2004 Annual Report - Cable TV Economics

When Rupert Murdoch launched Fox News in late 1996, as part of his strategy for an international news conglomerate, his News Corp. deployed a novel tactic to establish itself. Many cable channels began as initiatives of the cable systems themselves in order to provide programming that would entice viewers to start subscribing to cable. Other channels were begun to provide niche programming, such as Lifetime, now known as "Television for Women." Fox News, which is not linked to any cable system and was attempting to crowd into a niche already occupied by CNN, took a different approach in order to gain distribution for its new 24-hour channel: When it was launched, Fox News decided to pay for its spot on the cable box by offering local cable systems a $10 fee for every one of their subscribers. It was, according to Multichannel News, "an unprecedented move at the time."³ Cable technology then could accommodate a much smaller number of channels than today. Other networks, such as Animal Planet and the Cartoon Network, adopted the same strategy of paying for their spot on the cable box.⁴

Fox News executives apparently gambled that if the channel proved successful, this so-called cash-for-carriage payment would pay off down the road, since Fox News is getting 13 cents per subscriber every month. One press account at the time of Fox News' launch reported, "Murdoch says he doesn't expect FNC to break even until the next century."⁵

While Fox News is now making a profit, what about that $10-per-subscriber investment over the long term? By now, at 13 cents a subscriber a month, Fox News has probably taken in almost $6 per head in subscriber fees in return for that $10 it paid out in the 1990s.

Fox News network executives suggest that shows like "The O'Reilly Factor" helped draw attention and increased awareness of Fox News to the point where subscribers began to demand that their cable systems provide it.⁶ Also, with the arrival of digital cable boxes, there are fewer bandwidth restrictions on the number of channels a cable system can offer, making it easier for Fox News to get placement on even more systems.

The path to profitability has also depended on keeping costs low. Fox News, basically, tries to produce a cable news channel with fewer reporters and bureaus than CNN does and to focus in depth on fewer stories. Its success is changing the nature of cable news, shifting it away from taped edited packages and toward a narrower menu of stories (see Newsroom Investment).