The financial picture of cable news continued to show Fox News gaining ground on CNN, with MSNBC not performing as well as analysts had projected. Among the major trends of 2005:
- CNN remained cable news’s financial leader in profits, revenues and expenses, but Fox News continued to narrow the gap.
- Fox News’s profits, revenues and expenses rose significantly. The increase in expenses was a new development this year that suggested that the channel was building its infrastructure.
- CNN also saw both revenues and expenses rise, though neither to the degree of Fox News.
- The full economic benefit of the audience successes for Fox News will be truly gauged only after 2006, when the channel renegotiates and presumably increases many of its license-fee and advertising contracts.
- MSNBC continued to lag behind the other channels. Contrary to financial predictions, it made very little profit in 2004 and was expected to barely break even in 2005.
Over all, the cable news channels were projected to have a healthy 2005.1 [1] They began the year with profits and were projected to earn higher incomes through a combination of cost-cutting and growth in revenues.
Profits
The cable news business continues to be a profitable one. Taken together, the three cable news channels were projected to earn $579 million in pre-tax profits. That was a jump of 21% from 2004, when they generated $478 million.2 [2]
CNN was projected to remain the most profitable channel in 2005, but Fox News continued to close the gap.
According to Kagan Research, the market research firm, CNN was projected to generate operating profits of $304 million in 2005, up 6% from the $287 million it earned in 2004. The number includes CNN and CNN Headline News, but none of the other CNN affiliated outlets.3 [3]
Fox News, on the other hand, was expected to jump 31% in 2005, to $248 million from $190 million in 2004.
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1997 - 2005, by Channel |
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Source: Kagan Research, "Economics of Basic Cable Networks 2006", June 2005
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If those estimates hold true, CNN’s profits would be $56 million more than those of Fox News in 2005. A year earlier, CNN had a lead of $97 million. Fox News would have narrowed the gap by 42% in a single year.
From losing $30 million in 2000, Fox News was now expected to make more than $200 million in pre-tax profits for News Corp. As it approaches its tenth anniversary, Fox News appears well positioned for an extended run, and bigger gains are expected in 2006 as it finally renegotiates those disadvantageous licensing contracts.
MSNBC, in turn, was projected to turn a profit of $26.8 million in 2005, its first meaningful profit in its history. Yet past projections for MSNBC have proven overly optimistic. In 2004, Kagan Research projected that the network would earn $32 million in profit; it earned only $600,000. It will be important to keep an account of how it actually performs in 2005 vis-à-vis expectations.
Revenues and Expenses
To understand those profit estimates more clearly, it is necessary to take a closer look at revenues and expenses of each of the news channel operations. When we do so, one can see more fully the nature of Fox News’s growth.
For 2005, analysts were predicting that Fox News’s revenues would grow at four times the rate of CNN. At the same time, expenses were also expected to grow at four times CNN’s. Putting revenue dollars back into the product normally points to a long-term interest in building the business. Some of that is visible in Fox News’s 2005 spending (see Cable News Investment [5]).
Kagan Research projected in July that Fox News’s revenues would grow 21% in 2005, to $614.8 million, from the $507 million they earned in 2004. The picture for total expenses (or investment) is similar. Fox News’s expenses, which were less than half of CNN’s previously, were projected to increase almost 16% in 2005, to $366.6 million, from $316.5 million in 2004.
CNN’s totals are still higher than Fox News, but its increases in 2005 were projected to be smaller. Kagan projected that CNN would bring in $878.2 million in total revenuein 2005, an increase of less than 5% over 2004 ($839.2 million).4 [6]
CNN’s lead in sheer dollars at least partly reflects the fact that it draws on a larger infrastructure than both Fox News and MSNBC. Its resources include the news bureaus it owns and operates around the world and its sibling channel, Headline News (see Cable Ownership [7]). Kagan Research’s data for CNN include both CNN and CNN Headline News because the two channels are sold to advertisers and distributors as a package.5 [8]
Such a scale of operations also has implications for costs. Kagan Research projected that CNN would have $574 million in total expenses in 2005, a 4% increase over the $552 million it spent in 2004.
CNN spends a slightly larger share of its revenue, 65%, to cover expenses than does Fox News, at 60%. Thus not only was CNN’s percentage growth in revenue less than the growth for Fox, but it has a bigger cost structure to support — one of the biggest costs being its overseas bureaus, something that Fox News has kept to a minimum.
MSNBC — an Afterthought?
MSNBC remained the perennial also-ran of cable news in 2005. Not only were its revenues comparatively small, but whatever profit it was expected to make would come largely from cost-cutting.
According to Kagan Research, MSNBC would take in $261 million in total revenues in 2005, an increase of 13.6 million. Expenses were projected to be $234.6 million, down $12.5 million from $247 million in 2004.
If accurate, those projections would leave MSNBC with a $26.8 million profit, largely from cutting costs.
A year earlier, though, Kagan Research had estimated that MSNBC would earn a profit of $32 million on revenues of $286 million. The projection proved too optimistic. The news channel instead turned a profit of $600,000 on revenues of $248 million.