October 6, 2006 7:50 am

Interview transcript: Rupert Murdoch and Roger Ailes

Rupert Murdoch, chairman and chief executive of News Corp, and Roger Ailes, chairman of both Fox News Channel and Fox Television, were interviewed by Joshua Chaffin and Aline van Duyn on October 3. That day, the Wall Street Journal ran a front page story that said Mr Ailes, who became chairman of the television division a year ago, had not produced results as impressive as those at Fox News, and that he had “ruffled feathers among other executives” and created tensions in the executive suite.

”We stand by the story,” said a spokesman for the Wall Street Journal.

* * *

RUPERT MURDOCH: That [Wall Street Journal article] was just a hit job. It was cheap. It was completely wrong. No matter about her [the journalist’s] conclusions, her statements were totally wrong.

FINANCIAL TIMES: What about reported tensions in the executive suite?

MURDOCH: Absolute crap.

ROGER AILES: I am totally unaware of it if there is any. I told her this as well.

MURDOCH: There was never any discord here with anyone. Least of all with Roger. It wasn’t Roger at all, it was me.

AILES: I have no knowledge what they are talking about. The Wall Street Journal just flat out got it wrong.

MURDOCH: You don’t just get things wrong…

AILES: What we’re saying is we don’t know about it. There was an alternative source on that story. The truth is we all work together every day. Never any friction that I can find. We are all trying to accomplish the same goal, there is no Bob Woodward book here. Even if you take out all the good things people say, there would not be enough to fill a column.

FT: How have you found your new role at News Corp, which now includes television stations in addition to Fox News Channel?

AILES: More challenging. I grew up in stations and syndication so I know quite a bit about both. I’ve added a couple of hours to the day and I have relied more on delegating to some very good executives, Jack Abernethy and Dennis Swanson, both terrific station guys who execute beautifully.

I am more involved in strategy and setting the goalposts. We’re in a challenging news cycle because of Hurricane Katrina. Usually there are three or four major news spikes per year. Aruba lasted a good six months. You are sort of forced in the cable business to play even if you don’t want to, looking for more spikes last year, but in the year after Katrina quiet time so went into a bit of a dip.

MURDOCH: Everybody went into a bit of a dip. When there’s news more people turn to us. Flat period compared [to last year]. Suddenly in the last week Bill Clinton chose to lose his temper… Fox is up 20 per cent in prime time, 15 per cent in day time, so we’re just fine.

FT: What are the general pressures facing the cable news business, something you have referred to before?

AILES: I was referring to the alternative platforms, internet, cellphones, all sorts of pressure playing out on all news really as younger viewers search to find news. Just moved headline service on cellphones two weeks ago, creates a tremendous pressure plus the ad community, down 3 per cent, we think it’s down maybe 5 per cent, all of that money that was in broadcast does not necessarily go to others, cutbacks in certain key sectors such as pharmaceuticals. There’s an assumption it’s all moved to the internet but I’m not 100 per cent sure the dollars all ad up here yet.

MURDOCH: As far as we’re concerned all our cable networks are up in double figures in revenue in this coming year. Our stations are the only group of stations that are up, record revenues and record profits, up 8 per cent revenue in September. Putting more news in and are getting increasingly better ratings. It takes time, it takes time, time to mature and get noticed, but every year it builds up, we’ve doubled in the last two or three years, but since Roger became chairman, we are putting more and more news on our stations. We recognise the future of the stations had to be localism. Put on more and more news. But also doing it better and it’s showing to some extent in the ratings and to a big extent in advertising.

FT: Are TV stations a declining business?

MURDOCH: I’ve been thinking about it and wondering, and no I don’t think so.

AILES: Old days used to say it’s a license for printing money…..

MURDOCH: One day will get breakthrough and get retransmission money from cable. They say over our dead bodies, but one day someone with nothing to lose like CBS will break through and then everyone will follow.

AILES: Stations are a good margin business…and our margins are even better.

MURDOCH: People are still buying and selling stations at pretty high multiples, or as good multiples as they ever did, at 12 –14 times.

FT: How are negotiations for Fox News subscriber fees going?

MURDOCH: They’ve just started, so there will be a lot of posturing. Cablevision is the first to directly set a new price.

FT [to Roger Ailes]: Do you get very involved personally?

AILES: Peter Chernin and I are going to cablevision this week. The general talks take place at a director/manager type level to try and lay out the framework but then eventually senior directors from both companies will be involved directly in the negotiations.

FT: What is the next thing to look for for growth in Fox?

AILES: Those rates. We signed ten-year deals at fairly low rates to get into the game and so when we start raising those it will help tremendously. We are expanding our international cover because 9/11 changed the world and we have got to do more on international.

MURDOCH: We had good coverage of the war in Lebanon, for example. We think it’s a better way to do it [fly people in to cover a story] rather than leave people there the whole year around.

AILES: Investing in a 10,000 foot bureau and waiting to cover an event is not the way you cover news anymore. You have to have a reporter and an uplink and be able to move fast and we have proved we can do that. The other area for Fox News, we got into radio as a promotion device for Fox News Channel, and it is generating great revenues. No part of Fox News is in the red. Some have relatively low revenues like our website and mobile. We can move into some of the daytime network tv audience with a daytime morning show. I think think there’s tremendous growth. Competition is tough but we see it as a growth business.

MURDOCH: I believe people will be watching their tv screens for a long time and that tv channels have a long-term life. Do people want to delay their programme or watch it the next day, yes, often, if it’s their favourite programme. Do they want to pay for that, I don’t know. They’ve certainly be prepared to pay for DVDs at the end of the season for a series, we led the way in that with Fox. There are going to very many different ways of delivering content and we are here with content. Among the channel business, we like the channels, because it’s a convenient way to create an identity. But if someone wants to put it on their DVRs some shows it’s fine with us, as long as you pay for it.

I’m going to Japan and Korea in the next few weeks. There are so many things happening, and new ways of delivering things. You have 20mg bits of delivery in Korea, yet TV is flourishing. People are playing games on their tv, young men are, and people are shopping...they are not watching their news channels, but they are using their tvs for other things. Broadband is not here just to replace TV. It’s a handy way for cable, they need broadband to deliver, as a two-way instrument for people to trade or talk to eachother it’s tremendous.

FT: Is the primary growth for Fox News its domestic US audience?

AILES: There is only one Fox news and that will be distributed around the world.

MURDOCH: Fox News can now be received in realtime in every corner of the globe. It can be received in 80 countries. I’m not sure if we are putting on Star encrypted or not because we are trying to encrypt things that Indians will pay for, but certainly it is available in all of Europe, just as Sky news is available. Our Indian news channel is fine, there are too many damn news channels there, but it’s ok, we have a good partner. We have a 100 per cent owned Italian news channel which is the most respected news channel in Italy by all sides. If we try and start [an international] Fox Channel the way CNN is done you are going to bleed money. They have hundreds of people in London.

The CNN international is a different service, it is even more leftist and anti-American than CNN is. That’s their business, that’s fine, but it can’t be getting any revenue. There is no cable network that I know of anywhere in the world other than in America that pays them for their products. Maybe they have some deals with hotels but it’s very much a hodgepodge and eats up a tremendous amount of money.

AILES: Their audience is pretty small. It’s hard to sell advertising. Their costs are so high, you are lucky to break even or make a few million dollars per year.

MURDOCH: They are not likely to be breaking even. They might have some clever accounting that shows that but I promise you it’s coming out of their very rich deal here because they get 55 cents per home in this country.

FT: Do you have pllans to increase international coverage?

AILES: It’s just a matter of probably hiring more reporters or having more reporters available, particularly in the Pacific Rim, we use a lot of freelancers. We have done very well with them

MURDOCH: We have a few big stories occurring. You have the jihadists popping up all over Africa. South America is becoming a big area of interest for this country. There are definitely going to be challenges to cover more international news, there is more happening in the world.

AILES: There is more interest in what is going on in Mexico and Canada than there was a year ago and we have to look at that. There is not a huge cost, they are really people and some minor equipment.

FT: Is this a strategic shift?

AILES: We have to be careful. The American broad audience has not demonstrated a great curiosity about foreign news. The driving force today is probably terrorism, although I would argue that trade and an awakening to the rest of the world is going on in America, so we have to find a way to make it interesting to the American audience and we are not going to ignore America. We have the best political operation under brit hume, and some of the best reporters…we’ve got some terrific journalists covering national political news, we have good bureaus in Los Angeles, Chicago, Dallas, Boston…So we’re expanding all of it as we grow, we are getting more product to the air and that includes international. But we are not going to be building buildings to house people, journalists should be on the street chasing down stories.

MURDOCH: The real story about Fox is the business story. The real thing is by being fair and balanced by putting on both sides all the time we really have changed the political equation in this country. People think we’re conservative but we’re not conservative...Bill O’Reilly is not a newscaster, he’s a commentator, but he’s on both sides...Brit Hume is not a politician.

FT: Did you think it would be as successful as it has been?

AILES: Well it’s interesting. When I read the WSJ article talking about tv stations and MyNetworkTV not doing well and all this crap, you should have seen us at Fox News Channel one year into it. I’ve had this job for a year and it takes a little time to get these things off the runway. WSJ is guilty of ready, fire, aim. They obviously went in with an agenda and Rupert and I were trying to figure out if he was the target or I was the target.

But, it takes a little while to get these things going. I thought the Fox News channel would take at least 6 years to tie CNN, we actually caught up with them in five. We came in ahead of our own timetable. Once we got critical mass and distribution, and I would guess that to be around 45m homes, it began to shoot up and took over.

That section in there where it took off the runway was probably a bit of a surprise. I always thought we’d win. I never play for a tie. But I thought it might take a little longer than it did. We’re 10 years old. In dog years we’re 70, we have to think like we’re 10. On the other hand in dog years CNN is 175…I’m not interested in anything except having people come to work, excited about telling the American people what’s really going on out there, and let the chips fall where they may. I think that makes us a little different than some news organisations.

FT: Is it like running a political campaign?

AILES: No more than running a Dairy Queen. You have a customer, you have to market it to help them get to your product, the product has to be good, you can’t drop too many on the floor or in the sprinkles or you’ll lose money. All business is basically about customers and marketing and making money and capitalism and winning and promoting it and having something someone really wants. If you look at the Dairy Queen model it pretty much works for almost everything. You know what you’re doing and you know who your customers are and if you don’t drop too much ice cream, chances are you can make a living.

The news business is simple but it’s not easy to do well. You know the story, you have to cover it, you need pictures, you need good writers, you have to get it to the screen but it’s obviously not easy to do well otherwise MSNBC would have traction. And they have a 50-year news organisation over there.

FT: How much of your experience at Fox News can translate directly to running Fox tv stations?

AILES: [There are] a lot of differences. The tv stations do well as local entities. There’s always been this idea that we somehow superimpose Fox News Channel on the local stations. You can’t do that to a station in Los Angeles or New York or anywhere in between.

Those stations do best with localism, to the extent they need a national story we can provide footage. We can provide footage on the terrible murder in the Amish country that other stations don’t have so we provide a news feed to those stations. They get an opportunity to get footage for national stories and we get an opportunity to get footage from those stations. If the Philadelphia station has a better picture we may have that. But they are all managed by their local managers at the local level by local news directors, we look at talent because that’s a big part of what happens on the screen and we look at graphics and marketing to make sure it is working but editorially these stations operate independently.

MURDOCH: That’s another thing the Journal missed.

AILES: They not only missed it they implied something else.

FT: What about marketing Fox News on local and cable channels?

AILES: Any time you can get consistency so that when you drive into a town, you know what the CBS station looks like, if you turn on the tv station in a motel you would like some consistency so they know how to get to Fox and how to get to Fox News, but the story selection and how those stories are done are all handled on a local level.

FT: What do you say to people who argue that Fox News has gotten stale?

AILES: I don’t think it’s fair. If they say stale because Fox has the most loyal audience and the most consistent pattern of programming, it’s natural that people begin to expect things. We need to a better job in terms of changing things up and making them more attractive.

The truth is, where would you rather be. We have changed five shows in ten years in primetime and MSNBC and CNN have changed 54 shows. In the end having the same guy watching O’Reilly ten years ago and now, you can call that loyalty or stale, but the truth is in the stories. O’Reilly does interesting stories and he does not rely on big stars and he has the highest ratings on cable news. He’s brilliant at knowing how to do his show.

Do we need to look at maybe using the same contributors over and over, or something like that? Maybe so. There’s a tendency to give me too much credit at Fox News. We have 1500 employees. I have just promoted a whole group of young people, all people who are up and coming and have a lot to do with everyday working here, I think the next generation of Fox News people is spectacular, they are going to rise to the occasion and do great things and part of my job now is training and teaching as well as CEOing or managing. I am not working any less and I have two really good executives on the stations side, they travel to the stations, I don’t, so my eye is not off the ball.

FT: If you reject the conservative label, is there another way you would define yourself?

AILES: I think conservatives were underserved, that does not make us a conservative channel. I think a lot of conservatives watch our channel, that does not make us a conservative channel. If we’re conservative, what does that make the other channels? Liberal. Reporters are very interesting, they keep coming at me and saying aren’t you more conservative, and I say yes well, you mean they’re more liberal? The answer is you see both on our channel. In the last 25 years you CNN had Bob Novack and they thought that was balanced. One half hour they had Bob and the rest of the time they had liberals. We decided to balance all the arguments and treat the conservative view with the same respect as we have for the liberal view, and that is really irritating some people.

We’re not promoting the conservative point of view, we’re merely giving them equal time and access. Why would that offend journalists, to have another point of view? We don’t quite get that. Dragged kicking and screaming the rest of the media is now saying oh my god maybe we should be a little more balanced than the way we were doing things.

MURDOCH: It hasn’t much affected the New York Times….

AILES: No, it’s driven them even further to the left in a kind of strange, bizarre way. We’re not firing our reporters for making up the news, and they are, so.

FT: What do you mean when you say Fox News has changed the political equation?

MURDOCH: I mean that it has given room to both sides, whereas only one side had it before. I think people are responding to that very strongly. People who watch Fox News, you may say, and this is anecdotal, but they are passionate about it. In the most unlikely places, like down in Soho where I used to live, people would come up to me and thank me for it. People I didn’t know from a bar of soap. People appreciate that at least they’re being heard. It is much more watchable.

AILES: I’ve been thanked a lot in Wendy’s, Appleby’s, and Marriot hotels, I’ve never been thanked in Le Cirque, for some reason. I try to spend as little time as possible in Le Cirque, that’s not because the food isn’t good… I’m not the kind of guy who likes to find his food under his parsley. There are certain elite attitudes who look down on Fox News and the constitution guarantees freedom of the press but freedom depends entirely on fairness in the press. The public has to have more than one point of view to know whether to vote properly. If they are only getting one side of the argument it will destroy their freedom. There is a larger goal to all of this in a way and that is to inform the public fairly and openly and freely about things.

MURDOCH: Most of the media are local monopolies. They’ve got elitist journalists coming out of journalism school and they look down on their audiences. They are not in touch at all with the average middle class guy with the 50, 60,000 dollar job living out in the xurbs or the suburbs living a normal life. Look at what’s happening in long island. The taxes have gone up so much that there is a major flight to the South. Do you get reports about it in the Long Island Newsday – no. The reason for these taxes, I don’t know, but there is a major flight away from high taxes, big pieces of their discretionary income are going on this, and much against their will, second, third generation people are moving to the south or the west, not the far west because they would get hit again in California.

AILES: New Jersey just shut the government down. [New Jersey Governor Jon] Corzine was faced with a shutdown of the government because they were not going to make the budget. There was a huge debate going on about whether they were going to raise sales or property taxes. NO where in the discussion was waste, fraud, corruption or cutting taxes, that was never on the table, never discussed publicly, they prefer to shut down the government. At the same time Attorney General in Jersey marched a bunch of majors, 10, 12, 15 majors, down to jail for corruption. Chris Christie is a very good US attorney and he marched a bunch of these clowns off the jail for corruption. Maybe they should have taken a look at those guys budgets before they started to look at raising taxes, but that never gets covered on most channels. The fox news channel found it interesting and somewhat entertaining that tax cuts were never part of the discussion.

MURDOCH: There is a new young middle class who want better for themselves and their children, who aren’t happy with inner city education, who were brought up in the row houses of Queens and the Bronx who have moved out to the suburbs, and now their children and moving further out or moving away altogether. These people are not conservatives, or don’t think of themselves as conservatives, I would not know how they vote, there’re not much in their local newspaper or on CNN that’s designed for them.

AILES: The word I would use is common sense news. It’s common sense. If you are going to talk about

MURDOCH: Look at the news at 6 oclock at night with Brit Hume, there’s no bias in that. There’s not an ounce of bias in that.

AILES: Shep Smith, I have no idea how shep votes or what he thinks, that’s hard news.

FT: Don’t you need people to live in the region to cover the news.

AILES: All of our regular foreign correspondents have lived overseas. John Moody, our senior vice president for news, was Time Magazine bureau chief in Moscow and Mexico City, we have a really broad and fairly deep knowledge. Plus, thanks to Mr Murdoch, we have resources of News Corp world wide that we can tap into. Our depth is very strong.

MURDOCH: If you think of our foreign news at the Times of London, the quality of people we have in all the capitals of the world.

AILES: Our international core is small but very strong indeed.

FT: The anti-fox argument is that the political mood is shifting and that that will cap your growth.

AILES: I would be spinning that if I was competing with Fox. That’s wishful thinking. We’re fine and we’ll grow and it will all work out.

MURDOCH: That’s BS. If the government changes to a totally democratic Washington all those who don’t like it, 48 per cent of the country, will be turning on Fox News.

AILES: We looked at numbers, I was doing some polling for the Cablevision issue, and a very high number of democrats. A high number of independents watching us, it’s a pretty strong group.

The miracle of Fox News, Mr Murdoch hired me and I;ve been a hired hand all my life, I’m given a mission and I try to complete it, but what’s interesting is that at a time when nobody saw the need or believed it could happen, Rupert looked out there to America and said they need another news channel.

I remember walking out of the first press conference and there was little bit of snickering and I said to Rupert I think the new york times is laughing at us. He said they always laugh at us in the beginning and he never worries about that. He envisioned another news channel. News was essentially a generic product at a time when you had GE, Microsoft, Time Warner, CNN, NBC , all these giants in it.

We launched with fewer resources and less people than they did. To launch into that climate and pull it off is an amazing trait. That is why Fox News Channel is very successful. It was the idea that it could work that is the real reason it succeeded, he happened to have the right idea.

FT: What about the business channel?

AILES: You have to have distribution. We have moved into the second phase of planning that.

MURDOCH: We see it as a natural extension and we will do very well. We think we have distribution pretty much lined up now. 30m subs, enough to get noticed, enough to be in new york and the capital cities, and it will spread from that. I’ve got faith in roger to do a good job.

FT: Has DirecTV helped in getting distribution for the business channel?

MURDOCH: Not at all. We own 38 per cent of Directv, any deal for a cent goes to an audit committee, it’s just the same as in sky in London, you can’t see anything from news corp at a special price. If we owned 100 per cent [it would increase our clout] but I don’t think we would, it would be a huge outlay. It’s been a good investment. It is now already the best viewing experience and by the end of this year it will be even further so, with 100 high definition channels, all sorts of things that cable can’t match.

FT: What about broadband?

MURDOCH: You can do pretty well with Wimax around the country, with partners, for an outlay of several hundred millions of dollars, not billions. That can give very satisfactory access to the internet.

FT: Are discussions continuing with Malone about DirecTV?

MURDOCH: Well, as an alternative to other things. We’re looking at several things with him. But there’s no certainty of a deal.

FT: It’s not the top item on the list?

MURDOCH: No. We’ll have a poison pill in place after the next [shareholders] meeting [on October 20]. We’re not killing ourselves.

FT: What are the plans for Fox Business Channel?

AILES: Don’t want to talk too much about plans. Every time I talk about it, two weeks later I see it on CNBC. Now I have announced we are doing all business cartoons. Some animated, some still, it will be 100 per cent cartoons...First phase was we are denying any knowledge of the business channel and for a year and a half every time it came up I pretended I didn’t know about it.

Second phase is we’ve hired Alexis Glick, she’s working with Neil Cavuto, some executives are working with me, we meet once a week to talk about content and structure. We’re looking at facilities and studios and so on and we are hoping to get enough distribution to go into a launch mode which would be the next phase, three, and the actual launch would be four. At the moment we’ve moved from one to two and we are aggressively pursuing what we will do for when Mr Murdoch has enough distribution.

We are looking at all options, cable will be part of it, we are also talking to our website people.

FT: Is Fox News web operation run separate from other Fox internet groups?

MURDOCH: The web site is part of Fox News, as is the web site of each of our stations. We are putting them on local sites. They’re helping the news service tremendously. It seems to build loyalty tied to your station. It ties into the product very well.

AILES: FIM [Fox Interactive Media] is doing a great job providing backup and we work with them together.

FT: Does it tie into MySpace?

MURDOCH: MySpace are a gargantuan thing all on their own. We’ll leave it that way for a while. We have a long way to go with it. We’ve got to internationalise it, we’ve launched in Britain, in Japan, Myspace is something else altogether. We are putting a lot of work into improving our video site. A lot of the same MySpace people are putting up things on both MySpace and YouTube, there is a lot of duplication there.

FT: Will MySpace be important in the next election?

MURDOCH: We’ll have a get out to vote campaign. Will they all go out to vote? They are pretty independent about what they think, they feel pretty in control of their own lives. I’m sure there will be people who open sites there. But it will be totally organic, totally user generated, every word.

FT: What do you make of the talk that Viacom’s inability to buy MySpace led to the sacking of Tom Freston?

MURDOCH: I don’t agree with that characterisation of it at all. Tom, who’s a very good friend of mine, for a month he was close to them, they liked him, and he was being held back on the price. We heard about it, we jumped in, we made the proprietors close the door and throw the key away until we had a contract. Over a weekend, and it was done two days before the scheduled celebratory dinner with Viacom.

I don’t know enough to say if he was held back on price by Sumner. But probably, because Sumner immediately attacked me for paying too much money, and they he would never pay that much. A lot of people criticised me, Wall Street criticised me, now they’re all saying I’m a genius, and my stock’s up 30 per cent.

Truth is somewhere in between. You could actually float it for a lot of money, I would be amazed if it was for that figure [$15bn]. But potentially could we make it that by putting all our pieces together around the world yes absolutely.

FT: There were more tensions before Lachlan stepped down?

MURDOCH: The only tension with Lachlan, well there might have been a little bit on the west coast, but the only tension was with me. I think he did a fantastic job in Australia, I admire him greatly, there’s a difference between being number one [in Australia] to being number three [in the US], I don’t want to criticise him, I speak to him two or three times a week, we’re very close, and there were absolutely no tensions in this building, none, except maybe between he and I. Not that we ever had any rows or arguments or anything. I begged him to stay but he said he wanted to go back to Australia. He is very emotional about living there.

FT: Might your son James come over here?

MURDOCH: I don’t know. Lachlan might come back. James is running his own race [at BskyB] and very successfully.

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