The Impending Entertainment News Realignment

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With the firing, then death, of Roger Ailes, the departure of Bill O’Reilly, and the swirling rumors about Sean Hannity either leaving or being fired at Fox News, many conservatives flippantly insist that any one (or combination) of these and other conservative entertainers/news people could “start their own network.” It’s certainly possible that the right combination of entertainers and capitalists could buy an existing structure and form it into a network—itself a mammoth undertaking, but not impossible—but start one from scratch?

It’s worth the time to recall how Fox News got to where it is today. In 1986 20th Century Fox television began operations, first with a Joan Rivers late night show (a failed undertaking that got her permanently banned from Johnny Carson’s Tonight Show), then in 1987, with “Married . . . With Children” and “The Tracey Ullman Show,” then added a show a week on Sundays only.

It gradually expanded its lineup and then added Mondays with “The Simpsons,” which remains the longest running sitcom in television (27 years). Fox Television fought its way into competition with the “Big Three” for entertainment value by the early 1990s. In 1996, Rupert Murdoch founded Fox News Channel (FNC) and appointed Roger Ailes as the CEO, with its ratings surpassing those of rival CNN in 2002. Bill O’Reilly’s show, first called “The O’Reillly Report,” then changed to “The O’Reilly Factor” was also started in 1996, along with “Your World With Neil Cavuto” and “Hannity & Colmes.” Murdoch, meanwhile, had acquired a significant interest in Fox in 1985. In 2013, FNC was split off from 21st Century Fox entertainment, including 20th Century Fox Television.

Currently, the stock repurchase price of 21st Century Fox is $4.96 billion. That’s with a “b.” The company’s revenues have shrunk from $31.8 billion in 2014 to $27.6 billion in 2016. Of that, the films account for 31% of the income—down from 33% in 2015—and television (including FNC) yields $5.1 billion in revenues (up from $4.89 in 2015). Television, while seeing more revenue, has witnessed its share of the company’s overall revenue fall from 19% in 2015 to 17%, mostly due to affiliate fees. Sports can be a money maker if  Fox carries the Super Bowl, but the NFL keeps raising its rates too. Still, there appears to be no good news on the horizon. In December 2014, the company’s stock stood at $37.32 per share, compared to today’s price of around $24. Both the net sales and net income through the first three months of 2017 are down (5.7% and 3.9%, respectively. Meanwhile, despite a huge hit with “Deadpool” (over $280 million), Fox’s film revenues declined by $1 billion in 2016, producing fewer blockbusters than 2015.

The film industry, as everyone knows, is somewhere between a slow descent and a death spiral. Hollywood execs measure their tenure in months instead of decades. Studio wizards who had presided over a string of hits are now fired for a single pending bad quarter. The latest blockbuster to tank appears to be Dwayne “The Rock” Johnson’s “Baywatch,” and despite a few tentpole super-hero/spandex movies, it’s entirely likely that at least one major studio could leave the scene in the next year. In short, for FNC, it will not be possible for even a committed conservative leadership (which the company doesn’t have) to subsidize a conservative news organization the way Jeff Bezos can prop up the Washington Post with Amazon millions, or Carlos Slim can keep the struggling New York Times on life support with outside cash. A thriving Hollywood, with the right leadership, could have provided a nice buffer for FNC. No more.

What does all this mean for the Hannity, and FNC? First, while television revenues are up, sports remains a key driver. And since overall the television affiliate continues to lose its share of revenues, FNC has a problem. The Murdoch boys can play it safe and hold fast to the conservative audience that built Fox News, but this would require them to suppress their Inner Liberal (as well as that of their wives). If one lives inside the LA/NY/DC bubble, and thinks Donald Trump and his supporters are toxic, it might appear on the surface that shifting leftward would be a good business move. Again, though, that requires that one live in the bubble. Fox’s only chance to avoid irrelevance is to tack much harder to the right, not only keeping Hannity, but recruiting strong Trump defenders such as Laura Ingraham, or witty iconoclasts such as Mark Steyn.

That is, of course, if one is approaching FNC’s problems through a business eye. It’s unlikely that’s the case with the Murdoch boys, who seem intent on virtue-signaling to the Hollywood and New York elites. In such a case, falling revenues are less important than rising social status.

And as for that “new network?” The history of Fox shows that it was carefully planned, with FNC only “arriving” some 17 years after launch of the network itself. Most of all, Fox’s history shows that from the outset its leadership understood the core value of entertainment. However informative Mark Levin, Rush Limbaugh, or Glenn Beck are, the entertainment value of watching someone do a live radio show on television rates down there with “The Great Octopus Cookoff” and “Recycling Kings.” And entertainment ain’t cheap. Any new competitor must be phenomenally well-capitalized (in the billions), have a clear business plan that focuses on entertainment value first, and which is in it for the long haul—at least five years before seeing success. Right now, few such billionaires with a conservative vision are raising their hands.

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