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Future of FOX News secure in short-term, analysts

WhileRoger Ailes' resignation as chairman and CEO of FOX News Channel (US) may have a profound impacton the culture of the cable news leader, media analysts do not expect asignificant immediate impact on its financial performance or on parent21st Century Fox Inc.

Ailes,who also served as chairman and CEO of FOX Business Network (US)) and as chairman of Fox TelevisionStations, resigned on July 21.

Formernetwork anchor Gretchen Carlson recently accused Ailes of sexual harassment,and reports indicated that Rupert Murdoch and sons Lachlan and James,co-chairmen and CEO, respectively, of 21st Century Fox, decided to remove him.Another FOX News anchorwoman, Megyn Kelly, reportedly also told investigatorsthat Ailes had sexually harassed her years ago.

Aileshad claimed Carlson's sexual harassment allegations against him were false,labeling the legal action a retaliatory suit for the network's decision not torenew her contract.


Roger Ailes
Source: Wikimedia Commons

WithAiles out, Rupert Murdoch is nowchairman and acting CEO of FOX News and FOX Business Network. BillShine, senior executive vice president of programming, Jay Wallace, executivevice president of news and editorial, and CFO Mark Kranz are assisting RupertMurdoch during this transitional period.

FOXNews Channel launched on Oct. 7, 1996, under Ailes leadership, and itsconservative bent and personality-driven news presentation have led the cablenews arena in ratings since 2002. Ailes' exit came the day DonaldTrump accepted the nomination for president at the Republican NationalConvention in Cleveland.

Bolsteredby the interest in the dramatics of the 2016 presidential election cycle, FOXNews Channel has scored its highest-rated year-to-date, all of basic cable during thefirst half (Dec. 28, 2015, through June 26, 2016) in both prime time andtotal-day, according to Nielsen data.

Withcoverage of the Democratic National Convention in a few short days and the restof the political season ahead in which news networks thrive, analysts do notbelieve FOX News Channel, even in light of the scandal, will miss a beat duringthe balance of 2016.

Ailes'severance package notwithstanding, which is reportedlyworth $40 million, Brean Capital analyst Steven Gould said in an interview thathe does not expect any short-term impact. Still, he believes investors "wouldrather have Roger than not."

"Heis a unique talent, who created one of the most distinctive media franchises inthe world," Gould said.

NeilMacker, analyst at Morningstar Inc., also said that with Rupert Murdochstepping in as interim CEO and other key FOX News Channel executives in placethat "should mitigate any short-term impact."

FOXNews has "built brand recognition in the market that goes beyond oneperson," even Ailes, RBC Capital Markets analyst Steven Cahall said in aninterview. However, Murdoch's assumption of a leadership role "clearlysignifies the importance and value of the franchise."

Accordingto data from SNL Kagan, an offering of S&P Global Market Intelligence, FOXNews is distributed to about 91 million subscribers and garners affiliaterevenue of over $1.40 billion, plus annual advertising revenue in excess of$850 million. Its cash flow margin tops 64%. FOX Business Network countsaffiliate revenue of more than $250 million and $29 million in ad sales,according to SNL Kagan data.

WithAiles out, the analysts are keeping an eye on what takes place in front of thecamera, as talent defections could lead to a loss of viewership and advertisingdown the road. Stars like Bill O'Reilly, Sean Hannity and Greta Van Susterenreportedly have contract clauses that allow them to exit in Ailes' absencethough many wonder what other properties exist that would entice them.

Perhaps,one of the most significant challenges an Ailes's successor will face is thenetwork's aging audience.

"Olderaudiences are a concern for all media companies, but it's more concentratedhere," Cahall said.

Audiencealteration might occur, though, Macker said, if FOX News adopted format changesand a more "viewpoint neutral approach" to news presentation, like atSky plc, where JamesMurdoch has returnedto the chairman position.