High Rates, Low Numbers

Nov 29, 2004  •  Post A Comment

To prove that CNBC is popular with CEOs and other top executives, David Friend, the channel’s senior VP of business news, likes to recall the time the anchors on the daytime show “Squawk Box” were kvetching on-air about their unreliable Dell printer. The next time Dell CEO Michael Dell appeared on the channel, he brought a replacement printer and installed it himself.

The point is CNBC is better than any channel on cable at delivering the top tier of executives in corporate America, the high-net-worth decision-makers who insiders call “C-level executives,” (CEOs, chief marketing officers, chief operating officers, chief information officers, chief financial officers and executive VPs).

It is crucial to the success of the channel that it can sell itself via the concept of whom it reaches. It certainly can’t sell on ratings alone. CNBC’s total-day Nielsen rating of 0.1 is very low.

Its best-rated shows during the prime business day, including the market-oriented “Squawk Box” and “Closing Bell,” merit only a 0.3 rating, according to Nielsen Media Research. Yet CNBC has found success as a business-to-business vehicle. That helps it get some of the highest demographics in cable-a majority of viewers according to one CNBC survey have a household net worth of $1 million-and cable’s highest costs per thousand. “We dominate business news,” said Pamela Thomas-Graham, the CEO of CNBC.

NBC Universal Cable President David Zaslav called CNBC “a very strong brand that has established itself as first class with consumers and with cable operators.”

All of which has made CNBC extremely profitable. However, in a changing marketplace, the question is whether that will be enough. CNNfn was in the black last month when its parent company announced the channel would go dark because it couldn’t expand distribution. Business news in general has been less popular since the dot-com boom, and some claim there is lingering resentment against CNBC for touting high-fliers that later crashed. And its non-daytime schedule continue to flounder.

Against this background, Fox is preparing to launch a new service that News Corp. Chairman Rupert Murdoch believes can cause the kind of unprecedented shift in viewing of business news that Fox News Channel achieved with general and political news. Fox, said several sources, believes it can steal away a lot of those “C-level” executives and pull in moreof the so-called “Joe Lunch Pail investors.”

There are reasons to believe CNBC may be vulnerable. “CNBC doesn’t speak to individual investors,” charged Robert Leverone, who heads the TV unit of MarketWatch, which was just purchased by Dow Jones. “It’s a network that maybe your father watches at the country club.”

Even some insiders recognize the challenge. Robert Wright, chairman of NBC Universal, told TelevisionWeek in a Nov. 8 interview that CNBC’s prime time has “always been a bit of a struggle.” He said the channel was still looking for “the right kind of niches.”

It is not hard to see what would attract Fox into the category. CNBC is an economic powerhouse. It is available in 86 million cable TV homes, for which multiple system operators pay an average of about 30 cents per month per home. That provides a revenue base of about $250 million in affiliate fees alone. And most of those are locked into deals, negotiated by NBC’s Mr. Zaslav, that guarantee distribution through 2008 and, in many cases, until 2013.

Add to that some of the highest ad revenue in basic cable. CNBC ad sales, pitched as the only way to reach high-level businesspeople, totaled about $225 million last year (down from more than $300 million at the height of the dot-com boom), according to Kagan Research.

Even dead periods for ratings-overnight, for instance-are sold outright for infomercials, bringin in an estimated $70 million a year at present.

Add those together and CNBC is generating annual revenue of more than $500 million. (Kagan estimates total revenue at $523 million.) The network news operation, which is heavily staffed, probably costs about $200 million a year to operate, but that is still lower than most major competitors. One way of achieving lower costs is by having their primary studios in brand-new headquarters in Englewood Cliffs, N.J., a right-to-work state..

Several informed sources put CNBC’s yearly profit at $250 million to $300 million, a huge bounty for NBC. No wonder CNBC looks so attractive to Mr. Murdoch and Fox News Channel head Roger Ailes, who is one of the founders of CNBC.

Speaking about CNBC recently at a Fox Entertainment Group event, Mr. Murdoch said, “I think it’s wide open for competition.”

Earlier this month, on an investor conference call, Mr. Murdoch said, “CNNfn was never a factor in our thinking at all. CNBC is. We expect to go ahead with [a business channel] in the foreseeable future.”

Mr. Murdoch recently said the channel being planned will offer “more positive programming,” which presumably means more upbeat fare than CNBC. Ms. Thomas-Graham told TVWeek that this has an unfortunate connotation. “A news organization needs to be about truth and insight,” she said carefully. “We’re about the facts. As a viewer, you want business news based on facts. Our on-air people are the best at what they do.”

A Fox spokesperson responded, “We find it amusing that Pamela Thomas-Graham is waxing philosophical about journalistic integrity. She should really stick to what she does best: Planning launch parties for .1 shows.”

Fox News has offered no substantial comment beyond what Mr. Murdoch said. However, observers noted that Fox has proven it can develop personality-oriented programs, such as “The O’Reilly Factor,” which routinely draws Nielsen ratings in the 3.8 range, and the business-oriented “Your World With Neil Cavuto” (a former CNBC anchor), which routinely draws ratings of 1.1 and higher.

Mr. Cavuto can be expected to take a lead in developing the Fox News business effort, perhaps even heading it.

Robert Thompson, director of the Center for the Study of Popular Television at Syracuse University, said Mr. Murdoch sees a huge advantage in launching a business outlet that can build on and complement what has been achieved by the Fox News Channel. “Murdoch is thinking he can take the killer audience numbers on Fox News and cross-promote,” Mr. Thompson said, “grab some of the viewers who left CNNfn, and up his demographics overall.”

Ms. Thomas-Graham, asked about Fox’s business plans, said: “CNNfn was at it for nine years, and they weren’t able to succeed. To make business news work, it takes several things to get it right. We’re very fortunate to have David Zaslav, who has given us a national distribution base.”

CNBC is also making moves to broaden its mandate, Mr. Friend said. In particular, he noted that CNBC is doing more long-form programming, such as the recent documentary “The Age of Wal-Mart: Inside America’s Most Powerful Company.”

“We have added new reporters and added new content,” Mr. Friend stated, noting that their reporters have recently broken a number of big stories, including several on OPEC production.

Mr. Friend bristled at a claim by a Bloomberg executive that CEOs like to appear on CNBC because they are pitched soft questions. “Our anchors, including David Faber [host of `The Faber Report’ on CNBC] are some of the toughest questioners on TV,” Mr. Friend said. “They are critical, incisive, and fair.”

Mr. Thompson of Syracuse University said not to assume that because Fox News beat its competition, Fox Business News (or whatever name is chosen) will prevail. Some of the same problems that beset CNBC could also trouble Fox, he noted, and three business channels (including Bloomberg) “might be cutting the pie too thin.”