Crazy Like Foxes

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“I hope you don’t mind if Mr. Murdoch joins us,” Fox News Channel CEO Roger Ailes said, as he greeted two visitors at the entrance of his office on the second floor of News Corp. headquarters in New York last Tuesday.

“Rupe,” as he later addressed him, “has a special interest in this,” Ailes said, referring to Fox News’s 10th anniversary this month.

Murdoch has a lot riding on Fox News Channel. He and Ailes gambled big-time in 1996 that their brainchild could become the dominant news channel in a three-way fight with CNN, the longtime incumbent leader, and MSNBC, which launched at about the same time as Fox News.

MSNBC even got a big boost when Time Warner Cable elected to distribute NBC’s all-news channel to millions of its cable subscribers, instead of Fox News, as its preferred means of offering its customers an alternative to CNN, which is also owned by parent Time Warner Inc.

Fox fought back by offering to pay cable operators $10 per subscriber, up front — terms unheard of at the time — in order to secure enough carriage for its launch. Distributors looking to boost their balance sheets jumped on the offer and as Fox News steadily gained in popularity, other subscribers pressured their operators to carry the channel. Ten years later, the channel counts 90.3 million subscribers.

The network’s aggressive nature was also on display in the type of commentators it chose, such as Bill O’Reilly of the much-viewed The O’Reilly Factor, to the billboards it used to market its unknown personalities nationwide to the choice of its slogans, such as “The Most Powerful Name in News,” “We Report, You Decide,” and “Fair and Balanced.”

Fox News began to beat CNN occasionally in weekly ratings scores in 1999, and overtook it in January 2002. The network now dominates CNN and MSNBC to the point where it doubles their combined viewership. On the eve of its 10th anniversary party in New York, Fox News played to an average of 478,000 viewers between the ages of 25 and 54 in primetime — the primary news demographic — compared to 232,000 for CNN.

A decade into the Fox News phenomenon, Ailes and Murdoch are back in startup mode, trying to dislodge another incumbent, CNBC. The two are hawking a new Fox Business Channel that they are are confident will be highly popular with money-conscious viewers. Ailes, after all, ran CNBC before launching Fox News.

And they’re looking to cash in on their success with Fox News, pitching operators a new rate card that would lift the service’s monthly license fee to $1 per subscriber.

Attempting to grab that level of increase isn’t an easy task for any network. But while Ailes and Murdoch said they’re hoping for uneventful negotiations, the executives told Multichannel News editor of digital news Steve Donohue and news editor Mike Reynolds last week that they’re also ready to fight for the rate they believe they’ve earned.

MCN: You’re No. 1 after 10 years. Do you credit that more to moves by Fox, or mistakes your competitors made after you took the lead?

Murdoch: I think the competitors took us for granted and were arrogant. We were pretty shaky our first year or two, and all the time we were fighting to get distribution. Cable networks [operators] are notoriously slow at making a commitment to put someone on — let them bleed for a while and then put them on. Now we know cable networks cannot afford to do without us. When it comes to negotiating and contracts — without us, they’re going to hear from their customers in a big way.

MCN: You spent about $10 per subscriber to start Fox News. Can a programmer launch a new network these days without paying distributors?

Murdoch: If you want to start something at 10 cents [monthly license fee], no. If you start something at 20 cents, you’re battling this perception that there’s someone there who is invincible.

Everybody now has launch costs — it may be $3 [per subscriber]; it may be $10.

MCN: Is that the game plan for the business channel?

Murdoch: No, we’ll probably start at a low price, 10 or 20 cents, and establish ourselves. That doesn’t call for any upfront payments.

MCN: Is Fox News worth $1 per subscriber?

Murdoch: Sure, we’re double the audience of CNN, and they’re [distributors] paying 55 cents per subscriber for that.

MCN: CNN would argue that their costs are higher.

Murdoch: That’s their problem.

Ailes: Wasting money is not a reason to go back to your cable operators — you’ve got to run a streamlined operation. The truth is that there isn’t anybody in the world, including CNN, who doesn’t think Fox News is ahead of them in terms of delivery of audience and a lot of other things. And our journalism is beating them — breaking news and our programs. So a high price is certainly fair to ask for in this climate.

MCN: USA and TNT do better in the Nielsens than Fox News, but cost less than the $1 you’re asking for.

Ailes: If you take the top 10 channels and average their rate, what would you come up with — 75 cents?

MCN: Yeah, that’s because of ESPN.

Ailes: That’s not our problem. There are a lot of ways to look at this, but in the end if you’re a top-10 channel, and the only news channel in the top 10, and you have a very passionate group of viewers, you’ve certainly earned a reasonably high license fee.

MCN: Some Wall Street analysts say you’re asking for $1 with the hope of getting 50 to 75 cents. Are you set on $1? Will [Cablevision Systems Corp. chairman] Chuck Dolan agree to pay you $1 by this weekend?

Murdoch: Let’s see next Monday.

Ailes: We don’t know what’s going to happen. But we have great regard for them. We hope they have great regard for us. This is an honest negotiation.

MCN: Cablevision resisted launching YES Network (the New York Yankees-owned regional sports network), which is very popular with customers.

Murdoch: Many tens of thousands of customers went across to DirecTV, which didn’t even at that stage promote the situation very hard. If they were to go at us now, which I certainly hope they don’t, they’d find a very, very vigorous campaign coming from DirecTV, from us and I’m sure from Verizon.

MCN: Do you think it’ll happen though?

Ailes: It sounds like they’ve got several wars already going.

Murdoch: They’ve got their own problems. They’ve got the telephone companies coming at them with much stronger broadband [products]. They need every program they can get, particularly ones people are passionate about.

I could tell you, and I won’t, probably 50 cable channels which you could drop and no one would notice. But the viewer would notice if Fox News was dropped.

MCN: If the signal goes dark, do you think there would be a clamor from your audience?

Ailes: Everybody thinks that, and Cablevision has demonstrated an ability to handle a lot of pain. But we’re hoping that this all works out in a gentlemanly way. It’s very clear we’re due a reasonable rate increase, and we hope that they understand that.

Murdoch: The last thing we want to do is go to war with Cablevision. Chuck Dolan is an old friend of mine.

MCN: After Cablevision, which operator is next up for renewal?

Ailes: They’re going to roll in over time. Time Warner, I think, comes up fairly quickly. We’ve already been in negotiations with them, and those are going quite well, and the same with Comcast, so that’s going to work out.

MCN: And DirecTV?

Murdoch: We’re done, I think.

MCN: Has DirecTV agreed to carry the new business channel?

Murdoch: Yeah, we have. The price is still being negotiated.

MCN: What’s the channel’s name?

Murdoch: At the moment, it’s the Fox Business Channel.

MCN: You’ll have 30 million homes — is this a go now?

Ailes: We’d like to have 25 to 30 million homes to launch, and I think that’s about where we’ll be. It will be a strong launch.

MCN: Mid-next year is the time frame?

Ailes: That’s the target. We hired [Today co-host] Alexis Glick. She’s working with [vice president of business news] Neil Cavuto and a couple of my executives.

We have to build another studio and control room and a couple of things like that, so we are in the planning stage now, and we’re optimistic about some kind of launch next year.

MCN: You built Fox News with people that weren’t necessarily household names. Can you do the same with the business channel, or will you go after some of CNBC’s talent?

Ailes: I won’t go after anybody’s talent. I don’t think that’s right. But I’ve certainly had people call me. There are only a few people at CNBC that I think really are strong, but I have a track record of trying to find new people and present them.

MCN: Are you taking CNBC Mad Money host Jim Cramer’s call?

Ailes: Jim’s had a problematic relationship with everyone he’s ever known — I’m no exception. On the other hand, he and I get along fine; he did work here for a while. If he called me and wanted to have lunch, I’d do it. That’s not to say one way or the other whether I’d be thinking about that.

MCN: Is there a discount if a distributor renews Fox News Channel, or are the channels being sold independently?

Murdoch: Fox News deserves its own rate and position.

Ailes: You might as well talk about both of them when you’re in the room so you don’t have to make two trips.

But Fox News has earned its place in the cable world, and we believe based on the success of the Fox News launch, most cable operators think that we’ll be able to develop a good business channel.

MCN: Given that two-thirds of Fox News viewers are 55-plus, are they ready for the multiplatform world?

Murdoch: We all try, all the time, to get younger demographics. But you’ve got financial advertising or drug or whatever; people [advertisers] like a stuffy older audience. There’s so much choice — what 25-year-old might care about some new drugs? They think they’re invincible, but when they’re 55 or 65, they’re not. We want everybody — all ages, to watch.

MCN: What do you think of programs like The Daily Show? Is that what it takes to get younger viewers?

Ailes: The press likes to say they get their news from there. The truth is people have to get their news from somewhere else; otherwise they can’t laugh at the jokes.

MCN: Bill O’Reilly sometimes pokes fun of the ratings at MSNBC, whose anchor Keith Olbermann frequently criticizes The O’Reilly Factor. Why do you let O’Reilly even mention the competition?

Ailes: You shouldn’t get into a pissing contest with a skunk. They [MSNBC] have no ratings unless they talk about Fox. Basically, they should add those ratings to our ratings, because the only thing they have on the air is Fox — they attack Bill, or they attack Fox.

MCN: Are you concerned that your ratings have dropped in the last year?

Murdoch: No, you’ll have blips in news. When you have a Katrina, everybody turns on. And when you have blips in news, people tend to turn to Fox News more than to others. When you don’t have it, they’re not there. When news happens, they turn to us.

MCN: What if the Democrats win the next two elections?

Murdoch: It’ll be terrific. People will be watching Fox News like crazy.

Ailes: I think it’ll be good for news in general. I think the Washington press corps every few years wants it to turn over, so they can have fresh things to write about. It’ll be exciting, and when it’s exciting people turn to cable news, and they turn to us first, and most.

MCN: Cable news has made inroads against broadcast. Can you continue to do that?

Ailes: The networks have done a good job of stabilizing their evening news by taking three credible people — Brian [Williams] has stepped in for Tom [Brokaw] with very little problem. Katie [Couric] is unique — people are turning in to see if she’s got the white jacket on or the blue jacket on, or if she’s going to sit on the edge of the desk or if she’s going to stand. And Charlie Gibson, who I’ve known for 35 years, is one of the great newsmen in this town and a very stable, solid guy. So I think they’ve done a credible job of balancing what people thought was going to be a disaster. Is there room to win? Yeah, I honestly believe if Shep Smith went up against them, he’d beat all three of them.

MCN: Fox is going to do a morning show. Would you consider doing a nightly newscast?

Murdoch: You’ve got a lot of considerations in that. We’ve been talking about the demographics, and they’re not the demographics that Fox Broadcasting and all of our stations get at 6 o’clock, 7 o’clock.

Although we’re doing extremely well — we’ve doubled over the last three years the amount of news on our 35 stations, and it’s still expanding. And in city after city, we’re getting better ratings, and our results — we’ve got a lot more advertising [revenue]. That is the direct reason why the stations are now making all-time record profits, which I doubt any other group could say.

MCN: You start the morning show in the new year with some Fox News talent. How well will that do, and does that detract from your cable audience?

Ailes: Almost everything that comes on television today needs time to build, and the question is how much stomach do you have to build it.

Fox News Channel needed time to build; My Network TV will have time to build. The question is did you make the right decisions, and is it a good program, and can you stay with it long enough and market it long enough?

Fox News Channel has made five or six changes in primetime in 10 years. MSNBC and CNN together have made 54 changes. Maybe some of those shows could have worked — maybe they just lost the nerve. You never know because they pulled too quick — I’m guilty of maybe pulling too slow sometimes, but that’s better longer-term.

MCN: How do you incent your employees to keep them motivated to stay on top?

Ailes: When they get up and go to the bathroom we have somebody else sit in their chair; when they come back they’re incented immediately to work harder [laughs]. No, I think you will find the morale at the Fox News channel is the highest in the business, because we treat our people well.

MCN: You took out CNN from its position as the No. 1 news network. What are you going to do to prevent them from recapturing the gold?

Ailes: If I were them, I’d be trying to do that every day, and I think they are, and I think they’ve done some decent things, and it’s up to us to play. Look at the Chicago teams — they won, and now it’s going to be another 100 years. That isn’t the way you do it — you have to go out every day to win.