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Why CNNfn Failed

The network's problems lie as much in management as in a falling NASDAQ 10/31/2004 07:00:00 PM Eastern

Last Wednesday was a hot news day in the media business. Michael Ovitz testified about his corporate backstabbing at Disney. DreamWorks' animation unit went public. And Howard Stern had called into nemesis FCC Chairman Michael Powell's AM radio talk show.

Good material for a show like The Biz, the half-hour show on the media business airing daily on CNNfn.

So who were CNNfn's guests that Wednesday? Jean Smart, a comedic actress on CBS's Center of the Universe, and the Canadian punk-pop group Simple Plan. Exciting.

That makes it easier to understand why CNN is shutting its financial network down. The network is so directionless, so unlikely to attract more viewers it's not worth keeping alive.

That's a harsh assessment, particularly since it comes from inside
parent Time Warner.

It's easy to blame CNNfn's fall on the bursting of the tech stock-bubble. When the market was hot and buzzing with day traders, the absolute latest stock-market news was more urgent to more people. Look at the plunge in CNBC's ratings. According to Nielsen Media, CNBC's average viewership has dropped 51% from the market's height to an average of 148,000 viewers.

But CNNfn's problems lie as much in management as on the NASDAQ. Its executives simply made the network less interesting. CNNfn, a digital channel, decided to stake out the blandest part of the financial-news game, the personal-finance, "news you can use" end. It was a move to counterprogram against the larger CNBC, with 90 million subscribers. CNNfn zigged over to another market segment, the one targeted by Time Warner's Money
magazine.

The problem is, there's not a lot of urgency in the mutual-fund/financial- planning crowd. Those folks don't need as much quick information as stock traders and executives. News networks thrive on urgency.

In the offices of the hungriest consumers of business news—Wall Street and corporate executives—CNBC and CNN are common fixtures on office TV sets. Fox News is becoming more prevalent, not CNNfn.

There are ways to produce compelling financial news other than the daily-stats horse race. CNN's own Lou Dobbs is pretty much at the top of his game editorially, partly because he has found a groove. Right now, he's crusading against outsourcing. And Fox News' Neil Cavuto is drawing around 1 million viewers on his 4 p.m. ET show—nine times CNBC's best news show.

Of course, CNBC's Nielsen ratings understate much of its viewership. As with TV sports, tons of CNBC's viewing occurs "out of home," in offices littered with Blackberries and Bloomberg machines—every piece of technology known to man except a Nielsen meter.

Still, CNBC's well-heeled sliver of the Nielsens wows advertisers enough to generate an estimated $320 million in operating cash flow this year.

CNN Group President Jim Walton contends that CNNfn is actually making money, turning a profit for the first time in its nine-year life. So why close now? There's just too little upside. CNN's top executives felt that making CNNfn worth the effort would require boosting its daytime ratings to an average of 300,000-400,000 viewers. With market leader CNBC averaging half that, how could CNNfn ever hope to get there?

It's virtually unheard of these days for a company to shutter a network, especially one with 30 million subscribers and
generates an average license fee of 12¢ per subscriber monthly. Nevertheless, CNN has now done it twice. In May 2000, the company pulled the plug on its sports news network, CNN/SI, aimed at exploiting supposed synergies between CNN and magazine Sports Illustrated.

Walton says Time Warner will try to convince operators to put other Turner Broadcasting product, such as CNN International, into those slots. Good luck.

It's one thing to talk about the declining audience for financial-news networks, but that ignores the magic of cable economics. Despite its ratings collapse, CNBC will probably bring in $320 million in operating cash flow this year, says Kagan Research. That's more than CBS will generate with 20-40 times that viewership. Why? CNBC gets about half of its $523 million in revenue from license fees in cable and DBS systems.

CNNfn was never big enough to make that magic elixir work. Now Fox News is openly talking about launching its own business-news network. There will be red faces at CNN if it's a hit.

 

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