The Struggle to Out-FOX TV’s Big 3 Continues : Fourth network’s third night of programming may be the key to its future

It is 10 o’clock in the morning in Los Angeles, and, as they say in war-room lingo, confidence is high. Fox Inc. chairman and CEO Barry Diller, who sets the sartorial tone for his troops in an all-business white shirt and peach power tie, looks down the long table at the 20 employees he’d hired to make a go of a fourth television network, the Fox Broadcasting Co., for Rupert Murdoch’s News Corp.--most of them men, most of them hovering near 30, most of them, by Diller’s own admission, in over their corporate heads.

They are too new at what they are doing, and too full of the pioneer spirit, to entertain notions of failure. If a show’s ratings increase a single point over the previous week, it is cause for rejoicing. If a new promotional spot for the popular “21 Jump Street,” an hourlong drama about undercover police officers at a large public high school, impresses the executives, they enthusiastically back Diller’s quick decision to buy an additional $250,000 in air time on MTV for the ad, even though financial analysts and business writers had been speculating on the financial health of the company for months.

This weekly staff meeting--which is equal parts business meeting and public forum--is unusual for a television network, where departments typically function in bureaucratically discrete units. But Diller recognizes the therapeutic value of calling his people together and letting them discuss the network’s performance. As much as anything, the session is designed to revive any flagging spirits and restore the momentum needed to climb uphill for another week.

Diller, who appreciates the inspirational effects of a little naive optimism, does his best to make sure his staff does not dwell on the darker side. “They get nervous,” he says, “to the point where you spend a great deal of time setting the environment, setting the agenda. You create your own mirrors so that you can keep the process stable--even fictionally.” It is important that everyone believes there are no real problems ahead. Just puzzles to be solved.

So the 46-year-old elder statesman barks orders, interrupts, consults his watch and, as the meeting expands beyond the 90 that Diller thinks it deserves, begins to yawn loudly. He cannot allow self-confidence to turn into lazy self-congratulation: Between May and September, FOX will face its biggest challenge and its most ambitious agenda so far.

The network’s third night of programming--which will be announced in May and debut on Monday, Sept. 11--is the key to the future. A third night has been announced and postponed several times before, the false starts always blamed on the need to shore up a weak Saturday night line-up before taking on a new night. But too many delays begin to look like failure, so FOX is banking on a much expanded programming department--dozens of shows are currently in the works--to supply series that will survive against such hefty competition as “Monday Night Football.”

As for the still-faltering Saturday night shows, the network hopes to have a solution in “Cops,” a half-hour “reality show” about police in Florida that was scheduled to appear on the Saturday schedule for the first time March 11. In a five-night trial run in Los Angeles, “Cops” boosted KTTV to over 20% of the viewing audience, a first for an independent station. Fox expects that the show will lift the rest of the Saturday ratings in the same way that “21 Jump Street,” the network’s first Sunday night hit, gave a lift to the Sunday schedule.

On Friday, April 21, Fox debuts “Revolution,” an hourlong music and feature show aimed at the MTV audience. And to get viewers into the Monday-night habit, on May 8 the network will begin a monthly movie night of FOX features that will move to Tuesday in the fall. It is all part of an effort to get beyond two nights of flirting with the appealing 18- to 34-year-old market, the demographic group advertisers most want to reach. FOX wants to be these viewers’ steady date.

But FOX’s brief history has been an odd one: Its successes have been mostly a matter of good luck, its failures often the ironic product of hard work from the West Coast staff. The very structure of the company keeps changing as new job titles and responsibilities are invented to fill a perceived need. And the network has been hobbled from the outset by the decision to start programming on two adjacent nights, a move considered necessary to establish a strong identity with viewers.

While Sunday night was the most appealing night of the week, Saturday--when that 18-to-34 target audience tends to be away from the television set--has proven to be an overwhelmingly difficult obstacle. Unless Diller can figure out how to exploit serendipity--how to take what he’s learned from the successes he’s stumbled upon and manufacture new kinds of hit shows--and enforce stability among his troops, he could be in trouble again as soon as he launches the third night.

He cannot allow smugness to creep into the meeting. When talk about upcoming segments of “The Reporters” drags on too long, he breaks it off with the curt comment, “the stories have been dreadful.” He complains about “The Garry Shandling Show” and “Duet,” which do well on Sunday nights, but not well enough to suit him. And, always impatient for the next good idea, he interrupts staffers who talk too much. Diller believes in fostering a spirit of professional camaraderie, but he does not believe in complacency. It is much too soon for that.

If Barry Diller has his eye on everybody at Fox Broadcasting, Rupert Murdoch, in turn, has his eye on Barry Diller. For there is much more at stake here than a mere television network. “We’re building a loosely integrated global communications company,” Murdoch says of his News Corp., which owns newspapers, magazines and book publishers worldwide, “and it would be nonsense without a very firm foot in television.”

The Fox Broadcasting Co. (which calls itself FOX to help viewers used to CBS, NBC and ABC think of it as a network) is Murdoch’s very expensive experiment in video entrepreneurship--a brazen, extravagantly financed effort to compete with the three traditional networks. Armed with nothing but resolve and money, Murdoch launched FOX in May, 1986. He purchased all the necessary components of a national opportunity: Stations ($1.6 billion), a production company to provide original programs and a facility to make them ($575 million). The stations, and any affiliates FOX could round up, were to be the potential profit center for Murdoch; if the network succeeded, the stations’ advertising revenues would rise simultaneously with a dramatic reduction in programming costs.

At first, the money flowed in one direction--out. FOX put “The Late Show With Joan Rivers” on the air in October, 1986, and launched two nights of programming in 1987, only to lose $99 million in fiscal 1988, almost double its initial $50 million estimate. The network expects to lose at least $20 million in the current fiscal year.

Prospects looked so glum in June, 1988, that Richard Sarazen, chief financial officer at the News Corp., was reported to have said that FOX would be closed down in six months unless there was marked improvement. While Murdoch and Diller insisted that the remarks had been misinterpreted, skeptics cited the dollar losses and programming failures and continued to forecast doom.

But since the debut of the 1988 fall season, Murdoch and Diller have ratings that, for the first time, hold a glimmer of promise. In their best time period, 7 to 9 p.m. on Sundays, they have begun to beat some of the network competition--”21 Jump Street” has maintained its popularity, while “Married . . . With Children” and “America’s Most Wanted” have dramatically improved ratings. That performance, combined with the concentrated demographics, has already enabled the network to raise advertising rates. Total advertising revenues for the 1987-88 fiscal year, which ended June 30, 1988, were about $100 million. Revenues for the first four months of this year were $130 million.

None of this makes FOX an apparent direct threat to the networks, not when NBC, the number one network, has annual ad revenues of $3.8 billion. FOX simply has too few shows on too few stations--in 10% of the country, there is no FOX affiliate--to compete on an equal basis. But the response to the current line-up does suggest that the company has a future as a boutique broadcaster--a narrow-casting network that goes after a smaller, concentrated target audience and bases its scaled-down operation on low overhead and inexpensive inventory.

If recent changes in the FOX West Coast operation--all aimed at cutting losses and achieving what Diller calls a consistent “personality”--are successful, Murdoch could end up not with a fourth traditional network but with the first of a new kind of network, one designed to make the most out of a smaller piece of the viewing pie.

To put together a nontraditional network, Diller decided to put together an unorthodox staff. Since his days as chairman and CEO of Paramount Pictures, Diller has believed in hiring the not-quite-ripe--he takes credit for launching Jeffrey Katzenberg, chairman of the Walt Disney Studios, on his meteoric career by promoting him to head of production at Paramount before he was quite ready--so he purposely hired young executives to fill “jobs that they are not yet qualified for. This company has an enormous number of very talented people who do not have a great deal of experience,” he says. “What you get out of that is freshness, you get energy. The price you pay is that you sometimes don’t have the maturity that is necessary, and the basic experience.”

But Diller’s primary concern was with getting product on the air, fast, so he opted for enthusiasm over know-how, hiring Jamie Kellner, a film executive who had never worked in network television, to be Fox Broadcasting president. Garth Ancier, who appraised his previous seven years at NBC as “a solid track record, nothing amazing,” joined as senior vice president of programming, and Kevin Wendle became an executive after only a year and a half at NBC and 10 years in local television.

Both Ancier and Wendle had been trained by NBC Entertainment President Brandon Tartikoff, who espoused a programming philosophy based on buying the services of already-proven producers. It was a pricey way to start doing business, but it looked to Diller to be fairly low-risk, since a proven producer would be likelier to deliver a successful show than would a less experienced, less expensive one. Ancier and Wendle mixed their mentor’s approach with their new boss’ predilection for betting on people’s potential, and, according to Ancier, went after “second- or third-level people” who may have worked on--but had not created--a hit series.

The FOX executives let the Hollywood creative community know that they were looking for what Diller called “alternative programming”--shows that might seem too controversial to the networks, but would attract younger viewers bored with the standard fare. To get producers to work with a speculative venture such as FOX, they offered incentives: more creative control, and a financially remunerative combination of competitive fees and definite on-air commitments. Because the standard program development process includes network involvement and does not necessarily lead to a prime-time series, the promise of freedom and a time slot was seductive.

“One reason we were attracted in the first place,” says Mitch Semel, vice president and executive in charge of production at UBU Productions, the company that produces the half-hour comedy “Duet” for FOX, “is that we got an immediate on-air commitment for 13 episodes. We didn’t have to go through development and making a pilot; we knew from the get-go we had 13.” The inherent risk was that the network would have to meet contractual obligations even on canceled shows.

But the pay-off in terms of independent station interest and advertiser response was worth the gamble. Original programming from well-known producers was the one thing that could elevate a marginal independent into a more lucrative, competitive position.

Kellner offered them shows from UBU Productions, Stephen Cannell (“The A-Team,” “The Rockford Files”), James L. Brooks (“Terms of Endearment”) and Ed. Weinberger (“Taxi,” “The Mary Tyler Moore Show”). What he wanted in return was eight minutes of advertising spots per hour for FOX, leaving only three for local sales. But the potential increase in ad revenues was so great that the independents still stood to make more money.

“If you are a little UHF station in the 116th largest market in the United States, and suddenly you are a FOX affiliate, the perception of you, particularly in the buying and selling of advertising, has totally changed overnight,” says Steve Bell, senior vice president and general manager of KTLA, the Tribune Broadcasting-owned independent station that competes with the FOX-owned KTTV in Los Angeles. “You’re no longer considered a schlocky UHF independent, because advertising agencies do tend to favor affiliates over true independents.”

One year after the announcement of the network’s formation, in April, 1987, FOX launched a Sunday night prime-time schedule. Three months later, FOX began programming on Saturday night and by the fall had four situation comedies in place to compete directly with NBC’s strong Saturday night comedy line-up. “We wanted to go very fast,” says Diller of what he, and his staff, now consider to have been a somewhat hasty debut.

“We took the best five shows and premiered Sunday night,” says Wendle. “We took the next best four and premiered Saturday.” There was no contingency plan in case of disaster.

Which is exactly what they got. The Sunday night schedule, anchored by the relatively successful “21 Jump Street,” did not meet the projected national ratings figure. The Saturday night shows dipped as low as 2 in the national ratings and refused to budge despite a revolving door lineup. In the meantime, FOX’s experiment in late-night programming, “The Late Show With Joan Rivers”--meant as a direct challenge to NBC’s Johnny Carson, a contest between Carson and his most popular substitute host--had developed into “The Late Show” with a series of different hosts, and then into another format entirely, none of which worked.

In October, 1988, FOX’s late-night programming disappeared. “We auditioned on the air to find an idea, and we failed,” says Diller, who says he is relieved to be out of the late-night business. “I said to my colleagues, ‘We don’t have a valid idea, and until we get a valid idea, we should say, ‘We’re going home from this area, and we’ll be back when we have something to say.’ ” Rivers did have a 3-year, $10-million contract, however, which the network had to pay off.

The Fox Broadcasting Co. made two basic errors of calculation in its short spring, 1987, season and the full 1987-88 season: For all the talk of alternative programming, the network served up Saturday night programs almost identical to the competition, and it underestimated the difficulty in luring viewers to their local affiliate.

‘You look back and say, ‘My God, how could we have been so stupid?,’ ” says Wendle. “But at the time it was easy to rationalize. You say, ‘The networks have all these viewers, so clearly the viewers on Saturday night want comedy.’ ” And dissatisfied viewers seemed unwilling to give FOX a second chance, so its replacement shows did just as badly.

The network’s more popular Sunday night programs also failed to live up to ratings projections, but for a different reason--station anonymity, despite $20 million spent on advertising, promotion and publicity. Many viewers simply were not familiar with the small FOX affiliate in their area. “In our darkest hour so far we said to ourselves, ‘They don’t know where our stations are ,’ ” says Diller. “We put on an idea we think is a good idea, they don’t find it. . . . We couldn’t get growth no matter what we did.”

The network paid for its mistakes, literally, for almost 18 months. The ratings average for FOX during the first full season was not 6, as promised to advertisers--it was 3.6, a shortfall of more than 2 million viewers. According to Pat Mastandrea, senior vice president for national sales, FOX had to provide “make-goods”--free advertising--to compensate advertisers for the smaller audience. “We had between 30 and 35% make-goods in our first years,” says Mastandrea. “We made good on every deal that we made, to the penny. It was very frustrating to give 35% of our inventory away.” It took until the end of September, 1988, to meet that obligation.

There were make-goods on the local level as well--a contributing factor, according to Drexel Burnham Lambert media analyst Jeffrey Russell, in a $10-million drop in operating profits for the seven owned stations for fiscal 1988. The affiliates, some of whom dropped “The Late Show” before it was canceled, realized that the benefits of their network link might take longer to materialize than they had hoped.

“What an independent station has to do is evaluate whether they’re better off running FOX programming, even if ratings are a bit lower, than they were running a movie,” says Larry Gerbrandt, senior analyst of cable and broadcasting programming for Paul Kagan & Associates, a Carmel, Calif.-based media consulting firm. “It varies market to market.” As to whether FOX affiliates are better off, Gerbrandt says, “It’s a qualified yes.”

The network also had to absorb what Wendle calls “abandonment costs,” payments made to honor contracts on canceled series. Two of the Saturday night comedy casualties, “Karen’s Song” and “Down and Out in Beverly Hills,” were “multimillion-dollar mistakes.” Wendle estimates that a single hour of failed programming cost the network $10 million in programming costs, including extended payments on contracts, and another $20 million in advertising make-goods.

Although FOX executives are quick to deny that the extent of their financial troubles really surprised them, the impact of the losses was felt even by their relatively successful producers, who suddenly found themselves victims of second-guessing. Semel, who had happily anticipated that the first order for 13 segments of “Duet” would be followed by orders of equal size, found himself instead having to defend the show as definitions shifted as to what FOX should be.

“We hoped that each time we’d get similar orders--for 13, or for 26,” he says, “but each time it has been like pulling teeth. Each time we’re up for renewal they’ve been in the midst of periodic uncertainties about what they want to do. Last year they weren’t going to pick us up; they were at a point where they really wanted to go all the way in being an alternative program service, and the fact that ‘Duet’ could have appeared on one of the three networks worked against us. We were the most traditional. Luckily, they backed off from that position.”

Ironically, “21 Jump Street” creator Patrick Hasburgh found that the uncertainty worked in his favor. For all the talk of alternative programming, the new network had been, in the beginning, more cautious than Hasburgh had anticipated. “They wanted to be a little more commercial. I think they wanted ‘Happy Days Goes to High School,’ ” he says, referring to a highly successful NBC situation comedy. “The pressure for the show to be successful was so enormous that I think we almost lost sight of what was good.”

Hasburgh nearly walked off the show in its first season when executives refused to approve a controversial episode about racial tensions--but when “21 Jump Street” proved to be the company’s first success, he was allowed to produce the segment.

Since then, Hasburgh has left Stephen Cannell Productions to form his own company. Although he is no longer involved in making “21 Jump Street,” he does plan to produce TV-movies and series for FOX. Hasburgh dismisses the network’s disappointing economic showing, and its attendant identity crises, as predictable problems for a young network. The only real mistake he thinks FOX made was to assume that high-priced talent would be insurance against failure, and to commit to putting shows on the air before there was enough “back-up inventory” to replace a ratings casualty.

“The FOX executives made the same mistake George Steinbrenner made,” says Hasburgh. “He said, ‘I’ll win the pennant if I buy the best baseball players available.’ Which he did. And he finished third.”

Salvation, as it turned out, came from an unexpected direction--from a concept for a show that FOX had originally rejected, a show that offered a distinct departure from network fare at a bargain price. “America’s Most Wanted” was developed by FOX-owned station WTTG in Washington, and its impressive ratings made it more appealing to a network beset by conventional entertainment program failures. Perhaps this was the alternative FOX needed; at about $150,000 in production costs for a half-hour segment, as opposed to $300,000 for a sitcom, it certainly had financial appeal. The network gave “America’s Most Wanted” a Sunday night slot last April, and in its second week the show achieved the highest rating ever achieved by a regularly scheduled FOX program. Over the summer, FOX introduced three more “reality programs”: “A Current Affair,” which had been running on WNYW in New York since June, 1986, “The Reporters” and “Beyond Tomorrow.”

Then FOX got lucky. The five-month Writers Guild strike caused a postponement of the fall season; the three networks had to program an extended line-up of reruns. That opened up the viewing audience to “sampling,” says Mastandrea, and FOX picked up some of the shoppers. Although FOX was also airing reruns, most viewers had missed the programming the first time around, so the shows looked fresh.

The new viewers were primarily in their teens and 20s, people whose viewing habits were not yet “frozen over,” according to Diller. The demographics of the FOX audience skewed to the lower end of the 18- to 35-year-old range--which meant that an advertiser with a youth-oriented product, like their biggest advertiser, Coca-Cola, could reach that isolated audience for less than it would cost to make a network buy. The FOX ad sales staff got such an enthusiastic response over the summer that they purposely oversold, selling 80% of their ad inventory up front instead of the 70% they had planned to offer.

It was a calculated risk, according to Kellner, because FOX was selling time that the network would need for make-goods, if programs again failed to perform at the ratings estimate. “Thank God the ratings are going up,” he says. “Otherwise we would have had to add shows, run a movie once a quarter, or something like that, to be able to make up the weight we needed.”

If some critics have complained about the quality of the alternative now being offered--dubbing these shows “tabloid journalism” and viewing them as part of a trend toward sensationalistic programming--members of the financial community look at the ratings, and the dramatic drop in costs, and pronounce the programming a success.

“They’ve carved out an interesting alternative for the younger demographic audience,” says Drexel Burnham Lambert’s Russell. “You or I may not like it, but somebody out there likes it. And the advertising dollars ultimately follow the eyeballs.”

Murdoch shrugs off the criticism. “People who read newspapers,” says the man who owns more than four dozen of them, “tend not to be the people who watch television.”

Failed programming was FOX’s most visible problem, but the new network was wobbly internally as well. Hiring “young, relatively inexperienced people” worked better in theory than it did in practice. Diller’s programming department simply wasn’t as coordinated as it needed to be. And his executives couldn’t exert the control needed--they were either too busy scrambling to fill suddenly vacant programming slots or caught up in management musical chairs, which saw Kevin Wendle in five different jobs in his first eighteen months at FOX.

The first defection was Garth Ancier, who resigned as president of Fox Entertainment, effective March 1 of this year. Diller says that Ancier told him six months ago he was tired of the job but agreed to stay on because “we were at our most vulnerable point and couldn’t take any shock to our system,” although one producer who has worked with the network says that Ancier had become a “lame-duck executive” once Wendle was put in charge of day-to-day programming. Whatever the impetus, his replacement, Peter Chernin, ex-Lorimar Film Entertainment president, appealed to Diller because he was “a real manager.”

“Peter is a mature, truly organized executive who, I think, will bring stability to the company,” says Diller. “It is easy to say that that’s a reflection on the past. But it’s really evolutionary.”

The other significant addition to the FOX team is new Vice President of Development Joe Davola, an MTV alum whose allure, according to Diller, is that he comprehends “the essence of getting things going on nothing. His program budget high was maybe $6,000. He gives us a whole new group of people to talk to.” He also embodies the clear purpose of FOX: to go after the youth market on a budgetary shoestring.

FOX staffers still like to think of themselves as what Wendle calls “guerrilla programmers”--quicker and more open to new ideas than their bureaucratically gridlocked brethren at the big three networks. But Diller admits that the pace has slowed since the early days, when “we were so behind that I don’t think in a lot of respects we knew what we were doing.” Cautiously, he borrows good ideas from the networks--there are now more programs in development, and more steps in the process. A show no longer jumps from idea to on-air: Now, FOX might ask for a sample script, or even a pilot.

“We shouldn’t get bureaucratic,” he says, “but there’s no reason not to act professionally. We should pick from what the networks do, sensibly.”

The network also abandoned what Murdoch calls the “track record” school of programming. “We tended to go along with it because we were engaging what seemed to be the experts,” he says of his, and Diller’s, initial support of the idea. But his interest was in the “more experimental” programs such as “The Tracy Ullman Show”--and when some of the most dependable companies in Hollywood couldn’t serve up hits, Murdoch conveyed his dissatisfaction.

“We always want to buy the best and brightest,” Murdoch says. “That’s not the same as buying the person with the track record, because that could be some old fogy. It very often is.”

Since FOX’s most recent successes came from outside the Los Angeles production center, there is no way to predict how the new attitudes at FOX will affect the third night of programming, the first major effort from Diller’s staff since the string of Saturday night failures. One previously announced project from Aaron Spelling Productions, an updated version of his successful series “Charlie’s Angels,” was in development for so long that its name was changed from “Angels ‘88” to “Angels ’89.” It is no longer planned as a series--when and if it airs at all (and right now there is no production scheduled), it will be a series of two-hour movie specials. And “City Court,” a spin-off from “21 Jump Street” featuring young lawyers instead of young cops, has been on hold since its creator, Hasburgh, left the project. Diller says he intends to stick with “fiction programming” for the third night, despite the high-profile success he’s had with reality shows. The one sure thing is that there will be more shows to choose from: FOX now has between 40 and 50 programs in various stages of development, an expensive but necessary insurance policy against disappointing debuts.

The search for stable ground continues, but Rupert Murdoch is not worried. His $20-million loss estimate for fiscal 1989 is down from an original figure of $35 million, and that, he believes, constitutes progress. Not that his support was ever a doubt: He says he would have backed FOX even if losses had again exceeded the estimates, as they did in the first year. As long as the ratings improve, he is happy. “I would not mind losing money again and again if we were making solid progress,” he says. “If we were still losing $50 million and our ratings were performing the way they are today, I would still be right in there. Absolutely. We are going forward very well.”

His attitude--his personal definition of success and failure--may be the key to the survival of FOX. Murdoch says he is prepared for several more years of losses, since any monies made will be invested back into program development. He says he expects it will take six or seven years before the network can offer a nightly prime-time schedule.

As long as Murdoch is prepared to foot the bill, the experiment continues. Sheer financial stamina may buy the Fox Broadcasting Co. the time to find its niche in the video marketplace. Money, after all, talks. “I think an ability to write the check--and a willingness to write the check--gives the network a great credibility,” Murdoch says.

Alternative Programming: Joys, Woes

FOX’s “alternative programming”

--shows perhaps too controversial for the big networks but attractive to younger viewers--has produced “Duet,” upper left; “21 Jump Street,” right, and “Married . . . With Children,” whose star, Katey Sagal, is at left.

‘Married . . . With Children” has been both the most popular and most controversial of the FOX shows. For the last two weeks it has bested the three major networks in the Los Angeles ratings for the 8:30 p.m. Sunday slot. And its portrayals of family and sexual matters have led to a letter-writing campaign by a Michigan mother and to considerable media coverage of that protest.

FOX owner Rupert Murdoch, left, shrugs off both the criticism of his network’s alternative programming and print critics’ charges that FOX indulges in “tabloid journalism.” “People who read newspapers,” says the man who owns more than four dozen of them, “tend not to be the people who watch television.”