As appeared in U.S.News and World Report, June 6, 1994

Fox raids the chicken coop

TV's upstart snatches stations, but it still trails rival networks

BY WARREN COHEN

After paying a record $ 1.6 billion to acquire broadcast rights for pro football last December, Rupert Murdoch's renegade Fox network has surprised the television industry again. Last week, Murdoch invested $ 500 million in fellow billionaire Ronald Perelman's New World Communications Group. As a result, 12 of New World's local TV affiliates will defect from the three big networks to Fox. The primary victim, as in the football deal, was CBS, which stands to lose eight affiliates in key markets. Fox's move even shook up David Letterman, CBS's late-night jester, who quipped: "Hey! I've been kissing up to the wrong folks!" Letterman probably shouldn't worry. While last week's deal allows Fox to exchange several of its weaker-signal stations for more powerful, established ones that could draw a larger audience, the network has a number of problems to confront before it can overtake ABC, CBS and NBC. Fox still has only 150 primary affiliates, compared with more than 200 for each of its three major competitors. Fox also isn't generating as much advertising revenue as its rivals. The upstart network broadcasts only 15 hours of prime-time TV per week versus the industry norm of 22 hours; it lacks any news, daytime and late-night programming, and Fox's mostly under-30 audience, in contrast to the older demographics of the three big networks, means that its shows don't command the ad dollars of blue-chip companies. The bottom line: Fox charges an average of $ 65,300 for a 30-second prime-time commercial versus CBS's take of $ 117,000.

Bold claims. With such pressing challenges, it's no wonder that Fox trumpeted last week's coup. Murdoch boldly predicted that Fox's ratings would increase 40 percent next year in the 12 new markets. This, he claimed, would result in additional cash flow of $ 100 million over the next two years. But many industry experts believe Murdoch may be overstating the case. "Ratings will increase only 5 percent," says Steven Cohn, editor of Media Industry Newsletter.

A number of analysts were quick to assume that Fox's gains would translate into big losses for CBS. But the venerable network, along with ABC and NBC, is enjoying a relatively prosperous period. Although CBS's stock price was pummeled by the Fox announcement, falling from $ 303.50 to $ 267.25 per share over a three-day period, the station defections represent only about 10 percent of its audience. That may not hurt CBS's bottom line. Under the stewardship of CEO Laurence Tisch, the network earned a record $ 326 million in 1993, up from $ 163 million the year before. CBS also achieved the highest ratings among the networks this past season, which should help calm anxious affiliates when they meet this week in Los Angeles.

War games. At the top of CBS's agenda is finding new affiliates in the markets where it now has no stations. Last week, Howard Stringer, president of the CBS broadcast group, vowed that "the war is started." Stringer said CBS won't necessarily acquire Fox's old stations to replace its lost affiliates, but it may target stations from NBC and ABC. This could spark a heated auction for local broadcast properties and could result in affiliates demanding higher fees for carrying network programming. Most media insiders say TV's signals will be scrambled only temporarily, however. Changing networks is a risky business for affiliates because audiences don't always follow them.

Nonetheless, Murdoch's bold move shows that he is willing to spend whatever it takes to turn his TV franchise into a true network equal. The competition means that his rivals now have to be as cunning as Fox.


Copyright 1994, U.S. News & World Report. All rights reserved.

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