Media

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Roger Ailes helped build Fox News into the top prime-time cable network. Now, he is said to be on the way out amid allegations of sexual harassment.

The prospect of the network losing one of the most powerful TV news executives, even in disgrace, rattled investors in parent 21st Century Fox and the stock dipped Wednesday. But generational shifts occurring in television make it an opportune time to change the guard at Fox News -- and that much easier for the Murdochs to show the door to the 76-year-old. 

In his long career at Fox, Ailes turned it into the most profitable cable-TV news network (as well as a favorite of conservatives). Check out these margins:

The Fox Says Ka-ching
Fox is by far the most profitable cable network, with cash flow expected to top $1.6 billion this year, said Bloomberg Intelligence analyst Geetha Ranganathan. Can it maintain momentum without Roger Ailes?
Source: SNL Kagan, Bloomberg Intelligence

But at the end of the day, Fox News' audience skews older, and Ailes' successor needs to keep putting pieces in place to capture younger generations. The network started wooing those viewers with Megyn Kelly, 45, whose show, "The Kelly File," along with Bill O'Reilly's "The O'Reilly Factor" helped drive a 22 percent boost in Fox News' ratings in the second quarter (largely by capitalizing on coverage of Donald Trump -- er, the presidential race). But O'Reilly is 66 and his show is in its 20th year.

As David Folkenflik, the author of "Murdoch's World: The Last of the Old Media Empires," put it in an interview Tuesday on Bloomberg TV:

Megyn Kelly "is, in some ways, the face of the future of Fox...She was put in there at 9 o'clock in the evening because Roger Ailes saw in her a bridge to a new generation of Fox viewers and just extending Fox's dominance."

Kelly reportedly told investigators that she, too, received unwanted sexual advances from Ailes, which seems to have given the Murdochs the leverage needed to oust Ailes and make way for a new generation of leadership at the company.

Aging Audience
With the majority of Fox News' viewers over 64, James and Lachlan Murdoch -- sons of elderly media mogul Rupert Murdoch -- may need to begin thinking about how their network targets younger people.
Source: Nielsen, Bloomberg Intelligence
Average daily viewership for live plus time-shifted viewing

Rupert Murdoch, 85, who controls Fox News' parent company 21st Century Fox as well as publisher News Corp., already handed over the CEO role at Fox to his son James Murdoch, 43, a year ago. The senior Murdoch remains executive co-chairman alongside his other son Lachlan Murdoch, 44. All three men are said to be in agreement on removing Ailes. 

All of this may reassure shareholders concerned that Ailes's exit would hurt the network or lead to an exodus of talent. Brian Wieser, an analyst for Pivotal Research Group who maintained his "buy" recommendation on Fox shares Wednesday, says it's unlikely that Fox's leading news stars would leave the right-leaning network for CNN or MSNBC -- and that other conservative stations simply don't have the resources to snatch them away. 

Aile-ment
21st Century Fox dropped about 2 percent Wednesday, after reports that Roger Ailes was in talks to leave as head of Fox News following sexual harassment allegations. Most analysts remained bullish, though.
Source: Bloomberg

Fox's generational travails are hardly unique. Viacom -- home to TV channels that have always targeted young people and therefore should be attuned to that demographic -- is struggling. Viacom is controlled by Sumner Redstone, 93, whose mental competence has been brought into question, and it's run by leadership whose approach seems to be going stale. (Although Redstone's daughter Shari appears to be readying Viacom for big changes.) 

Today's younger audience, of course, is more digitally-focused and social-media-oriented, and has grown less reliant on TV and print for news -- a challenge confronting all news organizations. With the Murdoch sons apparently gaining greater control over their father's empire (which includes News Corp.), bigger changes may be in store for the Murdoch empire.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net