Fox News Chaos as Possible Roger Ailes Replacements Identified

AilesReplacements Comp - H 2016

AilesReplacements Comp - H 2016

What would Fox News look like without Ailes?

Update: 21st Century Fox announced that Ailes will leave the network on Thursday. Read here.

As 21st Century Fox negotiates an exit package with embattled Fox News chief Roger Ailes, one that is expected to conclude imminently, the parent company is also scrambling to put a succession plan together.

Among the names that have emerged: Bill Shine, a longtime Fox News executive who runs primetime programming and also oversees Fox Business Network; Jay Wallace, who in April was promoted to executive vp news and editorial; Jesse Angelo, CEO and publisher of the New York Post; and David Rhodes, a former Fox News staffer who is now president of CBS News.

Sources have dismissed reports that the Murdochs would bring in someone from their British broadcaster Sky. And Rhodes is seen as a real long shot. He has maintained a relationship with Ailes, but he is under contract at CBS, where he has a strong relationship with president and CEO Leslie Moonves, who is known to keep favored executives around for decades.

Ailes, 76, has also been in his Fox News office in Manhattan this week, even as the fall-out from ousted anchor Gretchen Carlson’s sexual harassment lawsuit and an internal review conducted by New York law firm Paul, Weiss, have intensified the pressure. Insiders describe a surreal atmosphere, especially as the network has hundreds of staffers in Cleveland for the Republican national convention. “No one knows what the hell is going on,” said one. “We’re just trying to focus on the work.” 

Meanwhile, Ailes is also being slammed by a bombshell New York magazine report that Megyn Kelly told lawyers conducting the review that she was the target of unwanted sexual advances early in her career at Fox News. (Ailes’ lawyer, Susan Estrich has denied the report. "Roger Ailes has never sexually harassed Megyn Kelly," she said in a statement released July 19. "In fact, he has spent much of the last decade promoting and helping her achieve the stardom she earned, for which she has repeatedly and publicly thanked him.")

One scenario, say sources, would be to temporarily put Shine and Wallace in a dual role running Fox News, giving the Murdochs time to conduct a search for a permanent replacement. Shine, who has been at Fox News since the network’s inception in 1996, is senior executive vp programming. Sources tell THR he returned to New York from Cleveland on Tuesday amidst the flurry of apparently premature reports that Ailes was out.

Wallace, last April was promoted to executive vp news and editorial (the job previously held by Michael Clemente). He has oversight of Shepard Smith Reporting and the Fox News Deck, as well as the programs that originate from the network's Washington, D.C., bureau such as Special Report with Bret Baier and Chris Wallace’s Fox News Sunday.

Jay Wallace is known to be well-regarded by Ailes, who said in a network press release announcing his recent promotion: “Jay’s television journalism acumen has played a major role in the success of Fox News throughout his nearly 20 years here and his leadership during the current election season has especially stood out. He’s both liked and respected throughout the newsroom and I’m certain he’ll excel in this position.”

But the question is what would Fox News look like without Ailes?

He has his hand in virtually every aspect of Fox News from coverage to the graphics to guest bookings. He has always viewed himself as a producer. And his laser focus on what is on the television screen — and what viewers will respond to — has made him one of the most successful executives in the business. In building the top-rated cable news network, and a revenue-generating juggernaut, Ailes forged close relationships with his top on-air stars. So much so that Bill O’Reilly, Greta van Susteren and Sean Hannity all have clauses in their contracts that allow them to leave if Ailes does, say multiple sources. It is an unusual wrinkle in an industry where eye-popping salaries are on the wane and many news division heads chafe at the care-and-feeding requirements of their top stars. 

“It’s one of the things that I get accused of — defending talent too much,” Ailes told THR during a wide-ranging interview in March 2015. “But I like talent and think they're vulnerable. They get out there in front of the public and take all the criticism. They do a lot of hard work. So one of my jobs as a producer is to protect them."

Ailes is known to have given O’Reilly in particular, considerable autonomy. “Ailes does not micromanage me,” O’Reilly told THR during a recent interview. “If I do something that tees him off then I'll hear about it, sometimes from him directly. I have to make split-second decisions every day of my life about how to handle people, what questions to ask, my tone. I can't be worrying about what they think. Ailes understands that. He knows I can't be perfect. He knows I'm going to make mistakes. So that's his genius: understanding who the person is.” 

If Ailes’ management style is unusual, it’s also proved effective. He’s created a business that contributes almost 25 percent to the bottom line of 21st Century Fox, the single most profitable asset in the company’s portfolio. Fox News and Fox Business generated $900 million in ad revenue, $1.5 billion in affiliate revenue and $2.5 billion in total revenue last year, according to data from SNL Kagan. Their operating income before depreciation and amortization (OIBDA) totaled $1.6 billion. (In comparison, Time Warner's CNN and HLN generated $600 million in ad revenue, $700 million in affiliate fee revenue and $1.4 billion overall, with around $500 million in OIBDA.)

Meanwhile, Kelly, who anchors the network’s 9 p.m. program, is said to be in negotiations with Fox News management for a new deal when her current contract comes up next July. She is the network's second-most watched personality after The O’Reilly Factor. And she's also made no secret of her desire to take the next step in her career and also be home to see her three children. 

Kelly’s live show means she goes to work around the time her kids are coming home from school and gets home after they’ve gone to bed. “I don’t know what’s going to happen,” she told Variety in an interview published April 5.

“I’ve had a great 12 years [at Fox News], and I really like working for Roger Ailes. I really like my show, and I love my team. But you know, there’s a lot of brain damage that comes from the job. There was probably less brain damage when I worked in the afternoon. I was less well known. I had far less conflict in my life.”

Kelly has said she’d like to do more interviews, a la Charlie Rose. And a primetime interview special last May on the Fox broadcasting network, produced by Ailes, may have been a trial balloon for a bigger role at the company. So Kelly’s on-air colleagues are waiting to see what kind of deal — and how much power — she’ll get if she stays.

The loss of O'Reilly would also leave a huge hole — and if van Susteren and Hannity also took advantage of their exit clauses, most of the network's primetime lineup would collapse. A potential talent exodus that has not gone unnoticed on Wall Street. 

Sanford C. Bernstein analyst Todd Juenger wrote in a report Wednesday: "Mr. Ailes is widely viewed as the architect and soul of Fox News Channel. Therefore, losing Mr. Ailes injects some degree of risk into its future. But we struggle to identify any material negative near-term financial implications."

The biggest risk seems to be key talent. "However, we question: where else would they go?" Juenger wrote. "The most damaging theory (and this is just a theory, we have not heard it espoused by journalists or investors) is if Mr. Ailes were to set up a new, competitive network/service and bring this talent with him."

Juenger in that context highlighted that Glenn Beck and Sarah Palin, "both rather noteworthy personalities of their own, have struggled to set up their own services."

Similarly Pivotal Research Group analyst Brian Wieser said in a report that he does not expect Ailes’ departure to have a “meaningful impact on the business given the strong political cycle providing a headwind to audience shares and the long-term nature of affiliate fees.”

But he also acknowledged that a "disruption of this nature may introduce some challenges. Reports that the unit’s CEO is set to depart in the wake of sexual harassment allegations introduce concerns for investors beyond the allegations themselves. Fox News is more heavily dependent on its CEO for its personality and operations than are most other networks. Because of this, the network has historically operated as an independent fief, and many of the network’s highest profile on-air commentators evidently prioritize loyalty to its current leader rather than to the parent company. These elements lead investors to question whether recent developments create new risks."