Your Views on the News May 28, 2010

We've posted article after article that look at what is wrong with CNN and how to 'fix' it. But amid all the discussion I think we've lost track of how far CNN has come from its humble start. Earlier this week Richard Huff, NY Daily News.com, wrote an article that looks back:

CNN has taken its lumps lately.

Campbell Brown is giving up her nightly show because of low ratings, Larry King has on- and off-camera woes, and the Fox News Channel long ago overtook CNN as the cable-news ratings champ.

Troubles aside, it is important to note that three decades ago next week, CNN changed the face of news.

"You feel like we deserve a little credit for that," says Will King, senior director of news operations for CNN International.

"Even the phrase 'news on demand,' though it's a phrase that's associated with the Web - June 1, 1980 established the ability for consumers to have news on demand," says King.

Think about it: Before 1980, the notion of news around the clock, delivered around the world, was unheard of. But a cable maverick from Atlanta named Ted Turner wanted to try. He did, barely succeeding at times, but he built the basic model for cable news.

King is one of the 14 staffers hired in 1980 who are still with CNN. He remembers the tough times early on, when payday was a concern.

"'You better get your check and go down to the bank and cash it early,'" he recalls the whispers. "'We hear the company doesn't have enough money to make payroll.' And sure enough, you could see people lined up at a nearby bank branch."

He laughs now, but King was a believer in the 2-4/7 news network from the start.

"I knew that was going to be a revolutionary idea. How many people in the profession they want to work in can do something that's truly revolutionary? It's like working in [Thomas] Edison's workshop."

So he left a job in Memphis for CNN in Atlanta to find a newsroom with some equipment still wrapped in plastic, and no indoor bathrooms. "Outside one of the exit doors were some Port-APotties," he says.

When CNN launched, it stood alone in the cable news arena. It took years before CNN staffers were treated on the same level as those of other news outlets.

But after continuous coverage of big stories like the 1986 Space Shuttle Challenger explosion; the 1987 coverage of the rescue of Jessica McClure, a toddler trapped for 59 hours in a well, and the start of the Gulf War in 1991, which King calls a "game changer" - CNN became a major player.

CNN launched CNN2, which eventually became HLN in 1982. Now CNN is seen in more than 200 countries and has paved the way for Fox News Channel, MSNBC and, one might argue, the Weather Channel.

"I'm very blessed to have been part of a company that has not only invented the genre," King says, "but has continued to set the bar for others to follow."

And they have.

"One of the jokes at the time was, 'What's the difference between CNN and the Hindenberg?'" King says, looking back to the network's launch. "The Hindenberg got off the ground."

The connection, while a joke in 1980, is notable. The Hindenberg disaster changed aviation history.

CNN, of course, changed TV history.

Yesterday Alex Weprin of TVNewser posted some facts and opinion about CNN's meeting on Thursday with their investors:

.....Time Warner hosted an "investor day" where CEO Jeff Bewkes and the various division chiefs gave updates on the state of the business. The above slide is from the presentation delivered by Phil Kent, the chairman and CEO of Turner Broadcasting System, which oversees CNN.
(Note that this slide includes CNN U.S., CNN International, HLN and CNN Digital, so it is the combined revenue of three television networks and their respective online properties.)

Kent said that operating income for 2009 was approximately $500 million, slightly higher than the estimates made by SNL Kagan. CNN says this is the first time Time Warner has broken out financial numbers for its news division.

As you can see in the chart, and as we explained earlier this week, the heart of the CNN (and cable) business is subscription fees, which account for around 50% of total revenue. Advertising and ancillary revenue streams account for the other 50%.

CNN's pitch to investors and the press is that its business is healthy despite declining ratings in primetime. While it is true that CNN U.S. primetime only accounts for about 10% of revenue, it is still responsible for a disproportionate amount of advertising revenue on the flagship network. CNN as a whole can thrive financially even if its primetime stumbles, but it has to work harder to make up for it through the other two channels or its digital division.

Primetime -- across all television networks, not just CNN -- is still the most valuable real estate for media companies and advertisers, because of its reach and the ease of monetizing it. It is also an important factor in carriage negotiations. If CNN's carriage agreement with Cablevision is up for renewal, poor performance in primetime would be one of the cable company's arguments against a higher fee, which SNL Kagan estimates is currently $0.48 cents. Considering that carriage fees are the heart of CNN's business, it is not a fact to be taken lightly. Cablevision, Comcast or DirecTV are not interested in how well CNN.com is doing, because they are paying for the right to televise the channel and the rights to use CNN content on on-demand platforms, etc.

( Update: CNN says that when it renegotiates carriage fees the most important factors are total reach and the brand of the channel. In the case of CNN, the network's 30 year history and track record of covering breaking news events would play a significant role.)

The good news is that the company seems to be having success in driving new revenue streams. Digital advertising and sales (like the CNN iPhone app) account for about 10% of total revenue, the same as CNN U.S. primetime, and the company is looking to grow its wire service this year and next, selling CNN and CNN.com content to affiliates in need of content.

In the pie chart, the service is represented as "Domestic Linear Content" and "International Linear Content." It is also one of the four pillars for growing the news division, according to Kent's presentation. Kent refers to the wire service when he spoke of monetizing "content ownership." The other pillars: continued investment in journalism, managing costs, and extending its multi-platform reach.

The information revealed by CNN serves to confirm the fact that, at least for now, the dual revenue stream cable business model is strong enough to drive profits at a network, even if the programming isn't working. But as we argued, that cannot continue forever. CNN can do well even with primetime ratings troubles, but it will have a much easier time generating advertising revenue and negotiating for higher sub fees if its programming connects. Especially if the programming is from 8-11 p.m.







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