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Blockbuster ratings may give Fox News room to revive after Ailes exit

[July 21, 2016] By Jessica Toonkel

NEW YORK (Reuters) - The imminent departure of founder and Chief Executive Roger Ailes may not come at an ideal time for Fox News Channel, but the momentum of record ratings amid the most sensational U.S. presidential election in decades may give the cable network some breathing room to recover, media buyers and Wall Street analysts said.

However, Ailes' successor faces the twin challenges of retaining Fox News' established on-air stars such as Bill O'Reilly and Megyn Kelly, while making the network attractive to younger viewers, a demographic it has consistently missed.

"You have a few months right now where you are pretty much well assured that you won't have an audience issue, so it is a good time to lock up talent and make sure the course is corrected," said Brian Wieser, an analyst with Pivotal Research Group in New York.

Seventy-six-year-old Ailes, who in 20 years built Fox News into a highly profitable ratings juggernaut, is in negotiations over his departure with parent company Twenty-First Century Fox Inc <FOXA.O>, a person briefed on the discussions told Reuters on Tuesday.

Twenty-First Century Fox declined comment.

Earlier this month Ailes was sued by former Fox News anchor Gretchen Carlson, who claimed he sexually harassed her. Ailes denies the charges. Fox News hired a law firm to conduct an internal investigation, which it says is not yet complete.

The scandal has brought unwelcome attention to Fox, but seems unlikely to dent viewer ratings in the middle of an unpredictable presidential campaign pitting outspoken businessman Donald Trump against former secretary of state Hillary Clinton, who would be the first female president.

Fox News, known for a lineup of politically conservative commentators, is the most-watched channel in basic cable television this year, with an average of 2.2 million prime-time viewers, according to Nielsen data through June. CNN had 1.2 million viewers followed by MSNBC with 917,000.

That gives some room for maneuver to Twenty-First Century Fox's top executives, James and Lachlan Murdoch, who last year took over from their father Rupert Murdoch, to make a management change without a big risk of losing viewers.

"Advertisers would have to see a drop in viewers before they would do anything," said Barry Lowenthal, president of the Media Kitchen, a media buyer. He said he has not heard from a single concerned client since reports surfaced on Monday that Ailes could be leaving the network.

TALENT EXODUS?

Whether Fox News can survive a leadership change without a drop in ratings is largely dependent on whether it can keep its top talent, analysts said. Network stars O'Reilly and Kelly's contracts are up in 2017, according to media reports.

"It would be a much bigger deal for advertisers if one of them left, because that is why viewers are tuning in," said a media buyer, who asked to remain anonymous because he is not permitted to speak to the media.

O’Reilly, Greta Van Susteren and Sean Hannity all have clauses in their contracts that allow them to leave the network if Ailes departs, according to a report in the Financial Times this week.

The next big challenge for Ailes' successor is its aging viewers. Fox News, like many of its peers, has an older audience, with a median age of over 65, higher than MSNBC and CNN, whose viewers are a median age of 64 and 60 respectively, according to Nielsen data. Advertisers generally seek out a much younger market.

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Roger Ailes, chairman and CEO of Fox News and Fox Television Stations, answers questions during a panel discussion at the Television Critics Association summer press tour in Pasadena, California July 24, 2006. REUTERS/Fred Prouser/File Photo

That could mean adjusting its political outlook, said Media Kitchen's Lowenthal. "Fox News represents the former Republican establishment and they can use this as a way to reflect the modern American conservative view," he said.

Keeping Fox News relevant is important financially. It contributed $1.35 billion in earnings before interest, tax, depreciation and amortization (EBITDA), or 20 percent of parent Twenty-First Century Fox's total EBITDA in fiscal 2016, according to estimates by Anthony DiClemente, an analyst with Nomura.

NO CLEAR SUCCESSOR

There is no clear successor to Ailes within the network, industry insiders said, but possible contenders who have been mentioned in media circles include David Rhodes, a former Fox News staffer who now runs CBS News; Neil Cavuto, a senior vice president and anchor for both Fox News and Fox Business Network; and Bill Shine, senior executive vice president of programming at Fox Business.

Rhodes, Cavuto and Shine did not reply to requests for comment.

A former adviser to several U.S. Republican presidents, including George H.W. Bush, Ailes built Fox News into the most-watched U.S. cable news channel. He has been a confidant of media mogul and Twenty-First Century Fox Executive Chairman Rupert Murdoch, who named Ailes founding chief executive of Fox News in 1996.

Ailes positioned the network as an alternative to mainstream media that conservatives have long complained carries a liberal bias, promising "fair and balanced" coverage.

Nevertheless, analysts believe the channel will survive Ailes' departure.

"If this had happened 15 years ago, it would have a much greater impact," said John Janedis, an analyst with Jefferies. "At this point, Fox News' growth is beyond one person."

(Reporting By Jessica Toonkel; Additional reporting by Lisa Richwine in Los Angeles, Ginger Gibson in Cleveland and Anna Driver in New York; Editing by Eric Effron and Bill Rigby)

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