CNN vs. Fox News

This is a more business-oriented discussion of the CNN vs. Fox News competition.  In a previous post, I wrote: "it may be true that the average minute audience for Fox News Channel may be higher than CNN.  No, that does not mean that FNC is either more popular, respected or profitable."  Behind all that media research, there is a simple question: "In a time of crisis, which television channel would you turn to first?"  Regardless of the normal preferences and opinions, most people will reach for CNN.  You may like Sean Hannity or Bill O'Reilly, but when a space shuttle explodes or an airplane crashes, you will go for CNN.  This is the brand equity that no other cable channel can tap into.

(The Wall Street Journal)  For Fox News, Ad-Sales Market Isn't Fair, Balanced, by Julia Angwin.  May 20, 2004.

Paul Rittenberg, head of advertising sales for the Fox News Channel, got on the phone recently to counter a lowball offer. Chrysler wanted to buy nearly $2 million of commercials -- but at a cut-rate price of $8 per thousand viewers.

Mr. Rittenberg pushed for $11.98, almost a dollar below his original asking price. Chrysler turned him down. As he hung up the phone, Mr. Rittenberg said nervously, "I hope CNN didn't get it."

The haggling illustrates a frustrating paradox for Fox News. No longer a struggling upstart, it is beating Time Warner Inc.'s Cable News Network handily in the ratings. But in the peculiar market for television advertising, where the usual rules of supply and demand don't always apply, it has trouble commanding the same rates as its rival.

Attracting a large audience can often let a TV show charge higher rates, because advertisers place a premium on the ability to reach a large number of people at one time. That's why giant events like the Super Bowl or the final episode of "Friends" command such high rates.

But a large audience is not a guarantee of garnering premium prices. Media buyers say they generally pay Fox News ad rates that are about 75% to 80% of what they pay CNN -- even though CNN has only about half the audience of Fox News. And for all the inroads Fox News has made as a news organization, Mr. Rittenberg has to contend with advertisers who use CNN as a yardstick of quality.

Behind the disparity in pricing and perception is a vast TV marketplace guided by its own unusual dynamics. Unlike the stock market, where prices fluctuate minute by minute, the bulk of television ads are sold once a year during a period, starting this week, called the "upfront." The starting point for upfront negotiations is last year's price.

Since Fox News sold its ads for extremely low prices during its early years, and can boost them only incrementally each year, it must negotiate from a lower starting point than CNN. Similarly, CNN is negotiating from the high prices it established during its heyday as the only 24-hour news channel. Although Mr. Rittenberg has whittled down the price gap tremendously, he admits he hasn't been able to close it altogether. He says he hopes to reach parity during this year's upfront negotiations.

Fox News's difficulty also shows how long it takes to build a brand on television, particularly in the cluttered landscape of cable television. In its eight years on the air, Fox News has cultivated a well-known name in the U.S. But, for some advertisers, that's hardly a match for CNN's world-wide name recognition, nurtured over 24 years in the business.

CNN has 3,800 employees world-wide and more than 14 different networks and services, such as CNN International and CNN Headline News. Its networks are available in more than 200 countries. By contrast, Fox News has a little over 1,000 employees and is distributed in more than 40 countries. Its best-rated shows are opinionated commentary programs, "The O'Reilly Factor" and "Hannity & Colmes."

Although the rest of the lineup is news, those shows leave some advertisers with the impression that Fox News is sometimes too hot-blooded and partisan to be considered true journalism. "The Fox News Channel is not perceived as pure news, because it really is no different than talk radio," says Jon Mandel, co-chief executive of Mediacom U.S., a media-buying company. That should translate into lower ad rates, he argues. (Mediacom clients that advertise on Fox News include Staples Inc., Warner Bros. and GlaxoSmithKline PLC.)

Tyler Schaeffer, senior vice president at ad agency Foote Cone & Belding in New York, recently cut a deal for Samsung Electronics Co. to sponsor CNN's election coverage, instead of its competitors'. "I can get a rating point anywhere," he says. This deal "provides ownership of prestigious content and a partnership with a leading news organization."

Mr. Schaeffer adds that Samsung has a broad partnership with Time Warner that includes the purchase of equipment. Samsung flat-panel television screens will be on display at CNN's new New York studio.

CNN also wrings a pricing advantage from its corporate siblings. The news channel can sell ads as part of Time Warner's large package of cable channels as well as its magazines and online divisions. Although Fox News is part of Rupert Murdoch's News Corp., it rarely sells ads as a package with other News Corp. channels such as FX and National Geographic. Fox News says that's because the other channels have very different demographics.

Fox News also suffers from supply-and-demand issues that dog the entire cable industry. Because there are hundreds of cable channels, it's hard for any one to charge a premium: There's sure to be another with similar offerings and similar demographics. Indeed, the competition from Fox News has forced CNN to raise its rates more slowly than in the past, advertisers say. "You can always buy around anyone in cable, particularly in news," says Bill McOwen, director of national broadcast at the MPG division of France's Havas SA, one of the world's largest advertising holding companies.

Fox News was founded in 1996 by Mr. Murdoch and Roger Ailes, a former Republican political consultant who made his name in television running CNBC, the business-news channel owned by General Electric Corp.'s NBC division. (Dow Jones & Co., publisher of The Wall Street Journal, is co-owner with NBC of CNBC television operations in Asia and Europe. Dow Jones also provides news content to, and derives revenue from, CNBC in the U.S.)

Mr. Ailes pitched Fox News as a "fair and balanced" alternative to a perceived liberal bias in mainstream media, but loaded up the prime-time schedule with conservative commentators. The snazzy graphics and opinionated coverage developed a loyal following.

Fox News and CNN were locked in mortal ratings combat, a public battle of dueling press releases, harsh criticism and competition over anchors and reporters. Today, the battle is over. In April, Fox News attracted nearly twice as many viewers on an average day than CNN, according to Nielsen Media Research. MSNBC, the news channel jointly owned by NBC and Microsoft Corp., is in third place. During an April 13 presidential news conference, Fox News attracted nearly three times as many viewers as CNN, 5.16 million to 1.76 million.

This ratings lead has helped Fox News boost ad sales dramatically. Because ads are sold on a cost per thousand viewers, a larger audience brings larger revenue -- even at a lower rate. In its first three months on air, Mr. Rittenberg says, the channel booked only $1.3 million in ad revenue. Now, he says, the channel takes in about $1 million a day, and is on track to book more than $350 million this fiscal year, which ends in June. Earlier this month News Corp. said its third-quarter net income soared in part because of a doubling of Fox News's operating income.

CNN declined to disclose its revenue.

Mr. Rittenberg, 49 years old, was one of about 80 employees who left CNBC to join Mr. Ailes at Fox News. A registered independent who voted for Democrat Bill Clinton and Republican New York Mayor Rudy Giuliani, he says he's never discussed his political views with Mr. Ailes. Just for fun, he displays in his office a copy of Al Franken's book "Lies and the Lying Liars Who Tell Them: A Fair and Balanced Look at the Right." Last year, Fox News sued Mr. Franken and his publisher to prevent them from using the "fair and balanced" slogan. Fox News later withdrew the suit.

Mr. Rittenberg's independent political bent may help him with advertisers who would otherwise dismiss Fox News as overly partisan. "It gives him a certain credibility," says Mr. Mandel of Mediacom. "He probably wouldn't be as effective if he had been drinking the Kool-Aid."

Indeed, sometimes Mr. Rittenberg, like many advertising salespeople, laments the turmoil caused by his channel's outspoken news anchors. Recently, Mr. Rittenberg says he had to contend with angry calls from Anheuser-Busch, an advertiser on the Fox broadcast network, after talk-show host Bill O'Reilly launched an on-air campaign against the brewer for supporting the rapper Ludacris. During a concert tour, Ludacris hosted several post-show parties sponsored by Anheuser-Busch's Bud Lite. An Anheuser-Busch spokesman says that the company neither sponsored the tour nor hired Ludacris as a spokesman, and that its association with Ludacris ended when the tour was over. Anheuser declined to comment on whether it had contacted Fox News.

When the channel was launched, Mr. Rittenberg had to sell ads at low rates to get anyone to sign on. His first big win was a deal with Starcom, a media-buying firm that represents companies such as Kellogg's and Morgan Stanley. Mr. Rittenberg says the ads were priced at about $3 per thousand adult viewers, and rose to $4 by the end of the contract -- which was five years away.

"The first 3½ years of the deal were fine, but the last 1½ years were painful," as viewership rose and Fox News was stuck with low rates, Mr. Rittenberg recalls.

Each year since then, he has tried to persuade some advertisers to pay huge percentage increases. Mr. Rittenberg says a commercial on Mr. O'Reilly's show now sells for about $20 to $22 per thousand adult viewers. CNN's top-rated show, "Larry King Live," sells for about $18 to $20, according to people familiar with CNN's rates -- but it draws far fewer viewers than Mr. O'Reilly's show. In April, Larry King drew an average of 1.36 million viewers per telecast, compared with Mr. O'Reilly's 2.31 million.

To be sure, prices of commercials can vary based on a number of factors. For example, Mr. Rittenberg says that some longtime Fox News advertisers have deals that require them to pay only $12 per thousand viewers for ads on Mr. O'Reilly's show. Other advertisers who buy commercials at the last minute can pay as much as $30 per thousand viewers for spots on the same show.

Advertisers say Mr. Rittenberg pushes aggressively for price increases but knows when to give a little. Two days after he hung up on Chrysler, for instance, the auto maker called back and said it was willing to renegotiate. Mr. Rittenberg agreed to split the difference between the two ad rates, settling for a price of about $10 per thousand viewers.

Mr. Rittenberg says one reason he came down on price was to cement the relationship with Chrysler. "This is the last big American car company we had to make headway with," he says.

Chrysler says it is happy to be aboard. "Fox does a good job of involving the audience. It's a discussion and debate that encourages viewers' feedback," says David Rooney, the car maker's director of media operations. "Anytime you can increase the attentiveness and involvement of the viewer in the program, when the commercial comes on you can retain that interest."

But Mr. Rittenberg still fights against the perception of CNN as the news leader. As the Chrysler deal was being concluded, Mr. Rittenberg flew to Chicago to present Fox News to a crowd of about 60 advertising executives at Starcom, an arm of the French ad-holding company Publicis Groupe SA. After 20 minutes of watching slides showing Fox's commanding ratings lead, Starcom's managing director of investments and operations, John Muszynski, said, "We see the numbers on how Fox is outperforming CNN. But the problem is the press and clients still see CNN as the No. 1 brand."

Mr. Rittenberg sighed, and responded: "Perception lags reality." Later, in an interview, Mr. Rittenberg points out that critical comments from advertisers such as Starcom are to be expected during the upfront negotiating period.

This year, Mr. Rittenberg has been shopping a study by Knowledge Networks/SRI that attempts to quantify the loyalty of Fox News viewers, calling them "influentials" who tell other people not only how to vote but what products to use. He also emphasizes viewers' wealth, pointing out that 47% of Fox's prime-time adult audience earns more than $75,000 a year. CNN says its own such number is 45% -- and that its own viewers are just as influential. Network officials claim that 68% of the nation's top executives watch CNN at least once a month.

Mr. Rittenberg sometimes offers price concessions in pursuit of a larger goal. Tracey Riener, who buys ads on behalf of mutual-fund giant Fidelity Investments and others, says Fox News backed off a request for a big rate increase for this year's ad purchases. As a result, she says, "We rightly rewarded them with bigger chunks of budgets."

Ms. Riener, a vice president at advertising agency MPG Arnold, says that there's still a price gap between CNN and Fox News, but it's hard to persuade clients to pay large price increases to Fox. "None of our clients is going to buy the argument that the marketplace prices are up 5%, but Fox prices are up 25%."

These days, one of Mr. Rittenberg's best hopes for obtaining parity with his rival is to seek advertisers who don't have a long history of paying low rates on Fox News. But, even in those cases, it can be difficult to start from scratch with new rates.

Best Buy Co., the consumer-electronics retailer, last year decided to target its ads more specifically to men aged 25 to 54 -- which fits the demographics of cable-television news viewers. Previously, Best Buy had been buying prime-time ads aimed at younger men.

Ruby Anik, vice president of advertising for Best Buy, contracted with Starcom to buy time on Fox News. Because of its long relationship with Fox, Starcom was able to negotiate lower rates. So Best Buy spent the same amount on Fox News as it did on CNN -- but got more ads for its money on Fox.

Ms. Anik is pleased with the results. "CNN has almost become the generic version of news," she says. "Fox, as a newer channel, has done a great job of adding younger, more affluent viewers."

Mr. Rittenberg says he ordinarily would have insisted on higher rates from a new advertiser, but he relented for Best Buy because the retailer agreed to become one of the biggest advertisers on the Fox News Web site, with about $500,000 of ads. "At the end of the day, we got a pretty significant amount of money from them," he says.