Fox Corp’s political dilemma

Fox News is a financial powerhouse. The most watched cable news network in the US for over 15 years, it hit record viewership last quarter. Combined with Fox Business, it generated about $2.5 billion of EBITDA on $5.4 billion in revenue last fiscal year.

That business — which has benefitted from a lack of serious competition on the conservative side of cable news — is threatened, however. Its editorial support of Donald Trump is backfiring as he becomes a competitive threat.

Whereas other conservative politicians have feared Fox News’ influence over their constituents’ opinions, Trump has captured many Fox News fans’ loyalty and is trying to walk away with them.

Trump is widely reported to have plotted the launch of his own cable news network during his presidential campaign in 2016; that ambition is likely on his mind whether he wins or loses reelection. Over the last few months, the US President started regularly criticizing Murdoch’s network on Twitter, calling for alternatives to replace it, and promoting small, fervently pro-Trump news outlets like OAN. He is trying to sever Fox News fans’ loyalty to the network.

Even if he doesn’t launch a competitor that becomes a major threat, his ability to undermine Fox’s market share (and profitability) against other new competitors could be quite meaningful.

Context
Since he took over the Adelaide News is 1952, Rupert Murdoch built a global media empire repeating a strategy of selling sensational, anti-elite, social conservatism to working class whites frustrated by snobbery of elite institutions and fearful of cultural changes. His 1996 launch of Fox News to challenge CNN, HLN, and the nascent MSNBC in the US national cable news market continued that pattern.

As with his other news properties, Fox News drove customer loyalty and undermined competitors by preaching that it was the only media brand they could trust. Like any great consumer brand, Fox News made its target customers not just enjoy the product but feel part of a movement, feel belonging to a tribe.

Murdoch places a high value on wielding political influence. He was willing to subsidize enormous losses at key newspapers like the New York Post due to their political influence. Influence has trumped ideology, with News Corp properties repeatedly switching political party allegiances in Australia and the UK over the decades depending on how much Murdoch was included in vs excluded from the Prime Minster’s inner circle. (I wrote a longer analysis of Murdoch in 2017.)

Problem
If Trump leaves office in January 2021, he will want to remain a daily fixture of attention and his own network is the only way to achieve that without limits on what he can do or say.  If he remains in office, he may pursue a Silvio Berlusconi-like set-up of working as head of state while owning his own major news network which acts as a cheerleader. (His administration has shown a weaker interpretation of conflict-of-interest rules than prior administrations so this may be possible.)

No easy resolution
Murdoch making Fox News’ coverage more submissive to Trump in order to stop his attacks would be a bad business strategy:

  1. It doesn’t make financial sense. The degree of deference to conspiracy theories and offensive rhetoric that would entail would turn away too many advertisers. Fox News has a track record of drawing the line when primetime hosts’ controversial comments cause advertisers to flee.
  2. Trump wants to be the owner and commander of his own show. There is no deal that both Trump and Murdoch would agree to for bringing Trump into the Fox Corp fold after the presidency (with regards to equity ownership and/or revenue share of a show and operating authority).
  3. Loyalty to Trump would never be reciprocated for long. It would only make him more of a competitive threat for the future since Fox would have built him up even more.

Turning on Trump presents an obvious business problem too: Fox News could lose a large chunk of its viewers. Americans have become so politically divided — and Fox News’ brand so polarizing — that there’s no business opportunity on the crowded left wing of political news for Fox to shift to either.

What’s Next
Murdoch’s only playbook here is to eliminate Trump as a competitive threat to his business while maintaining the loyalty of dedicated Fox News viewers who currently love him.

I find it likely that over the next few months, Fox Corp and News Corp properties will gradually undermine Trump’s image among their US audiences. Fox News coverage will shift to favor a new torchbearer who advocates “Trumpist” policies but lacks Trump’s erraticism and narcissism. Murdoch would play king-maker in selecting and promoting this new leader…someone who lacks the ambition for their own network.

My interview with Northzone’s PJ Pärson

Today I posted an interview in TechCrunch that I did with Northzone general partner PJ Parson at the SLUSH conference in Helsinki.

We talked about the core investment thesis that has guided him for 20 years, how he went from running a fish distribution to running a VC firm, his best practices for effective board meetings and VC-entrepreneur relationships, and his assessment of the big social platforms, AR/VR, voice interfaces, blockchain, and the frontier of media.

Read it on TechCrunch

Next steps for the LA Times

The Los Angeles Times officially traded hands yesterday from Tronc to biotech billionaire Patrick Soon-Shiong, who named Norman Pearlstine as the new Executive Editor. Pearlstine had retired as Vice Chairman of Time Inc as it closed its sale to Meredith Corp, following 50 years in roles across Time, Bloomberg, the WSJ, and Forbes. In the announcement, the LA Times refers to him as a “fixture of the New York media circles.” (link)

The hire doesn’t suggest a bold modernization is in the works nor that a truly distinct California brand will soon differentiate the publication. But, I think it’s fair to say that Soon-Shiong is approaching this with a long time horizon and as a cause to subsidize more than a market opportunity to seize.

The first move seems to be stabilizing a ship that’s undergone constant shifts and executive turnover in the name of modernization (by Tronc), plus building the LA Times’ prestige in journalism circles and in the Acela-riding politics & finance sphere.

As it vies for comparison next to the NYT and WaPo as a national force, it will look to evolve in a similar vein to those organizations. Expect a determined shift to digital subscriptions, experimentation with video, podcasts, news chatbots, etc. Expect more interviews and op-eds with national VIPs too. I wouldn’t expect the LA Times to pioneer new concepts in the media industry during this first phase though; it’s securing its foundations.

My question/concern is whether a publication that cares so much about becoming a favorite child of the “New York media circles” can craft a sufficiently unique brand to gain a national following on equal footing to the NYT and WaPo. Consumers don’t need a third-place also-ran, especially if it’s asking for a subscription. The LA Times needs to own a perspective and style that stands apart from the East Coast establishment papers…what would a uniquely California view of the world be?

This is a post for another time, but I think there’s actually a major market opportunity presented by the fact that political coverage (and business coverage to a lesser extent) is locked within a fixed framework in this country…the language we use around Right and Left, the norms we pretend exist…there’s an opportunity for a politcal news organization to swoop in and engage based on an entirely different framework.

The other risk is rushing too fast to offer a little bit of everything to everyone (as a national publication) before it has gained a dominant position anywhere. The NYT is becoming a diversified bundle and it is a smart strategy, but that’s because it has long owned the turf of the most prestigious publication of national scope. I know lots of Los Angelenos who pay for the NYT; I couldn’t name anyone (at least under 35) who has an LA Times subscription. You need to win somewhere before you can win everywhere.

I’m also intrigued to see how Pearlstine attacks business coverage, which is functionally non-existent at the LA Times. You would think the LA Times would try to own coverage of industries anchored in California like entertainment, tech, aerospace, and agriculture but it doesn’t even compete. Businesspeople pay for subscriptions, pay to attent conferences, etc. though…it’s an important audience for the LA Times to start engaging. And its not going to beat the NYT, WSJ, or FT at insider coverage of finance.

Congrats to Pearlstine on the new gig. As a proud Los Angeleno, I look forward to seeing what he has in store.