Without Roger Ailes, what would Fox News be worth?
Under the leadership of Roger Ailes, Fox News hasn't only dominated its rivals in the TV ratings for more than a decade but it has proven to be a financial juggernaut as well. It accounts for roughly 20 percent of the profits at corporate parent 21st Century Fox (FOXA). No wonder Wall Street has been keeping a close eye on the sexual harassment allegations that appear to be bringing Ailes' career to an end.
The Pew Research Center's latest State of the News Media report issued in June estimated Fox News' 2015 profit at $1.5 billion, well ahead its closest rival Time Warner's (TWX) CNN, which Pew estimated to earn $381 million, and Comcast's (CMCSA) MSNBC, which Pew projected to earn $227 million. Profit margins for cable channels are around 50 percent, far better than what traditional publishers earn.
Revenue among these rivals wasn't close, either, with Fox projected to bring in $2.3 billion compared with CNN's $1.2 billion and MSNBC's $518 million. Cable news viewership spikes during presidential elections as does advertising revenue, though local stations -- particularly those in battleground states -- make the biggest election-year money.
Shares of the New York-based 21st Century Fox, whose other properties include the 20th Century Fox film studios, traded down on Wednesday (off 2.7 percent, or 75 cents, to $27) as investors fret over reports that Fox News' biggest stars, such as Bill O'Reilly, Sean Hannity and Greta Van Susteren, might follow if Ailes leaves, causing viewership to tumble. The Financial Times has reported that these top personalities have "escape clauses" in their contracts that would allow them to leave the network if Ailes departs.
Media reports over the last few days, including one in the Murdoch-owned New York Post, have left little doubt that the 76-year-old Ailes will depart the channel he started two decades ago. Others worry that James and Lachlan Murdoch, the sons of Fox CEO Rupert Murdoch, might change the editorial direction of the conservative-leaning channel. But Brett Harriss, an analyst with Gabelli & Co. who follows media companies, told CBSNews.com these concerns are overblown.
"We think that the Murdoch sons are practical and astute enough to realize the special nature of Fox and its market position," said Harriss, whose firm owns shares of 21st Century Fox among its $37.5 billion in assets under management. "They're not going to break the [business] model. We think there's probably enough executives there that could run the thing without Ailes."
Among the potential replacements are executive editor John Moody; Bill Shine, who overseas Fox News' prime-time and opinion shows; special projects head Michael Clemente; and Jay Wallace, who overseas news and daytime programming, according to Politico. A spokesman for 21st Century Fox Century Fox couldn't immediately be reached for comment.
The downfall of Ailes may have actually been years in the making.
Although he enjoyed a close relationship with Australia-born Rupert Murdoch, his relationship with sons James and Lachlan was reportedly strained for years. Lachlan Murdoch was said to quit his father's media empire in 2010 after a row with Ailes. But the brothers assumed new managerial roles last year at the behest of the 85-year-old father, who appears to be in the process of preparing for them to take over his empire.
At the time, Fox News initially claimed Ailes would continue to report directly to Rupert Murdoch only to clarify that the younger Murdochs would be his boss, although he would continue to have a " unique and long-standing relationship" with their father.
The détente between Ailes and the younger Murdochs came to end when Gretchen Carlson filed a sexual harassment lawsuit against Ailes earlier this month. The TV executive vehemently denies the claims, and several Fox stars spoke up on his behalf. Still, 21st Century Fox hired the law firm Paul, Weiss, Rifkind,Wharton & Garrison to conduct an investigation.
Soon, reports emerged in New York magazine that other women, including Fox News anchor Megyn Kelly, had leveled similar complaints against Ailes. New York reported on Wednesday that Ailes and Fox were working out the terms of his payout, which will be determined by the company's results for the fiscal year ended July 1. A spokeswoman for Fox couldn't be reached for comment.
Whether the likes of O'Reilly, Hannity, and Van Susteren would avail themselves of the opportunity to depart isn't clear, though the conservative website BreitbartNews reported that several Fox broadcasters are considering leaving to form a rival network. New York magazine's Gabriel Sherman, who has written a critical biography of Ailes, has raised doubts about that story on Twitter. Al Tompkins of the media think tank Poynter Institute is skeptical as well.
"I can't think of a circumstance," Tompkins said, "where people of real significance have followed someone out the door like that to an opportunity that doesn't currently exist." But even if all those big names stick around, chances are good that Fox News would still be a different organization post-Ailes.