Peter Chernin’s Unexpectedly Successful Third Act

He makes a decent case for himself. In a business that doesn’t give its leaders graceful third acts, Chernin, 68, is enjoying the rare successful one. He spends half his time overseeing Chernin Entertainment, a surprisingly prolific production company that’s produced 24 movies in the past eight years, including recently “Ford v Ferrari.”

He spends the other half of his time making investments focused on digital media, an area that has proved troublesome for many venture capital funds. But Chernin and his team have found success, including just last month when his firm sold part of its majority stake in townie-bro sports and gambling site Barstool Sports to Penn National Gaming, a regional gambling company. The deal valued Barstool Sports at $450 million. That represented a huge win for Chernin Entertainment, which initially invested $8.5 million in the company for a majority stake at a valuation of $15 million.

Lately, though, Chernin has shaken things up at his investment firm. He and his team have stopped investing through his firm the Chernin Group—a holding company for all his activities, including film production—and raised $710 million for a venture capital firm, TCG. While his official title with the holding company was CEO, at the fund he’s an equal co-partner with his longtime associates, Jesse Jacobs and Mike Kerns. 

Jacobs has worked in media—including in a production job at Fox Sports and as content chief at video-streaming pioneer iFilm—before going into investment banking, where he worked on Goldman Sachs’ media team. Kerns was a top executive at Yahoo, overseeing the home page and its content sections.

The new arrangement, including the new name, smooths the way for the day Chernin decides to step aside—more on that later. 

An Un-Hollywood Approach

In a wide-ranging conversation at TCG’s office, Chernin was equally open to talking about the fund and about the state of the big media industry he left behind. There’s a casual air to the offices that feels very un-Hollywood. He greeted this reporter at the receptionist desk without a phalanx of handlers or assistants. (Not everything about the firm is absent of industry fuss; the water that was proffered during the chat came in a boutique vial.)

“In general I spend half my time on investments and half my time fucking around with movies and television,” Chernin said. He spoke two days after attending the Oscars where “Ford v Ferrari” had picked up a couple awards. (“It’s a terrible show,” he complained. “Unless you win best picture—then it’s a pretty good night.”)

In a way, his role at the fund is not dissimilar to his varied work at News Corp, where he ran the 20th Century Fox film studio before becoming COO of the company. In that role, he was one of the chief architects of Hulu, the video-streaming pioneer that News Corp’s Fox and NBC launched in 2007. His path to the top job was blocked by CEO Rupert Murdoch’s desire to have one of his children succeed him. 

When he left, in 2009, streaming was just beginning to take off, raising questions about how much longer the traditional entertainment industry would continue to grow. “I believe it was the peak,” he says. At the time saw the industry shifting into a defensive stance, trying to hold its traditional businesses like cable together. 

At the same time, he found the job wasn’t as stimulating as it once had been.

“In a weird way, I was bored. I wasn’t bored in the sense that I would ever walk into my office and it wouldn’t be challenging,” he said, leaning back in his chair. “But there was a certain level of predictability to it.”

Time to Move On

Chernin thinks the media industry’s top leadership tends to stick around too long. Many of the key positions at big media companies are held by people in their 60s or older. “The old guys don’t move on fast enough. And the companies aren’t forcing the issue.”

As an early advocate of streaming, he makes plain his disapproval of the slowness with which the big entertainment companies embraced the technology. Recalling his work on Hulu, he says, “Since then, no one in the traditional media side has done anything to embrace streaming and where the world is going.” 

That has changed in the past year, he acknowledges. In November, Disney launched its Disney Plus service, while AT&T’s WarnerMedia and Comcast’s NBCUniversal are planning to launch their versions this spring. The streaming boom has been good for producers like Chernin Entertainment, which has sold shows to Apple TV Plus, Netflix and WarnerMedia’s upcoming HBO Max service. (Chernin also remains a fan of Hulu: In 2013, when Hulu was on the block, he tried to buy the service. Disney, which acquired Fox’s entertainment businesses last year, got control of Hulu in that deal.)

But Chernin is worried about the trend toward vertical integration, which means studios like Disney are only making projects for their parent company’s streaming services.

“These guys are largely devolving into four- or five-walled gardens. They’re going to supply themselves and not supply each other. And I’m not convinced that’s in the best interests of creativity.”

Still, he gives credit to Disney CEO Bob Iger—as is now practically required by law in media circles—for his success with Disney Plus. (The service signed up nearly 29 million customers in its first three months, the company said recently.) Still, Chernin recently decided to end a first-look deal Chernin Entertainment long had with the Fox studio in the wake of Disney’s acquisition (Disney also recently changed the studio’s name to 20th Century Studios.)

He had misgivings about where he fit in the studio under the new ownership. He sees Disney only making Marvel, Pixar and Star Wars movies, in addition to remakes and sequels of Disney classics. “They don’t really have any interest in making anything original. They’re not making that many movies and it just felt like I would end up being frustrated.” 

A few days after we spoke, Chernin clarified his comment, saying he meant that Disney is mostly focused on its internal library of huge franchises and has less space for outside producers bringing in their own intellectual property—not that the company’s movies aren’t creative. Disney didn’t respond to a request for comment.

Consumer Shift

Underlying TCG’s investment philosophy for much of the past decade has been a view that a number of factors—social media, e-commerce, the breakdown of the cable world—has dramatically changed how consumers interact with products. “How they discover brands is different, how they purchase things, how they interact with brands. And that happened sooner and bigger on the media side than in any other part of the economy,” Chernin says.

The ideal company for a Chernin investment is one that has a strong brand, a dedicated audience that has proven it’s willing to spend money on the product, and a decent scale that came about without buying traffic from search or social sites.

In late 2013, for instance, the firm spent $60 million acquiring a majority stake in Crunchyroll, a site for anime diehards that both streams shows and has an online merchandise store. Over time, Chernin built up the operations: Crunchyroll, for instance, now has more than 2 million subscribers, compared with around 120,000 at the time of the acquisition.

Chernin later put the investment into a joint venture it formed in 2014 with AT&T. Called Otter Media, the venture acquired a number of other properties, including YouTube multichannel network Fullscreen and gaming-focused content company Rooster Teeth. Otter also invested in production companies Gunpowder & Sky, as well as Reese Witherspoon’s Hello Sunshine.  

AT&T pumped $1.48 billion into Otter early in 2018, securities filings show, and later took full ownership for an additional cash payment of $157 million. Chernin declined to comment on its return from the investment.

But the deal clearly worked out for AT&T, which last year appointed the top Otter executives to lead the development of its HBO Max streaming service. AT&T also invested around $200 million in TCG’s new fund as one of the anchor limited partners, according to sources familiar with the matter. The other anchor LP is the Qatar Investment Authority, which has contributed a similar amount, these sources said. The Japanese conglomerate Sumitomo Group is another notable backer. Both QIA and Sumitomo were also backers of Chernin’s holding company. TCG’s partners declined to comment on the specifics of their LP’s contributions.

Hands-On Investing

When TCG invests in companies, particularly for a big stake, the team is willing to help out on multiple fronts. For instance, since TCG put $82 million into the cooking and commerce site Food52, Chernin has attended all-hands staff meetings and interviewed candidates for the board or various jobs. Jacobs also interviewed job candidates and even pitched talent agents about the firm. 

“You talk to a lot of investors, and in many of those conversations you have to educate people on the business you’re trying to build,” said Amanda Hesser, a former New York Times food writer who started the company with Merrill Stubbs. “With them it was different.”

Hesser admitted she was skeptical about just how involved Chernin was going to be. Before TCG made the investment, Hesser met with Chernin at his house in Santa Monica, California, as he was recovering from ankle surgery. As both retell the story, Hesser bluntly asked him, “Am I ever going to see you again?” 

The check that TCG wrote for Food52 bought out all of its seed investors, including Lerer Hippeau and Bertelsmann Digital Media Investments, leaving TCG and Food52’s employees as the sole stakeholders in the fund. 

The Chernin partners say even when they take a controlling stake they let the company run independently—it is not a division of TCG. But they have offered to manage the funding going forward. Jacobs argues it’s one less thing for a company to worry about. “What [founders] don’t have is the concern that every 12 or 18 months, they have to go back to the market to raise the series B, C, D [rounds],” Jacobs said.

Chernin’s fund took a similar approach with Barstool Sports after its 2016 investment of $8.5 million in the company, when it was little more than a noise-making sports site run by writer Dave Portnoy. That investment bought the holding company a 50% controlling interest in Barstool. 

Not long after, Portnoy suggested that Chernin’s team help Barstool find a new CEO, which led to the hiring of Erika Nardini.

As Barstool grew, Jacobs and Kerns said dozens of investors approached them about investing in it. But Barstool wasn’t interested and preferred to stick with TCG. In 2018, the firm invested another $15 million in Barstool at a $100 million valuation.

Nardini said they had a good thing going with Chernin, which was a willing financial backer, a helpful connector to the media world, and supportive of the site’s edgy brand. “I didn’t want to risk it,” she said. 

Missed Investments 

The fund doesn’t necessarily retain its controlling stake in companies. In 2017 it created the Action Network, a collection of sites that focus on betting content. After forming the group, TCG raised a new round of financing that left the firm as the largest single shareholder but not the majority.

TCG has also been willing to take small stakes in startups more typical of venture capital firms, like with subscription sports site The Athletic or mobile gaming company Scopely. And while the fund has seen its most notable successes in media, Jacobs and Kerns argue that their strategy works equally well across other industries.

In 2015 the firm invested in Headspace, the meditation app. The team had been searching for a new category and saw that consumer interest in meditation was rising. “Something as simple as just looking at Google Trends—you saw that search for meditation was going up,” Jacobs said.

TCG also has a small investment in Dadi, a sperm storage company. “Fertility is a big issue,” Kerns said. “Most [companies] had been focused on women, but in fact male fertility is declining at a precipitous rate.” TCG also has stakes in wedding registry site Zola and home security startup Ring, which Amazon later acquired.

Its next investment, as a TCG executive revealed in a podcast, is around cremation and ash spreading—“deathcare” as the industry is euphemistically called.

Not every company has been receptive to the company’s approach. Chernin said he and the team tried several times to invest in Bill Simmons’ podcasting and sports news site The Ringer, but Simmons was never interested. (Simmons didn’t respond to a request for comment.) They also tried to back Crooked Media, the political podcasting empire started by Obama administration veterans. “We haven’t taken any investor money,” Crooked Media co-founder Tommy Vietor explained in an email. “But we are huge fans of Pete and the team at TCG.”

Some of Chernin’s investments have been duds. Through Crunchyroll, it acquired Creativebug, an online crafting site, for $10 million. It later sold the business for around the same amount. The holding company was also one of the backers of the Alliance of American Football, a professional football league that tried to compete with the NFL. The AAF shut down before completing its first season.

Kerns says the investment in AAF was less than $1 million.

A Succession Plan

Like all things in Hollywood these days, the conversation turned to succession—and not just the HBO series, which appears to be loosely based on the Murdoch empire (Chernin has many thoughts on the show, though they’re not for publication). He is looking ahead to a succession plan for his namesake fund.

He says he has no immediate plans to step aside from the firm. Next year, he and his two partners will likely raise the next fund. But at 68 years old, he’s acutely aware of the fact that he may not want to be doing this for too much longer. 

Jacobs and Kerns say they’ve discussed the topic of succession at TCG with Chernin and defer any announcements about that to him. “We made a decision that this would be set up as a 100% equal partnership, with an eye towards a point so that it would absolutely be able to go on without me,” Chernin said.

“One of the great indications of mental health to me—this will make you think I’m a real psycho—is when you wake up at four in the morning with your mind racing, because it’s an indication that you’re really trying to solve stuff and you’re really engaged,” he adds.

For now, at least, his mind is still racing.