With Ailes at Helm, FNC Ascends

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Roger Ailes seems to enjoy trashing the competition, including the cable networks where he once worked. But after taking Fox News Channel from the drawing board to first place in the all-news war in less than five years, the company's chairman is now in a loftier position to take potshots at Cable News Network and NBC Cable's MSNBC and CNBC. Ailes — who was president of CNBC before he joined FNC in 1996 — has also worked as a Republican consultant and as executive producer of Rush Limbaugh's syndicated television show. Multichannel News national editor Steve Donohue recently sat down with Ailes to talk about FNC's rapid rise, and to get his take on the competition and where the news business is going. An edited transcript follows:

MCN: It's been five years since FNC launched. It's still trailing CNN in households, but it's the No. 1 network in ratings. Did you expect to be at this point when you launched the network?

Ailes:
We had a 5-year plan to kind of tie CNN. We think we have done that in four. We're in 65 million homes. They're in 81 million homes. But in the markets where you look at us versus CNN, we still have a 30 to 37 percent lead in terms of actual eyeballs.

So we are doing OK and I would say that I expected to be in this neighborhood four or five years ago.

MCN: Why were you so confident?

Ailes:
I think that CNN was missing a whole segment of the audience that wanted fair and balanced news. I think that they had become a national and even worldwide brand of generic news. I think they have fulfilled their mission of making news the star, but sometimes news is boring, and I think that they didn't see the competition coming down the pike and they underestimated us.

And whenever I'm underestimated, that's the best thing I can have going for me.

MCN: When you launched, a lot of stories compared FNC to MSNBC

as head-to-head competition. At some point along the way, FNC stopped talking about MSNBC and you set your eyes on CNN. When did you begin to look past MSNBC?

Ailes:
When they started doing Suzanne Somers specials and investigations of tattooed women in the middle of breaking national news events, we thought perhaps we were reaching for a different audience.

And so we decided to focus on the news and strictly compete with CNN. And it was really MSNBC's decision to leave news programming and pursue a quasi-entertainment, long-form investigation of Spring Break kind of thing that led us to believe that it was going to come down to us and CNN in the news business.

MCN: When you launched, you said that Fox News would target a younger demo, similar to the audience that watches Fox's broadcast network in primetime. MSNBC seems to have picked up that younger audience. A lot of people say that FNC attracts the daytime
talk-radio listener, that you have an older demographic.

Ailes:
Well, I don't think that's quite true. I'm not sure I ever said that I was going after the Fox primetime audience. I said that we would look for a younger news demo. Now the average news demo is 55 in America, as you know.

Our demo is younger than CNN's. We could — when you do shows like MSNBC does about tattooed ladies and sex on Spring Break and so on, you will get much younger demos. It just is that that is not news.

So I could do Daffy Duck and get younger demos, but it wouldn't be news. So at some point, we stayed in the news genre. CNN stayed in the news genre and our demos are younger than theirs. So I think we've won that game.

MCN: Are you targeting the younger demos now?

Ailes:
Well, I think targeting younger demos is a dangerous announcement in news, because you have to get people who are interested in the news.

You can do that in many ways: your talent, your programming, your story selection, your writing, your graphics — all of those things can help. But I think chasing audiences by their age is a dangerous business in the news because some so-called young people, in their 20s and 30s, simply don't seem to be interested in news.

And I think that we're looking every day to try to go younger. MSNBC has a slightly younger audience than Fox News, but they pay an enormous price for it in terms of credibility. They do it without doing the news. I don't know what the demos are in Naked News [.com], but my guess is they're probably a little younger.

And MSNBC may go there next, although, having watched their channel, I'm against that, based on who they've hired.

MCN: Would you agree that much of your audience is that talk-radio audience?

Ailes:
Do we pick up some of those people who listen to talk radio? Perhaps, at night, with Hannity & Colmes
or Bill O'Reilly, we do. But Larry King has been doing that for years — getting people who listen to talk radio.

During the day, we do as much hard news and as much video-driven news as CNN. We do a lot more than MSNBC, because we don't have the library of Annette Funicello to air. So we're not doing as much Bobby Rydell and Annette Funicello or Fabian during the day as they are.

But certainly we're doing as much hard news as CNN is during the day. And I think that's a rap that our competitors put on us because they can't come to grips with our success; that we've outthought them. We outperform them. We put more news up.

As a matter of fact, there's a lot of evidence that on breaking news today, the thing that CNN owned at one time, the crisis news network, breaking news, they're coming to us.

MCN: Fox likes to point out that Bill O'Reilly beats Larry King consistently, even though they are not scheduled head-to-head. Would you consider scheduling
The O'Reilly Factor
head-to-head against
Larry King Live
to see who indeed is No. 1 in primetime?

Ailes:
I would have no problem putting him at 9 o'clock, except that our primetime schedule is working, from five to six on. Why shuffle the deck just to prove a point that we've already proven? Are more people watching Bill O'Reilly at 8 o'clock, with fewer sets in use, than watching Larry King at 9 o'clock, with more sets in use? The answer is yes.

MCN: CNN has launched a marketing blitz in hopes of regaining the lead in the all-news war. Have you increased your marketing budget in response to that?

Ailes:
No, we haven't increased our marketing budget in response to that. We're coming down to the end of our fiscal year. We will have not spent all of our marketing money this year. It's unclear what we'll do next year. We're waiting to see. We hear that Mr. [Turner Broadcasting System Inc. CEO Jamie] Kellner is an excellent marketer, and that's going to be his primary contribution over there to CNN. And so we're waiting to see what they come up with, but we'll be prepared to compete head-to-head when the time comes. The question is, 'What's your message?' Our message is that we're fair and balanced. We report, you decide. That's working.

They can't do that. They can say it, but they don't believe it, so they can't do it. And so consequently, they'll come up with other ways to try to get the CNN viewer back that we've taken.

We've taken, of course, many of the live ones. Many of the CNN viewers pass on to that great cable company in the sky.

And you know it's going to be tough. The first statement Kellner made … basically it was his version of what Khruschev said. He'll bury us in six months. So we are getting it blown up to post in our newsroom just to remind people that Mr. Kellner thinks he's going to swamp our boat in six months.

MCN: Will you match CNN [on marketing dollars], or will you look towards News Corp to help you step up the cross-promotion effort for Fox?

Ailes:
Fox News Channel has become a very important part of News Corp., and News Corp. understands that Fox News Channel's winning is an important step, but I won't discuss how we'll do it or what we'll do. I think that in the end, Mr. Kellner has a great success in marketing, and I have had some success in marketing myself. So we'll see how it works out.

MCN: You became profitable in the fourth quarter last year?

Ailes:
Yeah, that's right. We've just completed our second profitable quarter.

MCN: Does that account for the up-front launch fees?

Ailes:
No. It's an operational EBITDA [cash-flow] breakeven. Obviously, we invested a great deal getting the company to where it is today, and we haven't repaid those dollars. At the same time, the asset value today of the Fox News Channel is at least four times the investment dollars.

MCN: Are you still paying $10 or $11 per sub for new launches?

Ailes:
We are continuing to pay a diminishing amount of money as launch support. We have become the sixth- or seventh-fastest growing cable channel — the most in-demand cable channel. So the up-front dollars are diminishing quickly. We might pay with existing contracts. For instance, if Cox or Time Warner has an existing situation where if they add some on, they earn certain up-front dollars. There's probably still some money being paid under those contracts.

MCN: How much in total did you spend for launch costs?Ailes:
The number has never been discussed and probably won't be by me because I don't honestly know, but several hundred million dollars.

MCN: I remember the old criticism was, these guys are only getting subs because they're paying for it. And now we hear stories about subscribers demanding FNC in certain markets. In retrospect, do you wish you had taken some of that money spent on launch fees, and invested it in newsgathering, maybe expanding your international bureaus?

Ailes:
No. In the end, everybody knows that you have to have the distribution in cable to win. Then, you have to have a product people want to watch, and we were able to deliver the distribution and create a product that created a demand at the same time.

Would shades of doing a little more here, a little more there, have made some difference? Perhaps, but it's hard to argue with the fact that we're in over 65 million homes with a product people want, and we're breaking even ahead of schedule, and the asset value is huge.

MCN: How many international bureaus do you have?

Ailes:
Four or five. London, Jerusalem, Moscow. We have a floating Middle East operation, Hong Kong — five. Then we have other people that we send over from time to time.

MCN: Is expanding the international coverage a priority?

Ailes:
I don't want to expand to the extent CNN did. I think they put so much emphasis on bureaus overseas that they ended up with 200 people sitting somewhere in the world playing cards, waiting for some event to happen. Our goal is to have none of our people in bureaus playing cards, waiting for an event to happen. So we will expand, and we are expanding, as a matter of fact, internationally this year. But we are doing it very cautiously, and we have a hit-team strategy for world events, as opposed to a brick-and-mortar, deck-of-cards strategy.

MCN: Isn't it still difficult though to compete with CNN on those international stories if they have 42 bureaus?

Ailes:
Not really, not when you have APTV [Associated Press Television News] and UPI [United Press International]. We get footage very, very quickly. We have not been behind. If you're locked into a location for a long period of time where you end up giving most of your equipment to whoever the dictator is, which has been their strategy — a million dollars they're still trying to get out of Iraq — I guess they're going to beat us on some stories if you're willing to do that.

I don't have a particular interest in giving Saddam Hussein a million dollars worth of equipment. So if he acts up again, they might beat us. Unless he asks for $2 million and then they're going to have to cough up again.

MCN: Can you tell me where you might open a bureau next?

Ailes:
No, I don't want to tip that off. But we are looking at expansion elsewhere around the world. We also have the ability to tie into Sky [News] and Star [TV] which are [Rupert Murdoch's] satellite operations overseas. And so there'll be increased synergy with those players as time goes on.

MCN: Do have some international distribution through the News Corp. satellite systems? I don't believe you're carried on BSkyB [in the United Kingdom] yet.

Ailes:
No.

MCN: Are they favoring Sky News? They don't want two corporate siblings to compete?

Ailes:
I don't know what the deal is there. We're rolling that out slowly, trying to make it cost-effective. I believe everything that happens has to be paid for. I don't believe anything's free, and nothing is free in life. My feeling was that we had to dominate cable news in the domestic United States before we could provide more overseas. CNN overseas is basically an English-speaking service for people who are over there on business. How much revenue they get from all that, I'm not sure. It's good branding. It's useful. And we'd like to participate and will participate in it as time goes on. But a top priority of ours is not to try to figure out a way to lose money.

MCN: How frustrating are incidents like the release of the spy plane crew in China, where CNN was the only network to get footage of the crew boarding the plane back home?

Ailes:
They got a [video] telephone shot at three in the morning, which nobody saw. They were able to turn it into a marketing campaign, which was pretty smart of them. And they have — I understand they have 17 of those phones. They've been in business 20 years. They finally found a chance to use one. We have a couple of them ourselves. We'll probably see more of that sort of thing. I thought that was a clever attempt to do a marketing thing for them.

I don't think it'll grow ratings. But I did give a certain amount of credit for their marketing ability with regard to that. I think you'll see more of that from us, and more of that from them.

MCN: What do you think of newsmagazines?

Ailes:
Look, we've looked at that. [Former CNN president] Rick Kaplan helped swamp the CNN boat by trying to do newsmagazines that were too expensive and took the broadcast model. We've experimented with lower-cost magazines for cable.

We do them as specials here. We probably do 30 to 40 specials a year, as long-form, sort-of magazines.

I think magazines have become the entertainment vehicle for news in broadcast television. Dateline [NBC]
is really doing A Current Affair, with a little more gloss, and a little higher budget. The stories are about the same.

60 Minutes is still around, the granddaddy. They still do their stuff very well. I think in today's world, it's a form like the sitcom is a form, the so-called newsmagazine report. But I don't think CNN has figured out how to do it very well. MSNBC is only doing it because they have Dateline
footage free that they get to run, and it looks pretty good on cable, and we're experimenting with how the costs of specials can work in a cable structure.

But in the end, you have two columns in a business. One is called in and one is called out. If you've got more going out than you've got coming in, you're going to go belly up. And so we try to understand that and maintain and create programming that'll generate dollars.

MCN: CNN has made no secret that they want to attract more star power to the network.

Ailes:
Guess whose idea that is? They've made no secret of the fact that they want improve their graphics, bring more stars, do more talk, and create programs like Fox. That's basically their strategy. Or at least that's their announced strategy.

MCN: What draws viewers, the news or the people hosting the shows?

Ailes:
I think both. Crisis news draws in viewers. Most people say they don't want to watch Tim McVeigh be executed. But if you put the execution on, a hell of a lot of people would show up and then never admit they saw it. The ratings would be huge.

MCN: Would you televise it?

Ailes:
No, I probably would not be interested in televising it, simply because I think that moron is getting too much publicity as it is. I think it is a news story that has to be covered to some degree. But I don't know that we have anything to learn from a Tim McVeigh, and I'm not interested in turning people who kill babies into martyrs. There have to be some lines in life, and turning people who kill babies into martyrs is a line I won't cross. I don't have any interest in that.

MCN: I guess would you have preferred that they executed him as scheduled? It's got to throw a loop into the production [schedule].

Ailes:
I'd have preferred they executed him 10 minutes after he said he did it. Cut out all the publicity, you know?

MCN: On that point before, you were discussing star power versus news.

Ailes:
Yes, well, crisis drives news. When there's no crisis, then it's up to a star to bring people in. But in the end, just a star won't do it. Barbra Streisand is a star. But people aren't going to watch her do news. It's the combination of what Bill O'Reilly puts together for a show every night, what topics he decides to do, what the takes are, what the bookings are and all that sort of thing. Television is simple, but it's not easy. There are simple elements that'll get ratings, but it's not easy to consistently deliver that. And so I think stars help. But just getting stars isn't going to make it happen.

I look all the time at development. Keep in mind that every star that I've ever worked with, I did develop. Geraldo had a daytime show where he used to hit people in the head with chairs and stuff. But that wasn't a cable-type intellectual show.

We developed that show for him on CNBC. Chris Matthews was a print reporter when I put him on television. Bill O'Reilly was Inside Edition. I think Paula [Zahn] had had her experiences at CBS. I think they have become much bigger stars at Fox News than they were before, and I think we create a climate of allowing talent to do what they do well.

Bill O'Reilly is succeeding because he's allowed to be Bill O'Reilly. He isn't in some straitjacket. Paula is succeeding because she's allowed to be Paula. She's not reading a lot of teleprompter in some kind of a straitjacket.

Most people go into the news business today because they're impressed with somebody else, and they end up trying to copy that person. And so they become a copy. Copies don't work. Originals work.

And so the people who you see really succeeding — Larry King is an original. You could take 50 guys better looking than Larry off the street, let them not do any homework, and put them out there in a pair of suspenders and they'd fail. There are guys running around trying to be Bill O'Reilly right now. It's hard to find the originals.

Tucker Carlson is a perfect example of a guy who is trying to be a television personality. First, he's trying to be a man, which is tough. Then he's trying to be tough, which is tougher. He's figured out that conservatives get good press if they dump on other Republicans and conservatives. So, hey, that's one way to get good press if you're a conservative. He's figured that trick out. The other night on his show, he said, 'You know we report and we let you people decide.'

It was pathetic. It was just sad. And he sold out his friends. He sold out his beliefs to go into a network that does not respect his views, but they like him because he'll dump on other Republicans and conservatives.

His ratings suck. In the end, he's trying to be something he's not. That's the problem.

MCN: Where do you think you need to improve the schedule?

Ailes:
Where? In my shop?

MCN: Yes.

Ailes:
Well, there are a lot of places. But will I tell CNN where I'm going to focus? Why don't I just call up Jamie [Kellner] and say, 'Jamie, here's where I'm going to focus next.'

I think they're going to figure out what the issues are and look, whether they like it or not, Ted Turner created a great worldwide brand. Ted is underappreciated at the moment because he's out making loony statements about various religious groups.

But the truth, the real hard-core truth is Ted Turner's a genius. He's a smart guy who was an original, who had an original idea, who executed an original idea, who made it work for him and who changed the way we get our news forever.

Now Hollywood has taken over CNN, to shine it up and create stars and do something with CNN that it was never intended to be.

The real test is going to be whether Ted Turner's original vision of CNN as a meaningful, significant news operation will win out against the Hollywood guys' version of slick marketing, stars, copy Fox News, copy Fox's graphics. Let's see if we can become something else. That's their test, and you know, there've been a lot of smart guys that have bet against Ted Turner and proved to be wrong.

CNN is a pretty good product. They tip left. But they don't know they tip left. They are of that great group of people in America who believes that there are only two groups in America, moderates and right-wing nuts, and they think they're moderates.

And every news division I know of believes there are only those two groups in the world.

MCN: What do you think of Andrea Thompson, [the former

NYPD Blue

star recently hired as a CNN Headline News anchor]?

Ailes:
Well, I sent a note to [CNN chairman] Tom Johnson afterwards saying that since he had thrown down the gauntlet, that we were in negotiations with Anna Nicole Smith. If anything, we could do it bigger. I also put on the note, 'By the way, Anna mentions your name as a reference.' I never heard back from Tom. So I assume he's either angry or he's walking around saying, "You think Ailes is really doing this?"

But I did send that to him. I don't care. They've got to find some way to get people to watch. And if that's what it's going to take, I don't think that diminishes their news.

I'm not sure — you know? If I had my choice, I'd have picked Sipowicz to read the news over here. Just given a choice of the two, I'd have picked Sipowicz. But they went with her. So that's all right, I don't care.

MCN: Much of your schedule is talking-head programming and a review of the day's news. Do you feel a need to go out and do more investigative journalism?

Ailes:
We have just formed an investigative team. We are currently working on four investigative stories. Much of our programming during the day is not talking-head. It is whatever the news is of that day. It's not looking back. Shep[ard] Smith does a significant newscast at 7 o'clock. We go into more talk programming at night, as does every other news network. Do you see CNN breaking news at night that I'm not seeing?

MCN: No.

Ailes:
Oh. So when you say "we" do this, I hope you're pointing out that all cable news does this.

MCN: Sure.

Ailes:
We have as much news on the screen as they do, and we have a new investigative unit working on stuff. We have a new specials unit working on longer form.

MCN: What kind of stories? Are they political stories?

Ailes:
No. We have a very strong Washington bureau with Brit Hume as the managing editor of Washington. But news is news. We won't necessarily do the stories others do. I mean we did the story [in which] here in New York, the education department has decided that kids don't have to learn how to add or subtract. They really need to feel good about the numbers.

So we went out and interviewed Jim Lovell, who brought Apollo 13 back and had to hit an inch of 2½ degrees, or burn up in space, and asked him whether or not knowing how to add or subtract had any value. He seemed to think it did. And without that ability, he would be a cinder. But most of these morons teaching these kids that they don't have to learn how to add or subtract will never get a story on any other network. CNN will never cover that, because it's not politically correct. We're doing stories that the other guys don't do. And we feel very comfortable with that approach.

MCN: Since the inception of Fox News Channel, you've been labeled as more conservative than the other news networks, and some have gone as far to say that you're biased towards Republicans. I know President Bush's cousin, John Ellis, worked for NBC before joining FNC. But considering that criticism, why would you hire him?

Ailes:
He was a very skilled guy on election returns. We knew him for 11 years at NBC. Nobody ever questioned it. But what we did is we set up our decision desk in a way that there were four members of the decision desk, there were three people who were Gore people, and Ellis, who was a Bush person. But none of the four could make any call to our air. Once they had all four in sync, they could make a recommendation to our vice president of editorial, John Moody, and he would make the call to air.

So there was absolutely no way that that Ellis could influence the election, nor could the three Gore people influence the election, even though they were speaking throughout the evening to high-level Gore people.

I interviewed the other Gore people on the desk. They said Ellis did nothing wrong — could not have done anything wrong. And I'm comfortable with that. I testified to that in front of Congress.

MCN: Why not go out of your way and bend over backwards to avoid any grain of impropriety?

Ailes:
Well, we did. That's why we set the desk up with no ability to — but frankly, it never entered our mind when Ellis came here because we knew he couldn't do any harm, and we didn't realize the other guys would use that as a weapon. Had the election not been this close, it probably never would have even come up because it obviously didn't come up during the years he worked at NBC.

But, you know, it's a horses---t charge. People can think what they can think. The fact is it had absolutely no effect, and the Congressional investigating committee concluded exactly the same thing.

MCN: Are you conscious of that criticism when you program the channel?

Ailes:
Look, we're going to get criticized for being too conservative because the other networks believe that if any conservative point of view is presented, that's biased. I believe bias is elimination of people's point of view. We don't eliminate anybody's point of view here. We have as many liberals on staff as we have conservatives. We have as many liberal contributors as we have conservative contributors. We tell our people, 'Don't walk around and pretend that you're holier than thou and don't walk around pretending you're brain dead. Of course you have opinions. We expect you to have opinions.'

It is none of our business how you vote. What is important is that if you're going to do a story on our air, you reach out to a point of view you don't agree with and be sure everybody gets a fair shake. We think that's an honest way of doing it.

At that congressional hearing, there was an attack on Andy Lack, for instance, because apparently there was a film taken of Jack Welch screaming and calling the election. Remember that, at NBC?

And they said, does that tape exist? Frankly, I thought Andy handed him up. But did Jack Welch call the election at NBC that night? He probably was in the background screaming, 'Call Bush!,' because he was the only Republican in the building that night. But did they do anything wrong? No. I have confidence that the NBC operation made the calls based on the statistics on the screen.

I think there's an overemphasis on that. People have opinions.

Nobody wants to make the wrong call because it's hard to find work if you make the wrong call.

MCN: So what's next from FNC? If I was going to come see you five years
from now, what do you think we'd be talking about?

Ailes:
We've got to do a little better job on the weekends. We've got to improve our newsgathering capability. We've got some infrastructure issues. We'll probably beef up staff in certain areas. We're still a growing network. I mean when you think that we started with no staff, no studios, no network, no distribution, no newsgathering, no marketing, and no credibility five years ago, we've come a long way.

We now need to double that effort over the next five years, and to become more of a dominant force. But I think that we're 50 percent where we need to be. And I would think that over the next five years, we'll get the rest of the way.

MCN: Would you like to take on your older employer, CNBC, and launch a business news network?

Ailes:
Oh, I don't much care about them. Actually FNC today gets higher ratings than both MSNBC and CNBC combined. So four years ago, I left CNBC. They're still living off the shows I created five years ago. I built their newsroom, set up their marketing, created their primetime programming, and their news shows before I left.

They haven't done anything new since then. They're still living off that. They may be forced to hire me someday to go back and fix it all so they can live for another five years, unless they can come up with something creative internally.

But in the meantime, no. I don't have any particular interest in that. I love business news. Neil Cavuto is doing a terrific job with Fox News, and we will continue to expand our business news here.

Could I compete? Sure, I could. But I think there are some fine people at CNBC lacking leadership. If anybody ever goes in there with leadership ability, they could become formidable. But otherwise, no. I don't have any particular interest. I'm already beating CNBC with Fox News.

MCN: And with respect to the business-news programming, are you going to increase that?

Ailes:
Yes, we are. We just hired Terry Keenan. We're adding an additional half-hour show on weekends. She'll begin to do news breaks and work with Brenda Buttner as backup to Neil Cavuto so we will have three key business anchors covering business stories.

I believe business news is really real news. That's one of the things that I took to CNBC was to try to create more interest in business news, not as some arcane different type of news. But I can't think of anything more that drives people's interest than Cisco's stock or what the Fed is going to do in terms of the interest rates and so on.

And so I really have, since the day I got into this cable business in '93, have been trying to link up business news with general news. I think we've done that more successfully here at Fox, with Neil Cavuto, where we deal with it as an approach to news for [the] mainstream, as opposed to just Wall Street.

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