After getting hammered by News Corp.'s (NASDAQ:NWSA) Fox News Channel on cable television year after year, Time Warner (NYSE:TWX) and CNN Worldwide President Jeff Zucker have decided to revamp the channel to go after "viewers who are watching places like Discovery and History and Nat Geo and A&E."
A secondary factor is that Comcast's (NASDAQ:CMCSA) MSNBC has attracted the audience that used to be owned by CNN. This means that there is little chance of growing the news audience in the cable news sector, which according to Zucker has been flat for the last 12 years.
The CNN strategy
Zucker acknowledges that CNN is not able to survive or grow on news coverage alone. Because of this, he is going to transform the channel into something almost entirely different, something that has a much smaller news footprint.
How Zucker sees it is that cable news channels have only been "trading share" over the last dozen years. He wants to remedy this by expanding the types of content that CNN has to offer to viewers, which would theoretically boost viewership.
What I see as a potential disaster is how much CNN would be viewed during election years, as this is the most profitable time for cable news stations. If Fox attracts a more conservative audience and MSNBC brings in a more liberal audience, how will that impact CNN's ad revenue?
Of course, the faltering news channel doesn't have a lot to lose over the long term because it has already shed a lot of viewers. Even though it has done better this year, overall the change in focus will probably only hurt the channel in the short term until more shows are successfully introduced.
If it is able to successfully produce programs that attract more viewers, it could become a more dependable channel as far as consistent revenue goes. The new challenge is that there are even more competitors in the space it is entering than the one it is leaving; this could cause the change-up to blow up in CNN's face.
It's a big risk due to the revenue that CNN could lose on the political ad front. The network has been underperforming for some time, though, and something must be done to change its fortunes if it is to have a future.
Fox News and MSNBC
As for Fox News and MSNBC, this will undoubtedly help them as more viewers will gravitate to them during the various political seasons. They will likely also see overall increased news viewership as daily CNN viewers shift. Again, this has already happened some, but it is sure to increase as more viewers abandon CNN as an alternative news source.
Including earnings before interest, taxes, depreciation and amortization, total segment EBITDA at News Corp is projected to grow in the high-single to low-double-digit range for fiscal 2014, surpassing the $6.2 billion base EBITDA level in 2013, according to the latest earnings report. Fox News was a big part of that, as it was in the 10% growth in affiliate fees during the period. Its base ad market continues to grow, minus the Olympics and political.
With the new new prime time lineup, including Megyn Kelly, it looks like Fox News will continue to be a strong force, with it growing over 20% in the 18-49 demo, as well as overall. Including the transition away from news coverage by CNN, this should help boost the earnings picture in the division even more dramatically over time.
For the entire year minus political spending, Fox News was down 13% in viewership from 2012, but still managed to garner more viewers than MSNBC, CNN, and HLN combined, according to data from Nielsen. MSNBC viewership fell 30% to 645,000 viewers, while CNN plummeted 15% to 578,000 overall viewers on average.
While the assumption is that MSNBC may benefit the most from the move by CNN to shrink its news coverage, we'll have to wait and see if that is really how it plays out. Either way, both companies should benefit from the CNN decision.
I'm not sure about the future of CNN, especially since Zucker hasn't had a consistently successful career in the media properties he's managed. That is especially true regarding his failure to successfully grow the prime time hours at NBC while he worked at the network. Now he faces the same challenge at CNN.
I think that we'll see a transition to CNN being a reality TV network in the next couple of years, with the network having only a couple of hours of daily news coverage.
What is going to be lost is the former CNN brand and its impact. When you consider the alternative, there is little else to do but experiment and throw some things out there to see if they stick.
Gary Bourgeault has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.