Fox Seeks Lucrative Romance With Cable
Studio chief. Press lord. Network boss. To those titles Rupert Murdoch wants to add another: cable magnate.
The News Corp. chairman, who took over this week as chief executive of Fox Inc. from departing studio head Barry Diller, plans to move ahead aggressively in expanding Fox’s interests in cable TV.
Unlike the established broadcast networks, which have rebuffed cable operators, the Fox network has embarked on a series of controversial moves embracing cable as a way to enhance its reach and attract more viewers.
“We’re taking a friendly approach,” Murdoch said.
Playing an integral role in that strategy is Fox’s evolving relationship with Denver-based Tele-Communications Inc., the country’s largest cable TV operator.
During the past year, Fox and TCI have forged a link which is being eyed warily by other broadcasters and cable companies. The two media giants have aligned themselves at both the corporate and operating levels.
In November, TCI became a shareholder in Fox parent News Corp. when it participated in a $175-million private placement of preferred News Corp. shares. The investment, said one senior Fox executive who did not want to be identified, was a sign of “mutual respect” between Murdoch and John C. Malone, the chief executive of TCI.
Murdoch, Malone, and Diller--even as the latter departs--are said to be discussing a wide range of ventures that would combine the resources of a major studio with the country’s No. 1 cable company.
The framework behind the Fox-TCI alliance--which could heavily influence thinking in the rest of the cable industry--is the shared opinion that the gap between broadcasters and cable operators will crumble over time as the two mediums meld together.
“Distinctions between free over-the-air television and pay cable television are fast fading,” Diller explained in a recent speech.
Sixty percent of all TV households now pay for cable service, Diller noted. Younger viewers, in particular, “know only that they have a television, a remote control and a monthly bill,” Diller said. “The only difference between a program on CBS and one on MTV is the time it takes to electronically leap from one to another.”
Ideas under consideration by the two companies include showing blockbuster 20th Century Fox movies on TCI’s cable systems via pay-per-view and launching a second--or even third--Fox network on cable.
The latter notion--known in the cable industry as “multiplexing"--is already being weighed by such popular networks such as MTV and HBO, which have plans to replicate themselves across several different channels. In the case of Fox, it would repeat a block of its affiliates’ programming three times in a 24-hour period on another cable channel. By pulling in more viewers, the affiliates could charge more for local advertising.
The strategy is based on the premise that cable networks--like the makers of laundry detergent or soda pop--can preserve their share of viewers only by expanding their “shelf space” when new technology allows hundreds of new cable channels to open up over the next decade.
It is an idea that frightens the traditional ABC, CBS and NBC, because it signals still further fragmentation of their already dwindling audiences. But Fox executives believe that increasing the exposure of affiliates’ programming on cable will help strengthen over-the-air broadcasting.
Murdoch also says that Fox will launch a new basic cable TV network sometime in the next 12 months. Fox officials are not saying what the programming format will be, but analysts believe it likely will utilize movies and TV programs from Fox’s library.
The cable network also might carry some of the programs seen on Fox--perhaps a month after their broadcast airing. That way program costs could be amortized over two different channels, Murdoch explained.
“The question a lot of people are asking is: Does this compromise Fox or represent a new form of financing programming?” Murdoch said. “For now we’re thinking the latter.”
TCI has already taken a leadership role in getting lower channel numbers for Fox affiliates on their local cable systems--more favorable positions because they attract more viewers. Once TCI made the change on its systems--one of every five cable subscribers is a TCI customer--the move was adopted by other cable operators.
“This is a tremendous spur to our growth,” said Jamie Kellner, president of Fox Broadcasting Co.
“Half of our stations have been upgraded to a VHF position,” he said. “When we were on channel 43, that was like being down the end of a back alley.”
TCI also played a crucial role in launching Fox Net, a cable network of Fox programming--with Fox’s shows at its core--that is beamed to cable systems where Fox does not have a local affiliate. Fox Net, now available to 1.3 million subscribers, adds an incremental $10 million to $15 million a year in advertising revenue, Kellner said.
Although ABC has stakes in cable networks such as ESPN, Arts & Entertainment Network and Lifetime--and while NBC owns CNBC--Fox is the only broadcast network to make its core programming available to cable operators.
Indeed, broadcasters and cable operators historically have been bitter rivals. Nowhere was that more evident than in last month’s battle to pass a cable TV reregulation bill in the Senate.
Broadcasters persuaded the bill’s sponsors to include provisions that would force cable operators to pay for picking up local over-the-air TV signals.
Fox, however, officially was neutral on the issue--a position other broadcasters claim was provoked by its growing involvement with TCI.
Fox Invades Cable’s Coop
The 6-year-old Fox Broadcasting Co. television network has forged key links with the cable TV industry. At the center of that strategy are ties to Tele-Communications Inc., the country’s largest cable TV operator.
* TCI became a shareholder in Fox parent News Corp. when it participated in a $175-million private placement of preferred News Corp. shares last fall.
* TCI supplies Fox Net, a cable TV network of Fox programming, to about 650,000 of its subscribers around the country in areas where Fox lacks a local affiliate. TCI accounts for half of Fox Net’s 1.3 million subscribers.
* TCI took a lead role in gaining Fox a low-number channel position on cable system lineups--considered more favorable. Other cable operators followed, and the move has resulted in more viewers for Fox shows.
* Fox is getting ready to test “Fox Plex,” which would make Fox affiliates’ programming available at different times over several different cable channels.
* Fox is actively exploring several other cable TV ventures, including the launch of a basic cable TV network and telecasting 20th Century Fox movies on a pay-per-view basis over cable, perhaps before they appear in the movie theaters.