CNN | Project for Excellence in Journalism (PEJ)

March 15, 2004

Why is CNN so much more robust financially when it is trailing Fox News in ratings?

Part of CNN's financial advantage is that it can offer advertisers package deals on its various channels. These figures describe only domestic revenues and profits for CNN and its sibling 24-hour general news network, Headline News. The two networks are often sold as a package deal to advertisers.

In addition to these, however, CNN also has a separate international arm, CNN International, which operates seven regional networks targeted towards viewers throughout the world (CNN Asia/Pacific and CNN Latin America, for example). CNN also operates a business news network, CNNfn. These networks bring in separate streams of revenue (as do other operations, such as CNN's airport news service and its Newsource operation, which supplies footage of national and international events to local television stations), but all rely on the same news gathering structure and offer advertisers more options.

Another CNN advantage has to do with the fact that it has been around longer and recovered most of its startup costs years before Fox News and MSNBC began. Outside accounts of CNN's history estimate that it first broke even around 1985, five years after its launch by Ted Turner. Thus it has an advantage of 10 years of profitability over its rivals.¹

This particularly comes into play because of the subscription fee system in cable. Unlike the broadcast networks, cable channels acquire part of their revenue from subscribers. This is based on a subscriber fee negotiated between each cable channel and the cable providers. These fees are normally set up under long-term contracts of five to ten years. The most popular cable entertainment networks (such as Nickelodeon and TNT) charge roughly 50 cents to $1 per subscriber per month.² CNN's subscriber fee has remained stable, at around 33 to 37 cents, since 1997.

Fox News and MSNBC rates have been much lower, roughly 17 cents per subscriber for Fox News and 13 cents at MSNBC. Both of the newer cable networks have seen steady increases in their average fee per subscriber since they went on the air. This suggests new contracts negotiated with higher subscriber fees.

The multiyear nature of the subscriber fee system has insulated CNN to some degree but means that some of its financial advantage will diminish unless it can improve its ratings.

CNN is available in almost every cable household in the country (again there are approximately 90 million cable households in the United States, and CNN is available in 86 million). This means that soon CNN will no longer be able to sign on additional cable systems in order to increase its subscriber revenue. Instead, it will have to renegotiate contracts along favorable terms to increase subscriber revenue and to get those higher per-subscriber fees CNN may have to show its desirability by scoring better ratings.

Fox News and MSNBC are also approaching the ceiling in subscriber reach, but if Fox News continues to beat CNN in the ratings, it will be in a much better position relative to the other networks when the time comes to renegotiate its contracts. CNN may very well see its subscriber revenue stagnate while Fox News manages to obtain higher fees.