Fox News vs CNN | Cable Clash | 2

0:08January 1996, Midtown Manhattan. In the News Corp offices, Roger Ailes grins for the cameras. A month ago, he looked finished. His career at NBC over, his days as a Republican advisor fading in the rearview mirror. But then, Rupert Murdoch called. Now, he and Murdoch are side by side before a crush of reporters, and they're announcing the creation of the Fox News Channel. Murdoch explains the rationale for his move into 24-hour news. The world's changing faster and faster. Whether through technology or politics, there's more news affecting everybody every day. The appetite for news, particularly news that explains to people how it affects them, is expanding enormously.

0:56Murdoch tells The Room Fox News will launch within the year. It will have an annual budget of$80 million. What he doesn't say is that's less than a quarter of CNN's. Ailes jumps in next, eager to make clear that Fox News' meager budget won't hold it back. I've always admired Mr. Murdoch's ability to get things done, move quickly, and act entrepreneurially. When everybody says you can't do it, you get up the next day and find that Rupert Murdoch has done it. A reporter raises his hand. Mr. Ailes, both you and Mr. Murdoch are known for your political conservatism. Will your channel be objective?

1:35The Fox News channel will not be anything other than objective. I've been out of politics for several years now. Another reporter throws a question, checking his notes as he goes. A question for Mr. Murdoch. Ted Turner, the man who founded CNN? Yeah, I'm aware of Mr. Turner. Oh, yeah, of course. Well, do you have a response to his recent assertions that you are a schlockmeister and that he will squish Fox News like a bug? Am I a schlockmeister? Hmm. If your idea of schlock is the X-Files, NFL telecasts, and the Simpsons, then yes, yes, I guess I am. We do, however, draw the line at professional wrestling and brown-nosing foreign dictators.

2:23Murdoch's swipe at Turner's WCW wrestling promotion and his visit to Cuban dictator Fidel Castro hits home. But Turner's armed with more than insults. Turner Broadcasting is now part of Time Warner, a media conglomerate that owns one of the nation's largest cable TV providers. And it's about to stop Fox News entering into its customers' homes. It's a move that will freeze Fox News out of New York and other major TV markets. And unless Murdoch can find a way to force Time Warner to back down, Fox News will never reach critical mass. and his news network will be finished before it even really started.

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4:50From Wondery, I'm David Brown, and this is Business Wars.

5:17On the last episode, Ted Turner defied the doubters and turned CNN into a profit machine. Rupert Murdoch struggled to get Fox News off the launch pad, and NBC teamed up with Microsoft to create MSNBC. Now, Fox News is readying for launch with a plan to offer talk radio with video. But CNN owner Time Warner is moving quickly to shut it down. This is Episode 2, Cable Clash.

5:53June 1996, New York City. In a room with commanding views of Manhattan, two media titans sit at opposite ends of a long conference table, sizing each other up for the battle to come. At one end is Rupert Murdoch. At the other end is John Malone, the square-jawed boss of the most powerful cable TV provider in America. Malone's company, TCI, provides cable TV to 10 million households. Murdoch needs Malone to bring Fox News to those homes. But Malone also owns a stake in CNN owner Turner Broadcasting. The two men don't trust each other either. Murdoch wants to create a satellite TV service so he can bypass gatekeepers like Malone.

6:39Malone wants to keep Murdoch under his thumb. Rupert, I don't want another news network. My subscribers don't either. They're already paying 32 cents a month for CNN, and starting next month, they'll have MSNBC, too. Murdoch knows this. Cable providers only have space for so many channels. It's one in, one out. And there's little sign that the public is clamoring for more news. That's why we're willing to pay more than$10 per subscriber up front. That's$100 million for you just waiting to be picked up. But we still have to pay to carry Fox News. Yes, but in effect, you get Fox News for free for three years.

7:20After that, if you're not convinced of its value, you can remove it. Malone's stony expression doesn't shift. It's harder to take something away than to add it. Even if only a small group of his customers watch Fox News in two years' time, those few will be upset at losing it. Maybe even enough to switch cable providers. The capacity issue remains. Adding Fox News means removing a channel that actually has viewers. It will have viewers. There's a clear opening for a network that's more sympathetic to conservative viewpoints. I agree. But I don't make business decisions based on my personal sentiments.

8:00Neither do I. But you're still here, in this room. So there must be a deal to be done, eh? Why don't you just tell me what it is you want? My company owns 21 % of Turner Broadcasting. CNN's interests are aligned with my interests. Murdoch nods. He now sees what Malone wants. He wants a way to win no matter what the outcome of the news wars is. Okay, John. Then what if we offer you an option to buy 20 % of Fox News? Malone accepts Murdoch's offer and clears space for Fox News on TCI's systems by dropping the Lifetime channel. For months, Fox News' ability to reach viewers had hung in the balance.

8:46Now, it'll debut in millions of homes. Other cable operators soon follow Malone's lead, taking Murdoch's cash offer to add Fox News to their customers' packages. But one provider isn't swayed. Time Warner Cable. It's the cable provider that dominates New York, the nation's top TV market. Fox News can't afford not to be on its systems. But with CNN about to become part of Time Warner, it's got little reason to help Fox's upstart news channel.

9:27September 1996, Time Warner headquarters, Columbus Circle, Manhattan. In his office, Time Warner CEO Jerry Levin huddles with the top executives from the company's cable arm. After a year-long investigation, the Federal Trade Commission approved the merger of Time Warner and Turner Broadcasting. But its approval comes with conditions, one of which is that Time Warner Cable adds at least one rival to CNN to its cable systems. So now Time Warner must choose whether to deliver MSNBC or Fox News to its 12 million cable subscribers. Fred Dressler, Executive Vice President of Programming at Time Warner Cable, weighs the choice.

10:10Burdock's offering us$125 million, but I have concerns about Fox News' programming. Roger Ailes won't tell me anything about its programming plans and makes me wonder about the quality. Another Time Warner Cable executive nods. I agree. I've watched Ailes' straightforward show on America's Talking. Awful, awful stuff. If that's what Fox News is going to serve up, we don't want it. Even if the programming is better, Fox News could be a public relations disaster. To carry it, we'd need to drop an existing channel. But look what happened when TCI said it's replacing Lifetime with Fox News. Customers held protests in Houston and Eugene.

10:52Levin presses his palms together in thought. What if Fox News took MSNBC's slot? I know MSNBC's already broadcasting, But, you know, we haven't settled our dispute with NBC about its decision to replace America's talking with MSNBC without first consulting us. So that could give us a reason to remove MSNBC and go with Fox instead. I don't think so. NBC will sue us if we don't allow them to turn America's talking into MSNBC. They've already threatened to block our ability to retransmit NBC. No MSNBC could mean no Seinfeld. Customers would freak. So you're saying we have to go with MSNBC and leave Fox out on the cold?

11:38There is a third option. We could carry them both. MSNBC in some markets, Fox News in others. That way we can take the cash they're both offering. It'd be Time Warner Cable's best year yet. Huh. That's interesting. Well, let's bring Ted in on this. I want his take on that idea. A few moments later, Ted Turner joins the meeting on a speakerphone from Atlanta. Hey, Ted, thanks for joining us. We're talking about the FTC's demand that we carry another news network. One thought is that we carry both MSNBC and Fox News. Are you crazy? You don't have to be a rocket scientist to figure out that when you've got Microsoft and NBC on one side and Murdoch on the other coming at you, that's going to have a major effect on CNN's ratings, volume, profitability.

12:31What you need to do is delay signing with either of them long enough for them to melt away. Come on. Ted, the FTC won't allow us that luxury. We have to take at least one. But if we carry both and only make one of them available in each market, they'd both struggle to reach critical mass against CNN. Ah, it's too risky. Still gonna damage CNN. And if you give a channel to Fox News, it'll further delay the rollout of the cartoon network. Come on, you need to think long-term here. Okay, okay. Thanks for the input, Ted. After Turner hangs up, Levin looks at the Time Warner cable team. He's made his mind up.

13:19The next day, News Corp headquarters, Midtown Manhattan. In his office, Rupert Murdoch shakes the hand of his visitor, Time Warner Chief Jerry Levin. Behind him, heavy rain pelts the windows. Thank you for coming to see me, especially in this weather. Please sit down. Levin settles into one of the comfortable armchairs, arranged around a coffee table laden with the latest editions of Murdoch's newspapers. Murdoch sits directly opposite. So, Jerry, have you made a decision about Fox News yet? Yes, that's why I'm here. We've decided to carry MSNBC and hold on carrying Fox News for now. It's just a question of channel capacity.

14:01MSNBC has the advantage of replacing America's talking. Murdoch nods, then stands. I understand. Well, I do appreciate you coming to tell me in person. Murdoch waits for Levin to leave, and then picks up the phone to Roger Ailes, the head of Fox News. Roger. Jerry Levin just dropped by. Time Warner's not going to carry Fox News. He's taking MSNBC instead. Those backstabbers. We had a deal with him, ready to sign. Yeah, I suspect Ted Turner had a hand in this. Levin claims it's about channel capacity, but I don't believe that for a minute. No, and I agree. This has Turner written all over it. He killed ABC's first attempt to start a news network back in the 80s.

14:47The guy fears competition. Yeah, but we need distribution in New York. Without it, Fox News' numbers don't work. It'll also be invisible to much of the advertising industry. Ailes' political strategist instincts kick in. Rupert, if Time Warner wants a war, then let's give him one. We make this a story. Fox News, the newcomer, being crushed by Ted Turner. We're fighting for justice and free speech. He's a monopolist. He's scared of competition. He's trying to deny the American people a choice. That's how we play this. And we bang that drum until Time Warner caves in.

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18:10October 7, 1996, New York City. Roger Ailes barrels into City Hall, head down, ready to inflict damage. Fox News launched this morning. He should be in its newsroom, directing its first steps. Instead, he's come here to clobber Time Warner. It's been three and a half weeks since Time Warner refused to deliver Fox News to New Yorkers. Now, he and Rupert Murdoch are fighting back with help from their pals in the Republican Party, including New York Mayor Rudy Giuliani. Today, a city committee is holding a hearing on the merger of Time Warner and Turner Broadcasting. The committee can't overturn the merger, but it can order a review of Time Warner's lucrative franchise to supply cable TV in New York.

18:59It's a franchise worth a half a billion dollars, and Ayles hopes the threat of losing it will make Time Warner change its mind about Fox News. Ayles enters the room, sits in front of the Republican-dominated committee, and reads out his prepared statement. An hour ago, Prime Minister Benjamin Netanyahu appeared on Fox News Live from Israel. His opening words were, and I quote here, We need more news. More news means more accuracy. But right now, in this city, Time Warner stands in the way of that. Why? Because it fears direct competition and because of the personal animosity that its vice chairman, Ted Turner, bears toward Rupert Murdoch.

19:41Ailes pauses to make eye contact with the committee members. Fox News is the only channel that can break CNN's monopoly. MSNBC isn't a true competitor. New York City is the heart of America, and Time Warner's trying to stab it in the heart. This city now has a cable czar who tells New Yorkers what they can and cannot see. Unfortunately, that cable czar lives in Atlanta. His name is Ted Turner. Statement delivered. Ayles waits as the committee's chair confers with his colleagues, then turns to him. Mr. Ailes, thank you for coming here on what must be a very busy day for you. We have no questions.

20:26Ailes leaves with a smile on his face. But his attack's only getting started. In the days that follow, News Corp ups the pressure. It files a$1.8 billion antitrust suit against Time Warner. Its New York Post newspaper drops CNN from its TV listings pages. Republicans diss Time Warner in public, arguing that Fox News is the conservative antidote to liberal bias in the news media. They have 75 channels. If you can't find one that has a 24-hour worldwide news operation that's headquartered in New York, there's something dramatically wrong. Then, Mayor Giuliani tries to force Fox News onto Time Warner cable.

21:14As part of its franchise to supply cable TV in New York, Time Warner gave the city five channels to use for government programming. So Giuliani declares he will give one of those channels to Fox News. The move blindsides Time Warner, but it's not about to be bullied by Murdoch's gang. It responds by suing New York City for trying to shove Fox News onto its cable systems.

21:46October 18, 1996, Manhattan. In an 8th Avenue law office, Ted Turner slouches back in his chair as he gives a deposition for Time Warner's lawsuit against New York City. Now here's how it works. Rival cable networks jockey for distribution. Cable operators play them off against each other to get the best deal. Whoever doesn't get the deal gets left out in the cold. That's just the way the game is played. One lawyer leans forward. And that's what happened when Time Warner said no to Fox News? Yeah. The only difference this time is that Murdoch has paid off some powerful Republican politicians. I was just appalled he bought the government of New York.

22:26I can understand him doing it in England or Australia or China, but here? In New York? Ha. That surprised me. Another lawyer peers over his glasses at Turner. Mr. Turner, do you feel personal animosity toward Mr. Murdoch? Turner springs up right in his seat. Yeah, yeah, I do. I have no respect for him. He's a pretty slimy character. You know, he uses the news media to advance his own personal position. He's dangerous. His journalistic credentials are a joke. He's a disgrace to journalism. But Turner's personal attacks on Murdoch are about to be met in kind. The following Monday, the New York Post runs a story headlined, Is Ted Turner Nuts?

23:11In the story, the Murdoch-owned paper raises doubts about Turner's mental health and notes he took lithium for depression. Then, as Turner watches the Atlanta Braves play in the World Series at Yankee Stadium, Fox News takes to the skies. It gets a plane to circle the stadium while trailing a sign that reads, Hey, Ted, be brave. don't censor the Fox News channel. But then, Murdoch suffers a setback. The U.S. District Court rebukes Mayor Giuliani's administration for attempting to violate Time Warner's First Amendment right to choose what channel it carries on its cable systems. Giuliani's plan to force Fox News onto Time Warner is dead in the water.

23:55So News Corp switches tactics. It threatens to pull the Fox broadcast network from Time Warner cable. a move that would leave cable subscribers without The Simpsons or the Super Bowl. But Time Warner doesn't budge, and Fox doesn't withdraw its threat. It's a deadlock.

24:21It's July 1997, and in Idaho, the annual summit of media power players is underway in Sun Valley. and in an upmarket resort restaurant. Murdoch's having lunch with Time Warner CEO Jerry Levin. Murdoch takes a sip of wine, then gets to the reason he asked Levin to lunch. I would like to resolve the disagreements between our companies. It's hurting us both. It could threaten the Prime Star deal. Levin raises an eyebrow. Prime Star is Time Warner's satellite TV service, and it's trying to buy News Corp's rival service, American Sky Broadcasting. Is that a threat or a concern of yours? Maybe both.

25:03But you and I want the American Sky Broadcasting deal to go without a hitch, right? Settling our dispute about Fox News would help ensure that. Settle? I'd like to remind you that the courts have repeatedly backed our right to choose what we put on our cable systems. Huh. So what exactly are you asking for anyway? Well, it's just what we've always wanted. Fox News on Time Warner Cable. Not instantly, of course. Maybe you put it in 3 million homes by October, then another 5 million by 2001. Our capacity remains a challenge. We need to drop a channel to make room for Fox News. I'm reliably informed that Mayor Giuliani's administration would be willing to forfeit one of New York's public channels were you to drop your lawsuit against the city.

25:50Okay, but we'd still want launch fees and$10 per subscriber isn't enough. I want$25. Murdoch eyes Levin. The price for getting Fox News on Time Warner Cable just went up from$80 to$200 million. But Murdoch's playing the long game. We're willing to discuss that. If I can keep a minority stake in the satellite TV business. Well, only if it's a non-voting stake. Of course, of course. So, we have a deal? Levin raises his glass. Yeah, we have a deal. Murdoch leaves Sun Valley victorious. The cost of the war exceeded expectations. But Fox News is no longer held back by distribution. Now, it has to find a way to convince audiences to watch.

26:44To do that, it needs a news event that can showcase the Fox News difference. Something as gripping as any soap opera. something that runs for months, like the Gulf War or the O.J. Simpson trial, both of which sent CNN's ratings through the roof.

27:08January 1998, Manhattan. In his chauffeured car, Roger Ailes is on his way to the Fox News office when his car phone rings. Roger Ailes. Roger, John Moody. Moody is Fox News' senior vice president of news. What's up, John? A story appeared on the Drudge Report website overnight. It claims Newsweek spiked a story about the president having sex with a 23-year-old intern. Should we run it? Ailes feels a thrill. A sex scandal about Bill Clinton is perfect. Fox News could paint the Democratic president as an immoral adulterer while serving up the salacious details audiences crave. But the Drudge Report trades in D.C.