Authors: Gabriel Sherman
Tags: #Business & Economics, #Corporate & Business History, #Political Science, #General, #Social Science, #Media Studies
The first intimation of serious turbulence came on August 30, the day Time Warner lawyers advised Dressler to postpone the deal with Fox. In Washington, regulators at the Federal Trade Commission were wrapping
up an eleven-month review of the Time Warner–Turner Broadcasting merger. All signs pointed to its approval, but Time Warner’s lawyers decided to play a dubious Washington game.
They directed Dressler to delay announcing a deal with Fox News until after
the FTC announced that Time Warner Cable needed to make a competitor to CNN available to half of its subscribers within three to five years. It was a move designed to make it appear as though Time Warner was responding to the rigorous new regulation (even though the company had already decided on carrying
two
CNN rivals: MSNBC and Fox). In effect, Time Warner wanted to let the regulators look tough and claim credit for busting CNN’s cable news monopoly.
On September 12, the FTC approved the merger as expected. But instead of moving ahead on the Fox News contract, Dressler suddenly reversed course. There were those inside the company who had been against a Fox deal from the beginning, and the postponement gave the anti-Fox faction momentum.
Richard Aurelio, the president of Time Warner’s New York City Cable Group, was among the naysayers. He harbored bad memories of Ailes’s show on America’s Talking,
Straight Forward
. “It was awful,” Aurelio said. “It was produced badly. He had a terrible on-air personality. That was one of the factors when the decision had to be made.” In a meeting with Levin in his office, Aurelio made the case against carrying Fox News at its launch.
Dressler had similar concerns.
In his negotiations with Fox, Ailes refused to “discuss anything” about his programming plans even after Dressler explained it would influence whether they carried it or not.
The financial terms of the deal were also problematic. While Murdoch’s cash offer was enticing, the contract stipulated that Time Warner would begin paying News Corp some 20 cents per subscriber in the first year, a fee that would be subject to adjustment based on the Consumer Price Index. The unknown future cost of these so-called backend payments worried him.
Of more immediate concern, Dressler feared a potential “public-relations disaster.” He realized that Time Warner could only take Fox News if it turned down MSNBC or bumped an existing channel.
After John Malone’s TCI announced in August 1996 that it was dropping Lifetime, the channel programmed for women, from 300,000 homes in order to make room for Fox, the company received a deluge of angry phone calls and letters. Viewers even staged protests in Eugene, Oregon, and Houston, Texas.
Rejecting MSNBC would be worse.
During Dressler’s negotiations
with Time Warner that summer, David Zaslav said he would sue if Time Warner did not replace America’s Talking with MSNBC. He also threatened to pull NBC’s highly rated broadcast programming off Time Warner cable. “Then we’re in a war over whether your subscribers get to see
Seinfeld
and football,” Zaslav warned, “and we’re in a major pigfuck.” Dressler lobbied Levin to postpone signing Fox for the time being.
On the day that Murdoch called Levin, Murdoch huddled with Ailes and his general counsel and longtime confidant, Arthur Siskind, to weigh his options. Time Warner’s refusal to carry Fox News was not about prosaic business matters like “channel capacity” or “public relations.” Their view, which was partly a theory of the case and partly a PR strategy, was that Ted Turner was a killer.
In the mid-1980s, Turner successfully crushed an early effort by NBC to launch a cable news channel. Now, having sold CNN to Time Warner, Turner was trying to do the same to Fox. It was a compelling story line—Ted Turner was the villainous monopolist; News Corp was the justice seeker.
The rivalry between Murdoch and Turner had become entertainingly vituperative in the year since Murdoch announced his intention to compete in cable news. They were perfectly matched masters of insult.
In the press, Turner called Murdoch a “schlockmeister.” Murdoch publicly accused Turner of “brown-nosing foreign dictators” and turning “Fidel Castro” into a CNN bureau chief.
When Turner agreed to merge with Time Warner, Murdoch, age sixty-five, sniffed that Turner, age fifty-seven, had “sold out to the Establishment in his declining years.”
To win, News Corp would need a multifaceted campaign.
Murdoch listened as Siskind presented possible strategies, which included suing Time Warner for breach of contract on the grounds that they had entered into a verbal agreement. But total war had high costs, Siskind advised. “We don’t want to burn too many bridges here,” he told Murdoch. News Corp had built valuable interlocking relationships with Time Warner through the years, and both companies distributed each other’s content. Fox Broadcasting, for example, purchased popular shows such as
The Rosie O’Donnell Show
,
Living Single
, and
Party Girl
from Warner Bros. Television. Time Warner’s HBO aired films from Murdoch’s 20th Century Fox studio.
There was another option—in effect going over Time Warner’s head, into the world of politics. Murdoch had a decisive political advantage. At the time, his Republican allies were ascendant in New York. Senator Al D’Amato was the state’s most powerful politician.
George Pataki, a one-term
Republican state senator, defeated three-term Democratic governor Mario Cuomo in 1994, the year in which
Murdoch donated $100,000 to the New York State Republican Party. And Mayor Rudy Giuliani was the first Republican in twenty-seven years to take City Hall. Giuliani, in particular, had significant leverage over Time Warner. The city regulated the license by which Time Warner operated its cable system. As it happened, the city’s Franchise and Concession Review Committee was scheduled to hold a public hearing on the Time Warner merger on October 7, the day of Fox News’s launch. If the committee did not approve, the city could choose not to renew Time Warner’s exclusive contract to operate a cable system in the city.
The New York cable franchise was the most valuable in the world, with estimated annual revenues of a half billion dollars.
Murdoch’s investment in the
New York Post
, though it hadn’t made money in years, paid dividends in the battle.
The paper had endorsed the candidacies of Giuliani (“MAN OF THE HOUR”) and Pataki (“TIME FOR A CHANGE”) in front-page editorials. From the outset of Giuliani’s first term, the
Post
cheered the mayor’s aggressive anticrime policies.
Murdoch even employed the mayor’s then wife, Donna Hanover, as a feature reporter on the morning show
Good Day New York
, which aired on his flagship New York broadcast station, WNYW.
It was also the same year in which News Corp, as part of a Giuliani program to stanch the emigration of television production across the Hudson River to New Jersey, negotiated more than $20 million of tax breaks with the city to subsidize the construction of Fox News studios in Manhattan. The subsidies signaled Giuliani’s commitment to Fox News’s success.
But in these political battles, Ailes himself was Murdoch’s most potent weapon. Both D’Amato and Giuliani had been Ailes Communications clients.
Though he officially renounced politics in 1991, Ailes continued to socialize with both men, especially Giuliani.
On the evening of the 1992 presidential election, Giuliani watched the returns at Ailes Communications headquarters at an intimate gathering of seven people, including Ailes and Rush Limbaugh. Listening to Ailes and Giuliani banter, one attendee recalled, was “like watching Sunday morning football with guys on the set on Fox Sports.”
A month later, Ailes attended a fundraiser for Giuliani at the New York Sheraton, where he declared to a reporter that if Giuliani lost to incumbent David Dinkins, “this city is going to turn into Detroit.”
When Giuliani took office, Ailes continued to give him advice.
And so, two days after Murdoch warned Levin he was about to “let loose the heavy artillery,” Murdoch told Ailes to pull the trigger.
O
n Friday, September 20, Ailes called Giuliani to ask for help. Giuliani immediately invited Ailes to Gracie Mansion to discuss Time Warner’s decision not to carry Fox News. As the men shared pizza, the mayor pledged his unwavering support. He tasked his forty-two-year-old deputy mayor, Fran Reiter, to head up City Hall’s rapid response. As a former television syndication executive, Reiter was well versed in media issues. She was also plugged into Murdoch’s plans for Fox News.
The previous spring, she had negotiated News Corp’s tax relief package with Arthur Siskind.
“Time Warner informed us they would not be giving us a cable channel, which puts us in jeopardy,” Ailes told Reiter in a phone call later that day. “Is there anything the administration can do to help us turn this around?” Ailes explained that Ted Turner must have scuttled the deal to damage Murdoch and Fox News. Reiter assured him that she would look into it.
Reiter placed a call to Ailes’s colleague Arthur Siskind. He told her that News Corp might not be able to hire more New York–based employees if Time Warner did not relent.
As part of its tax relief package, News Corp had pledged to retain some 2,200 jobs and create 1,475 new positions. By invoking the loss of potential jobs, Siskind was making a threat: any obstacle to the growth of News Corp would embarrass the Giuliani administration. The mayor had made job creation, especially in highprofile sectors like media, a plank in his economic program.
Privately, however, Reiter thought that getting involved was a terrible idea. “No one is going to remember this except for the fact that you intervened,” she told Giuliani. Although Time Warner Cable operated with a city contract, the First Amendment gave the company’s executives wide latitude to program the channel lineup as they saw fit. Though Reiter agreed with her boss that the city had an interest in Fox’s success, she believed stepping in was “an effort doomed to failure under the law.” She also saw tight channel capacity as a legitimate issue. A couple dozen cable channels were vying for the same spot on Time Warner’s New York system.
Furthermore, the optics were reason enough to stay on the sidelines. Giuliani was facing reelection in the coming year.
In 1993, he had won by fewer than fifty thousand votes. Reiter, who had served as his deputy campaign manager, could easily script the attack lines Giuliani’s opponents
would use:
Here is a Republican mayor intervening on behalf of a conservative media mogul who invested $100 million to launch a conservative news channel run by the mayor’s former media adviser. And by the way, the mogul, who donated $100,000 to the New York State Republican Party in 1994, also just happens to employ the mayor’s wife as a television personality
.
Giuliani ignored her advice. “I got attacked,” Reiter recalled. “He was angry. He felt what Time Warner had done was wrong and was bad for the city.” Her worries were prescient. The situation soon devolved into a baroque tabloid spectacle of swooping egos and petty grievances, in which each side pursued maximum ends by questionable means, one of the defining imbroglios of the Giuliani years. The battle to launch Fox News, aided by Giuliani’s strong-arm tactics, became the quintessential example of Murdoch’s brazen manipulation of political relationships to help expand his media empire. And Ailes was at the center of it, crafting Murdoch’s message and battling his Time Warner opponents as ferociously as any political candidate.
The months-long campaign tarnished the reputation of everyone involved.
“Rudy was walking into a snake pit,” Reiter said. “It was the worst episode in my time in government.”
O
n Thursday, September 26, just a few days after Ailes called Giuliani, News Corp executives Arthur Siskind and Bill Squadron arrived at City Hall in lower Manhattan to make their case before the city’s corporation counsel, Reiter, and her senior aides. They argued that Time Warner was breaking antitrust laws to protect CNN. Would Reiter call Time Warner’s CEO, Gerald Levin? Reiter was amenable, but directed Siskind to first send her a detailed letter laying out his case.
Meanwhile, uptown at a Time Warner luncheon to celebrate the merger, Ted Turner was comparing Rupert Murdoch to Adolf Hitler. “Talking to Murdoch is like confronting the late Führer,” he declared to journalists at the reception.
Given the messy public row, Reiter decided to take action even before receiving Siskind’s letter. She left a message for Time Warner president Dick Parsons, saying she was “very concerned.” Reiter hoped that Parsons, a longtime Giuliani ally, could serve as an influential back channel.
By Friday afternoon, Reiter and her aides devised a novel solution, essentially a one-for-one channel swap, to free up a spot for Fox News.
As part of Time Warner’s franchise agreement with the city, the Giuliani administration controlled five public channels. Named “Crosswalks,” the channels had to be programmed, according to law, for noncommercial public, education, or government programming. It was a leap, but perhaps Time Warner could move a cable channel with educational content—the Discovery Channel or History Channel, for example—to one of the Crosswalks channels. Reiter desperately wanted to avoid the protracted lawsuit that Siskind was now threatening.
With the broad contours of a potential accord in place, Reiter needed to get Time Warner on-board. Dick Parsons had not called her back, which worried her.
Over the weekend, Reiter and her aides decided to call Parsons and Levin at home, but they could not find their numbers. On Sunday, she managed to get through to Derek Johnson, a Time Warner vice president. Johnson listened as Reiter explained her “deep concern” over Time Warner’s refusal to carry Fox. She said the city wanted Time Warner to agree to carry Fox before October 7, when the city’s franchise review committee had a hearing scheduled on the Time Warner merger. After hinting at her channel swap plan, Reiter insisted that she meet with Levin or Parsons in the next week to discuss it. It was important enough, she said, that if Levin and Parsons were out of town, she would get on a plane to meet them.
On Monday morning, Johnson sent a memo to Parsons and Levin offering his assessment of Reiter’s proposal. “Although attractive … could spark grave reaction from programmers and politicians alike,” he wrote. With the backlog of other cable channels waiting to get into the New York market, it was not fair to jump Fox News to the front of the line just because the mayor’s office endorsed the idea. After reading Johnson’s memo, Levin and Parsons decided to turn down the request for a meeting and Dick Aurelio, a man closer to Reiter’s level, was dispatched to handle the negotiations. He even had political experience, beginning his career as an aide to Republican New York senator Jacob Javits and as a deputy mayor under Mayor John Lindsay.