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annals of communications
The New Yorker - March 18, 1996

the news rush

Why are the networks so eager to invade CNN's turf?

by ken auletta

Last October, the top executives of NBC and of Microsoft met on the fifty-second floor of 30 Rockefeller Plaza to talk about a dramatic news partnership. Talks between the two companies had been going on for months: the previous May, NBC tiptoed into cyberspace by signing a contract with Microsoft to supply programming to desktop computers. But what was under discussion last October was far more significant: a proposal for Microsoft to invest millions in becoming an equal partner with NBC in a worldwide, twenty-four-hour cable news channel and an interactive on-line news service--both produced by NBC News.

The executives--among them Rob-ert Wright, the president and C.E.O. of NBC, Bill Gates, the chairman and C.E.O. of Microsoft, and several deputies--munched potato chips as they listened to a presentation by Andrew Lack, the president of NBC News. Occasionally, they were distracted by what they saw on the soundless TV monitor; it was, coincidentally, the day of the Million Man March, and cameras were recording the activities of nearly half a million black men who had assembled.

NBC had its own army out to cover this event, including fifteen network cameras, thirty-five local and network correspondents, a helicopter, and the "NBC Nightly News" anchor, Tom Brokaw. During the meeting, Brokaw was put on the speakerphone, and he described things that NBC's cameras were recording but were not getting on the air. He also spoke about time constraints that frustrated those who worked in network news, and about the ways that NBC might make available to viewers and computer users everything it had collected that day.

"If we had a relationship today," Brokaw recalls saying, "both of us would be on the air twenty-four hours a day and you could put on the Microsoft Network a database and report how many people showed up and the text of each of the speeches. It would be a real synergy between what's on the computer screen and what's on the TV screen. We wouldn't have to spend a dime more to put this on the air."

That the meeting and the march occurred on the same day produced an epiphany for Gates, I was told by Peter Neupert, Microsoft's vice-president for strategic partnerships, who had led the discussions for Microsoft. That meeting was the first that Gates had attended. "We were very focussed on what we could do in the on-line world," Neupert recalls. "Cable was the piece that clicked that day." NBC's Wright says, "What happened at the meeting was that Bill signed off on the concept." In December, the network announced its partnership with Microsoft.

THE idea of the twenty-four-hour cable news channel has had a long ges-tation; before Ted Turner originated CNN, in June of 1980, all three networks had considered starting their own versions. ABC even launched, but then abandoned, a news network with Westinghouse. "Ted Turner told me once that if we'd stayed with it another month, he would have been forced to back out," Roone Arledge, the president of ABC News, says. In those days, the networks disparaged CNN as "visual wallpaper," and, over the next few years, spurned overtures to buy CNN or form a partnership with it, sneering at the size of the audience. CNN reaches, on average, some five hundred thousand viewers, in contrast to twenty-five million collectively reached by the nightly newscasts of the networks.

Now the networks, led by NBC, have begun to covet a franchise that once belonged only to CNN. This winter, ABC and Fox rushed to announce their own news channels. Peter Lund, the president and C.E.O. of CBS, says, "I think we'll be disadvantaged if all our competitors have a cable news channel and we don't." When Lund and Rupert Murdoch, the chairman of the News Corporation, appeared together to lobby Congress last fall, the two agreed to set up a top-secret joint task force to explore merging their news efforts in order to create a twenty-four-hour cable service.

The economics of this sudden fascination with twenty-four-hour news is dubious, but that has not slowed the competitive fever. In November, Murdoch re-proached CNN for its "liberal" bias; Turner responded by threatening to "squish Rupert like a bug." In December, when ABC announced its own twenty-four-hour effort, Arledge said, with a swagger, "He's got a much bigger bug to squish now." There is already a frenzy to hire news talent--and to hold on to recognizable personalities. Turner boasts of wanting to lure Brokaw away from NBC, and network news officials can recite the names of free agents whose contracts will expire or can be reopened in the next year or so: at NBC, Brokaw and Bryant Gumbel; at ABC, Peter Jennings, Ted Koppel, Diane Sawyer, and Barbara Walters (Arledge says he has already reached an agreement to renew Walters' contract); at CBS, Ed Bradley; and, at CNN, Christiane Amanpour, among others.

Of the four networks planning to assault CNN so far, only NBC has a ready cable outlet--America's Talking, the little watched counterpart to its successful business channel, CNBC. And only NBC has an on-line partner. "That's a wonderful partnership," the Capital Cities/ABC president, Robert Iger, says. NBC is expected to be the first network to inaugurate a twenty-four-hour cable channel, starting in mid-July; and, although each network guards its sketchy plans as if they were military secrets, NBC, like the others, plans a heavy component of local news. "We will provide local affiliates time to break out" and insert their own news, Wright says.

Over the next five years, Microsoft will invest four hundred and twenty million dollars in the cable news partnership, which will include an on-line service permitting viewers with home computers to summon data, pictures, and informa-tion from video or print libraries; over the same period, NBC will provide an ad-ditional two hundred million. Tom Rogers, NBC's president for cable and new-business development, sees an entirely new landscape. "We're moving to a world where there are no time constraints," he says. "How do you get there? The only way is to tie in to the existing television world."

ABC has now moved up its starting date to late 1996, pushed by its new parent, the Walt Disney Company. "Disney is a lot more amenable and interested in this than the previous management might have been," Arledge says, and he goes on, "You can't just be intimidated because someone"--like Ted Turner--"has a jump start on you. Remember, there was a diet drink called No-Cal. Then Coca-Cola got in the act. It's very rare that someone has an idea and owns it in perpetuity."

But, while ABC is ranked first among the networks in news ratings, its vulnerabilities--especially the absence of a cable channel--are likely to persist. Cap Cities/ABC owns such premier cable programming properties as ESPN, but it is not yet obvious how this may work to the network's advantage. "They already gave away leverage because ESPN signed six- and seven-year contracts," says the C.E.O. of one of the nation's largest cable systems. In addition, twenty per cent of ESPN is owned by the Hearst Corporation, whose interests may not coincide with Disney's and ABC's.

CBS, which used to be the leader in network news, initially resisted the new trend. Three years ago, when its news division proposed a twenty-four-hour cable effort, management vetoed the venture. Now that Westinghouse has acquired CBS, however, the message has changed. Indeed, Peter Lund told me that the network might "go out and buy an existing cable program network." CBS, according to two well-placed sources there, has been exploring the possibility of acquiring Gaylord Entertainment, which owns a country-oriented cable network that CBS would like to transform, at least partly, into a news channel.

CBS officials concede that they would collaborate with Fox, despite Murdoch's belief that CBS's "objective" news often hides a "liberal" bias. CBS would bring with it a news division, and Fox would bring some relationships with distributors. Murdoch is a business ally in several ventures with John Malone, the nation's largest cable operator. The problem, an important Malone associate says, is that, even if Malone wanted to assist his friend, "there is no channel capacity to launch him in a big way." Murdoch also has access to News Corporation satellite-distribution platforms throughout the world, but to succeed with around-the-clock news Fox would need to build a news infrastructure. Only fifty-eight of Fox's hundred and sixty-three affiliated stations have a local newscast, and the network's own news operation has approximately eighty employees. "I spent three million seven hundred thousand dollars in Bosnia in December alone," CNN's president, Tom Johnson, says. "You've got to be prepared to invest."

In January, Murdoch announced that he had hired CNBC president and fellow-conservative Roger Ailes to be chairman of Fox News and to launch a twenty-four-hour cable news channel. Because the News Corporation, with its dozens of newspapers and worldwide television services, employs more journalists and has more correspondents in more world capitals than almost any other news organization, Murdoch announced that he was confident of a quick start. Fox would begin its cable news broadcasting "before the end of this year," he promised, and would "be taking it around the world immediately." Ailes was a bit more subdued when I spoke with him on the phone a few days later. "Rupert and I agreed not to say anything until we have something to say," Ailes said, pleading for time. Meanwhile, the Fox-CBS task force has stalled, with each partner insisting that it wants to manage the enterprise; Andrew Heyward, the CBS News president, who inherited the task force when he assumed the job, in January, says, "If there was a feeling that Murdoch had a political agenda, which he's denied, that would be a problem to some people." Officials at both Fox and CBS maintain that the possibility of alliance remains alive, if barely. "It's not dead," a Fox executive says. "Nothing's ever dead with Rupert."

CNN, meanwhile, enjoys some advantages in this contest. With nine domestic bureaus and twenty-one overseas, plus a budget of about five hundred million dollars and, it claims, six hundred domestic and overseas affiliates to provide news pictures, CNN has a sturdy infrastructure. The link between Turner Broadcasting System and Time Warner, if the merger is approved, should add considerably to its strength. In addition, CNN already has its own on-line effort, and enjoys a reputation for fairness. CNN's more generic news, however, has built-in vulnerabilities. With some exceptions, CNN lacks a stable of well-known on-air personalities. Coupled with a dearth of skilled producers, this becomes a glaring weakness, as Tom Johnson acknowledges. "We know that personality pulls audiences," he says. "That is clearly an area of vulnerability. The networks are also much stronger with producing talent. We will need to spend more on production."

WHAT is not at all clear is whether additional twenty-four-hour news channels and news on demand makes business sense--or even whether twenty-four-hour news represents the future or a last gasp from the past. Brokaw, though he applauds the moves made by NBC, is wary of the implications for the best traditions of network news: "My concern is that the all-news channel will become an excuse not to do things at the networks in news. Instead, we'll move very hard into entertainment and infotainment, more and more magazines and less and less attention to hard news. Our friends in the entertainment division on the West Coast are always looking for any excuse to protect their 8-to-11-P.M. turf. I understand that."

Since no one projects that the news audience will multiply, few news executives are confident about profits. "I don't believe there is a market for five news channels," CNN's Johnson says, expressing a widely shared sentiment. CBS's Lund says, "I don't know what success is in this field. Is success the ability to lose a hundred million dollars before the next guy?" The most optimistic argument is advanced by NBC's Andrew Lack: "Ten years ago, people told me the audience for TV magazine shows was dead, yet they've grown. It's ludicrous to me to say there is no room for another news channel. Maybe there's room for three or four."

Surveys, however, suggest that view-ers want more educational, cultural, and children's-channel choices. And then there is the distribution problem. "The capacity is the big restraint," NBC's Tom Rogers says. "To add something, you've almost got to drop something. The bottleneck will be broken by the digital set-top box"--allowing cable companies to squeeze more channels over their wire--"but that won't be available in mass distribution for three years."

Other factors spur the haste to get into cable news. One is a preoccupation with what is called "branding," the belief that a familiar name flashes like a neon light on a shelf stacked with merchandise--or from among five hundred channels. "A twenty-four-hour cable news business," says Cap Cities/ABC's Iger, "is not necessarily a good business unto itself. But it is a necessary business for the over-all support and extension of the ABC news brand." Another consideration is "bundling"--a word invoked by corporate leaders almost as often as "synergy." A popular brand name, it is believed, must provide many services--entertainment, sports, and news among them. The networks, by having a cable (and computer outlet) for their news product, also see a way to better utilize their resources--such as the footage from NBC's fifteen cameras at the Million Man March--and amortize their expenses. "The largest growth potential for network news is outside the network," Peter Lund, of CBS, says, and he goes on to mention cable channels and the Internet, CD-ROMs and electronic publishing. No one yet knows whether the Internet will be a big money-maker for news, or whether the source of its money will be advertising or subscriptions. But few dare miss the flight to the moon.

The timing for this new interest is also propitious. With the government scrutinizing the proposed merger of Time Warner and Turner Broadcasting, including the minority stake of nearly ten per cent held by John Malone's Tele-Communications, Inc., worrisome antitrust questions are being aired. Time Warner and T.C.I. between them would have forty per cent of all cable customers in America. And just recently, on February 27th, U S West, a Baby Bell, announced that it was buying Continental Cablevision, the nation's third-largest cable company. Since U S West already owns twenty-five per cent of Time Warner Entertainment, the top three cable companies, which serve nearly two-thirds of all cable customers in America, would have overlapping interests. With the government watching, would they dare deny a cable channel to a CNN competitor?

A senior executive at Cap Cities/ABC asserts, "If you're trying to understand it as a business, don't. The thing that pushed it over the edge was that both NBC and Fox will do it, and probably CBS. It was a way to protect our franchise. It's also a way of keeping our talent." The former CBS News president Eric Ober says of the networks, "There's almost a belief that you're not a competitive news organization if you don't have foreign bureaus and you don't have morning news and you don't have evening news. And if viewers don't perceive you as a competitive news organization, you're not going to be their choice in a news crisis." Peter Lund suggests that decisions are often made for reasons of perception. There is a belief sito moncler, he says, "out there in constituency land--on Wall Street, among our affiliates, among our employees--that, given the announcements of the other news divisions, if we don't have a cable news presence, then that must mean that we are not in for the long haul or we won't grow."

In the short run, at least, the new paradigm is the same as the old. Three years ago, corporate chiefs like Viacom's Sumner Redstone were testifying before Congress that the cable operators were guilty of monopolistic practices and were denying distribution to Showtime and other Viacom programming. Then, when Viacom acquired Paramount, in 1994, Redstone--like Michael Eisner, at Disney--maintained that strong content would guarantee its own distribution. Now competitors are concerned about the overseas-distribution platforms that Murdoch has erected with direct-broadcast satellites; in America, the networks realize that if they want twenty-four-hour news they must pass through the cable tollgate, and maybe also through the higher-speed cable modem wire.

Perhaps, however, a news channel is a technology of the past. "It's ironic that they're starting all these news channels at a time when the technology of news channels is facing extinction," observes Tracy Westen, the president of the nonprofit Center for Governmental Studies, in Los Angeles, and the founder of the Democracy Network, an interactive, digitalized service for interested voters. The real future, Westen says, is "news on demand." The problem is that the technology is not yet there and won't be for several years. Until it is, one can only guess whether news on demand is a real or a fake business.

In the end, the twenty-four-hour ca-ble and news-on-demand race is a contest among businesses, not charitable institutions. NBC's president, Bob Wright, on being asked if he would pull the plug after five years if NBC made no money, answered, "Sure." With his back to the television monitors in his Rockefeller Plaza office, Wright explained, "This is no fun exercise for Fox or for ABC--or for us, for that matter. News is a place for people who have an appetite for losses." His Microsoft partner, Peter Neupert, had a somewhat different answer: "Microsoft is well known for its long-term perspective. We expect it to take a long time to make both cable and on line profitable. I think we'll go much fur-ther than five years." They may have to. (c)

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