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Fox on Top

Behind Fox News Channel’s 10-Year Reign As No. 1 in Cable News 2/06/2012 3:01 PM Eastern

Back then, George W. Bush had just entered his second year as president. The St. Louis Rams were preparing to meet the New England Patriots — helmed by then second-year quarterback Tom Brady — in Super Bowl XXXVI. TV’s top show was NBC’s Friends.

Back then was January 2002, and it marked the first month that Fox News Channel passed CNN at the top of the cablenews heap, averaging 1.09 million viewers in primetime and 654,000 in total day, versus the erstwhile leader’s 921,000 and 595,000.

Since then, the TV world has evolved greatly, but there has been at least one constant: Fox News Channel’s mix of news and opinion, with its motto of “We Report, You Decide,” has reshaped news-watching habits, as viewers have repeatedly decided for the network that launched on Oct. 7, 1996. With Nielsen closing the books on its January numbers, Fox News Channel has completed a full decade of ratings dominance.

“We are extremely proud of the phenomenal achievement created by the hard work and talent of the Fox News Channel employees and recognize how difficult it is for a cable network to sustain this level of dominance for a decade,” Fox News chairman and CEO Roger Ailes said. “America has clearly embraced fair and balanced news.”

FNC’s ratings performance earns it a place in the Nielsen pantheon, alongside Nickelodeon’s leadership in the kids’ space and total day, ESPN in the national sports arena and USA Network in the past six years in primetime.

“When CNN was the only player in the cable-news space, its ratings were like a flat line, until there was a major event, a plane crash, the falling of the Berlin Wall, an earthquake,” Brad Adgate, senior vice president and director of research at Horizon Media recalled. “Fox News continues to do a great job of getting viewers to come every night, not just when there’s a news event.

“The star of CNN is the news, the stars of Fox News are Bill O’Reilly and Sean Hannity,” he added. “They’re appointment viewing, and Fox News is an iconic brand.”

APPOINTMENT VIEWING

Carat USA executive vice president and director of media investments Andy Donchin billed the network in similar terms. “Love it or hate it, Fox News Channel is a very strong, established brand. Like the best of cable networks, viewers tune to the channel knowing they’ll find something they want to watch,” he said, noting that “Fox News Channel is not just No. 1 by a little bit, they’re regularly beating the competition combined.”

Indeed, even Fox News Channel’s harshest critics must concede the facts: over the past decade, it has overwhelmed CNN and MSNBC together in total viewers and among adults 25 to 54, the so-called news demo. In primetime, FNC scored a larger average audience than its two rivals combined in eight out of the past 10 years, and four times (one tie) with the demo. FNC mirrored its performance in total day with viewers, while it finished ahead of CNN and MSNBC among adults 25 to 54 in three of those years.

FNC’s widespread lead continued last month. During primetime, FNC averaged 1.94 million — 78% more than its 1.09 million average audience back in January 2002. That decade-ago delivery surpassed CNN and MSNBC’s primetime averages for the most recently completed period of 841,000 and 801,000, respectively. Last month, FNC beat CNN by 132% and MSNBC by 142% among viewers in primetime.

FNC’s strength is fueled by shows at the top of the Nielsen charts. As in 2011, the network notched the top 13 shows in cable news in January, with each of the programs winning its time slot, according to Nielsen data. The network also claimed nine of the top 10 shows among adults 25 to 54 in January.

FNC’s success, which had made it a topfive cable channel overall — and one that on occasion beats broadcasters with its election coverage — has emanated from News Corp. chairman Rupert Murdoch’s wont for a broader perspective in the news realm and the execution of Ailes’ vision. After leaving America’s Talking, the forbear of MSNBC, Ailes forged FNC within nine months. Having to pay for carriage, the network started in just 17 million homes, none of which were in New York or Los Angeles.

“What Ailes wanted was the reportage to be accurate, the facts needed to be right and, if wrong, corrected quickly. He wanted it to be fair and balanced. The combination of news and opinion has worked very well,” Shepard Smith, who’s been with the network from its inception and now anchors Studio B weekdays at 3 p.m. and the weeknight newscast The Fox Report at 7 p.m., said. “It’s an extraordinary accomplishment. No category leader has been toppled in that amount of time; it certainly happened pretty quickly, just as Mr. Ailes envisioned.”

NOT JUST RIGHT-WINGERS

Noted TV historian and author Tim Brooks: “It’s unquestionably an impressive achievement.”

Critics have long assailed Fox News’ content, charging it with having a conservative slant or towing the Republican Party line. Brooks said FNC’s core audience is “aligned with the right, with people who get to hear what they want to hear. So, Fox has the true believers — but it also has a lot of viewers from the middle.”

According to a Pew Research Center study, FNC’s audience makeup is 40% Republican, 15% Democrat and tops its competitors with 20% of Independents (17% for CNN, 10% for MSNBC).

The diversity of the audience composition is a key selling point for Fox News Channel vice president, national sales director Roger Domal. “If it were just conservatives watching, our audience would be much smaller,” Domal said. “Right, left, middle, like us, hate us, people end up watching. They want to see if their opinion is being talked about, whether it’s being validated or repudiated and they want to be entertained in the process.”

Brooks believes that Ailes had FNC adopt storytelling aspects from 60 Minutes, mix in bits of opinion, humor and sometimes an off -handedness to catapult it to the category’s apex. That, according to Brooks, contrasts with CNN’s still largely classic, straightforward presentation approach to news and with MSNBC, which leans heavily and angrily to the left. “For news traditionalists, what Fox News does is heresy, but today, going across all genres, people want to be entertained.”

Bill O’Reilly, whose The O’Reilly Factor has been the top cable news show for 134 consecutive months, said FNC has recast the U.S. news paradigm. “I think the achievement has been historic,” he said. “I think we’ve changed the face of the way news in presented in this country.”

Like O’Reilly, Hannity, Neil Cavuto and Alan Colmes, Smith has been with FNC since its outset. “It’s a testament to Mr. Ailes’ vision and talent choices that have been made,” Smith said.

Whatever the reasons for its audience alchemy, FNC’s Nielsen success has translated to signifi cant fi nancial gains with both advertising and affi liate fees. In a research report, Morgan Stanley analyst Benjamin Swinburne estimates FNC’s fair-market value at $12.4 billion, which makes it News Corp.’s top asset. He forecasts total revenue at $1.6 billion this year, with EBITDA of $975 million.

Miller Tabak analyst David Joyce estimated that FNC will generate $802 million of its $1.87 billion in 2012 revenue, a 12% advance overall, from advertising. He puts FNC’s operating income at $714 million for the year, a 38% margin.

According to SNL Kagan estimates, FNC will ring up $852.1 million in ad sales in 2012, versus $683 million for CNN/Headline News and $271.8 million for MSNBC.

That’s a far cry from the early days, when FNC, without much distribution and with lower ratings, functioned more as a competitive hedge against others in the category. FNC surpassed CNN in ad sales in 2005 and the combined total of CNN and Headline News in 2007.

“The money always lags behind the ratings, but when you get there, the revenue accelerates,” Domal said. “It’s like getting paid back as we extend the lead.” And agencies are willing to pay to reach its viewer base. “Fox has an audience that’s very valuable. If they’re engaged with the programs, it’s more likely that they will be engaged in the commercials,” Carat’s Donchin said. “Obviously, we’re trying for 360-degree video touch points on the TV screen, computer screen and mobile screen. We’re trying to extend our clients’ messages through Fox News and with other networks this way.”

Domal forecasts an uptick during an election year. With the primaries, FNC hasn’t seen a big jump yet, but as things “get deeper in the process, the nominees settle down and the conventions near, we expect to garner a fairly large increase in ad revenue, and if it’s a repeat of the last cycle in 2009, to the extent people are interested in how a new administration takes place, we’ll also benefit in 2013.”

On the affiliate side of the house, FNC is also registering growth.

“There was great skepticism at launch. It was a very difficult time to get carriage,” SNL Kagan senior media analyst Derek Baine said. “Others, like HGTV, were off ering carriage for free, with the idea of getting fees, as it turns out at a much lower level, down the road. Obviously, Fox News has turned into something huge; it has a strong position in the marketplace.”

FEES ON THE RISE

SNL Kagan calculates FNC’s affiliate revenue at $985.3 million in 2012, based on 82 cents per sub each month. “The network is getting strong monthly subscriber fee increases, up from 58 cents in 2009,” according to Baine, who projects average license fees at 92 cents and affiliate revenue of $1.17 billion in 2015.

Some think its license-fee take is higher, with reports indicating FNC has been seeking a monthly subscriber fee of $1.25, while others peg it in the area of TNT’s $1.16.

Vice president of affiliate sales Tim Carry would not specify FNC’s rates. He did say, though, that FNC is currently in the midst of third distribution phase — the first spanned from 1996 through 2006, the second for the most part from that year into 2011 — that has already resulted in renewals with DirecTV, Dish Network, Cablevision Systems, the National Cable Television Cooperative, Verizon Communications’ FiOS TV and AT&T’s U-verse.

“We want to maximize value to systems through license fees as a top tier-cable network and bring that back to News Corp.,” Carry said, adding that by election time FNC expects to conclude renewals covering 50% of its subscriber base.

How long can FNC stay on top? “Longevity is built up,” said Brooks. “If some of their talent, an O’Reilly, who’s a smart guy in the way he produces his show and draws ratings and who can hold his own when interviewing Obama or anyone, were to leave or retire then there might be an opening. But many people would tune in to see his replacement. A dramatic shift would not occur overnight.”

Horizon’s Adgate agreed, noting it would take a combination of internal and external factors to trigger a major shift. “Unless Fox personalities move on and the competition comes up with top-level personalities of their own, it’s going to be difficult to make inroads,” he said. “I don’t see things changing any time soon.”

Fox News veterans believe the channel is destined to become even bigger. “It’s tough for a vertical network to reach the levels of a USA, ESPN or TNT, especially with the exponential growth of news and commentary on the Internet,” countered Adgate.

Smith, though, has faith in his boss. “Roger Ailes thinks we can,” he said. “History shows not to best against him.”

September