdoch upon Chernin’s departure. Later this year, Chernin will launch a Fox-based production company, among other ventures. In addition, he will continue his efforts as chairman of Malaria No More.

His Fox production deal will cover film and TV, though he is expected to focus on film work. Under terms of the six-year deal, Fox is obligated to buy two movies per year.

Chernin also is expected to make private equity or venture capital investments in digital media. It wasn’t immediately clear if he would join an existing firm or start his own.

Murdoch will take direct oversight of the conglomerate’s film and TV businesses.

The shuffle brought the question of News Corp.’s succession back to the forefront, even as officials emphasized Monday that Murdoch’s son James will remain in charge of the conglomerate’s European and Asian businesses despite some chatter on Wall Street that he could be elevated at any time.

A source said James Murdoch is expected to remain focused on Europe and Asia for now, adding that those markets make up a big part of the company’s portfolio. Observers expect him to expand his operating experience further until he gets a potential call-up.

“News Corp.’s Hollywood businesses are all very well run and have tremendous stability of executives,” Gamco Investors portfolio manager Larry Haverty — who owns News Corp. stock personally and through his firm — said about Chernin’s departure. “As long as this doesn’t lead to additional instability, I’m not concerned.”

He also said he has been “very, very impressed” with James Murdoch, citing his work at BSkyB among key accomplishments. “Most investors haven’t realized this.”

Haverty said he wouldn’t be surprised if Murdoch’s son was elevated down the line, saying he would have “a great amount of confidence” in his management skills.

Another source close to the company said the elder Murdoch could do worse than to buy out transatlantic indie producer-distributor ShineReveille from NBC Universal and put that company’s head, who happens to be his daughter Elisabeth, in a top slot. Unlike James Murdoch, Elisabeth has considerable content creation experience.

Chernin wasn’t available to comment and was on the way to a Tuesday board meeting in New York. Murdoch and the company have said that the board would decide succession issues in case the chairman and CEO was out of commission for some reason.

However, Haverty and others pointed to a strong executive bench at News Corp.’s various units that they said should put investors at ease. Some also pointed out that other media conglomerates like Time Warner also don’t have a clear second-in-command such as a president and COO.

Rupert Murdoch said he will work closely with Chernin during the next four months to ensure an effective transition.

“Peter’s contributions to the company over the past two decades have been immeasurable,” the CEO said. “We are fortunate to have such a strong and seasoned group of leaders at our Fox companies, and we are confident that our success will continue.”

Under provisions of his current contract, Chernin was guaranteed a lucrative producing pact. He signed his current deal a few years ago after another contentious renegotiation.