Rupert_murdoch

Don't Dismiss Murdoch Too Quickly

As I wrote yesterday, News Corp. chairman Rupert Murdoch has a radical idea for how to make money off of news content online: he wants to charge for it. In other words, he wants to put content behind what's known as a "paywall" and make users pay to access it. Even more radically, he wants to charge search engines like Google—or at least get something out of them—for the privilege of indexing his content.

Speaking at a event in London, Biz Stone, one of Twitter's founders, said today that Murdoch's plan was a futile attempt to "put the genie back in the bottle" and would "fail fast." Murdoch, he said, "should be looking at it as an opportunity to do something radically different and find out how to make a ton of money out of being radically open rather than some money by being ridiculously closed." Reid Hoffman, one of the founders of LinkedIn, likewise ridiculed Murdoch's plan, saying he was sure "that during the transition from horses to automobiles there were some people bemoaning the loss of horse transport."

Murdoch's plan may indeed fail. It will be hard for his sites to attract paying subscribers with so many other news sites giving away their content for free. Sites that have tried to charge subscribers to access their content have generally struggled. Charging subscription fees probably won't work unless other web publishers follow suit. But if Murdoch's plan flies in the face of the conventional Internet wisdom, it should not be dismissed so lightly. After all, there is a certain irony in Stone and Hoffman's dismissals, since neither Twitter nor LinkedIn make any real money. Although each company is valued at around a $1 billion, Twitter has yet to actually make a profit, and LinkedIn reportedly made a meager $17 million last year. With more than $4.2 billion in profits in 2008, Google made that amount in about a day and a half. For other heavily-hyped sites like Twitter and LinkedIn the business plan seems to be that attracting subscribers will somehow inevitably lead to profit. But how exactly that will happen always seems to involve a lot of hand-waving.

That's the problem. Murdoch isn't exaggerating much when he says that "no websites—news websites or blog websites—anywhere in the world are making any serious money." Only six internet companies—Google, Yahoo, Amazon, eBay, and Expedia—were on last year's Fortune 1000 list and made a profit. None of them make their money selling their own original content. And, by the way, only Google made as much money as Murdoch's more conventional news business. The simple fact is that it is expensive to produce the news. If media companies can't find a way make money from online content, they're going have to stop producing it.

But, as Murdoch realizes, the content they produce is worth something, and they do have some leverage. While the traffic that search engines like Google generate for websites is valuable, Murdoch is right to point out that "search people"—people who come to websites by way of a search engine—are not as valuable as regular subscribers because they spend relatively little time on the sites they visit. At the same time the right to index those sites is worth something to the search engines, whose ads sales depend on them having comprehensive and useful results. It's certainly worth something to Bing, the search engine Microsoft hopes will rival Google, to have exclusive access to the content News Corp. can provide. And since News Corp. is making so little money off the revenue generated by search-engine traffic, Murdoch can, as Jarvis Coffin argues, plausibly say they will do without it, instead focusing on higher-value regular users. Unless, that is, the search engines are willing to share some of their revenues with him.

Ultimately, the problem is not that no one is making any money from web content. Google actually makes a fair amount selling the ads that accompany their search results. The problem is that the producers of online content don't see much of that money. The trick for them is to capture a larger share of the revenue stream. In the long run, charging users subscription fees is probably not a viable model because it will drive readers away. But it's not really about subscription fees. Rather, it's about using News Corp.'s leverage—by refusing to effectively give away it content—to force the search engines and aggregators to give him a greater share of the profits. As he put it when asked why people should suddenly have to pay for what they used to get for free, "Well, they shouldn't have had it free all the time. I think we've been asleep."

comments powered by Disqus
×