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Fox News Is Holding More Cards Than Trump Realizes

(Bloomberg Opinion) -- President Donald Trump and a pair of fledging conservative news networks seem intent on taking down Rupert Murdoch’s Fox News. Do they have a shot?

In the weeks since he lost his re-election bid, Trump has stepped up broadsides against his one-time channel of choice, goading followers to switch from Fox to the more MAGA-friendly alcoves of Newsmax TV and One America News Network. Both have been more willing to hawk the president’s spurious claims of voter fraud, which at Fox are relegated to its nighttime opinion shows — and even there are beginning to fade. For Newsmax and OAN, hitching their wagon to the reality-TV star, even as he’s set to leave the White House, has given them the best chance at pillaging Fox’s ratings and springing from obscurity.

Christopher Ruddy, Newsmax’s CEO and majority owner, is clearly enjoying the sudden attention on his business, giving interviews in the last few weeks to CNN, CNBC, the Daily Beast, the New Yorker and Variety and making swipes at Fox along the way. He’s right about one thing: Fox can’t keep up its clashing interests. It can’t be taken seriously as a journalistic operation while at the same time cozying up to the conservative fringes and peddling conspiracy theories. And now places like Newsmax are doing the latter part better. Trump’s loss has effectively put Fox at a crossroads.

But whether Newsmax or OAN will seriously dent the No. 1 primetime cable-TV network or remain kooky wannabes depends on several unpredictable factors, including how politically relevant the Trump family is after 2020 and whether it forms its own media brand, further fragmenting that corner of the industry.

There’s also one wall Trump helped build that offers Fox immense protection: its profit parapet. Fox Corp., the $18 billion parent company, depends on the Fox News and Business channels for the overwhelming majority of its income. Michael Nathanson, an analyst for MoffettNathanson LLC, pegs it at more than 80%. And most of that comes from affiliate fees, which are the contractually obligated payments cable providers make to be able to offer channels such as Fox on their TV packages. The key word is contract; these agreements last years, often five to seven. In August, Fox said it had renewed 70% of the previous year’s affiliate revenue, and only about 5% is up for renegotiation in each of the next two years. That means Fox has its biggest source of profits locked in for quite a while at favorable rates even as U.S. households continue cutting the cord. So even if a chunk of viewers tune out of Fox, the business may be relatively safe.

Meanwhile, OAN isn’t even carried on packages offered by Charter Communications Inc., Comcast Corp. or Dish Network Corp. And AT&T Inc.’s DirecTV, which does carry it, is rapidly losing customers as the company shifts its focus to streaming and 5G.

Newsmax — where Sean Spicer and Diamond and Silk have their own shows — is more widely distributed and perhaps more of a threat. Fox News’s primetime viewership dropped 29% in the three weeks after the election, while Newsmax posted an average of 370,000 nightly viewers — a 277% boost, according to Bloomberg Intelligence. CNN and MSNBC had increases as well. And yet, Fox’s audience still dwarfs them all. As long as that’s true, cable packages will need to pay what they must to keep it.

Fox will be “the last company standing in linear because of their news and broadcast sports businesses,” Nathanson said in a phone interview. Cable is “going to melt down to a smaller universe where Fox and other news networks get paid more as a percentage of the bundle than they do now.” Even if a network like Newsmax were to steal 20% of Fox’s audience by 2024, Nathanson said that would reduce his Ebitda estimate by only $200 million, which isn’t enough to alter his bullish view on the stock. It’s cheap relative to shares of other media companies:

Rather than a traditional cable network, Trump is said to be considering the cheaper route of creating a streaming-video subscription similar to Fox Nation, according to Axios. But there are serious doubts about his ability to run a successful media company. It’s one reason Newsmax may be better off hiring Trump than selling to him. (Ruddy has said Newsmax won’t be rebranded as “Trump TV” but called the idea of a Trump talk show “terrific.”)

As for Fox, trying to compete directly with Trump over his own base could prove futile. Washington Post columnist Margaret Sullivan suggests that instead Fox up its journalistic standards as a right-leaning, but reputable, news channel. That could help it draw more moderate young people into its orbit. Then again, that demographic is quickly moving to the streaming world.

In fact, Fox needs to do something about the fact that almost 60% of its audience is over the age of 65. Becoming the unofficial Trump network didn’t help it there. Fox did say Wednesday, citing Nielsen, that primetime viewership among ages 25 to 54 surged 97% in November from a year earlier. Yet even if it distances from Trump, it may be hard to disentangle the brand from the man.

(The final paragraph was updated to add Nielsen data released by Fox on Wednesday.)

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Opinion columnist covering the business of entertainment and telecommunications, as well as broader deals. She previously wrote an M&A column for Bloomberg News.

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