Rupert Murdoch: Leading the charge

Published on Saturday 14 November 2009 12:09

HE'S spent decades building up the world's third-largest media conglomerate, overcoming numerous obstacles along the way, but the rise of the internet has clearly evolved into the biggest challenge yet faced by Rupert Murdoch.

His controversy-laden career is evidence enough that the Australian mogul is up for a fight. Yet even he has been forced to concede that implementing charges for web access to all of News Corporation's publications has been more difficult to achieve than first anticipated. A self-imposed deadline to erect these paywalls by June of next year could well be missed, the chairman admitted in a conference call this month.

"It's a work in progress and there's a huge amount of work going on," Murdoch said after News Corp released first-quarter results on 4 November. Tensions heightened two days later when, during a 37-minute interview with Sky News Australia, Murdoch accused Google and other online news aggregators of "stealing" content from newspaper web editions. He levelled a similar accusation at broadcasters including ABC in Australia, and the BBC.

"If you look at them, most of their stuff is stolen from the newspapers now, and we'll be suing them for copyright," he told Sky News political editor David Speers. "They'll have to spend a lot more money on a lot more reporters to cover the world when they can't steal from newspapers."

The language may be overblown, but media analysts say Murdoch has a valid point. The rise of online news has led to the most disruptive period ever witnessed in the print industry. Newspapers, which have always relied upon a hybrid model that sources income from readers and advertisers, must take a hard-headed look at the fair price of the written word.

"In essence, he is trying to seek value for his news content, and part of that is addressing the question of what is the value of news, and comment, and sport, and so forth," says Douglas McCabe of Enders Analysis, a specialist media and technology research firm based in London.

During the interview with Speers, Murdoch said his newspapers – which include the Sun and Times in the UK, the New York Post and the Wall Street Journal in the US, and The Australian – would probably cut themselves off from Google once they start to charge online.

The construction of such paywalls around newspaper websites is a divisive issue within the industry. Some organisations, such as the Guardian Media Group, have declared that they will remain free. This, as well as the rising popularity of the BBC's online offerings, will hamper those publishers who wish to charge readers for browsing their electronic pages.

Severing all ties with the likes of Google News also poses problems. These search engines and news aggregators direct huge numbers of online surfers towards newspaper stories; cutting that link would inevitably lead to a massive drop in traffic, at least in the short to medium term.

However, many publishers point out that these visitors are of little value, as they tend to go to a single article without ever looking at the newspaper's home page or advertising. Such complaints are backed up by recent industry figures that estimate the average reader spends 12 hours a month with a printed newspaper, generating a value of 155 per year in cover price and advertising revenue. By contrast, online readers spend just 10 minutes a month with their web-based paper, and are worth a mere 5 per year.

McCabe notes that the Financial Times has implemented an online charging structure. Its basic service sends out e-mails with links to the full stories behind the day's top headlines. This is free of charge, but access to related stories and other content is restricted to just five views per month unless readers opt to pay for a higher subscription level. It is a similar story at Murdoch's Wall Street Journal in the US, which last month overtook the long-time best-selling USA Today as the country's largest-circulating newspaper. The WSJ charges about 62 a year for online access and has some 407,000 web subscribers, which combined with print sales gave it a total daily circulation of 2.02 million during the six months to September.

However, it is recognised that the FT and WSJ occupy a special spot in the marketplace. They cater to high-level AB readers who often pay their subscriptions out of business expenses because these papers carry "need-to-know" information. Niche publications regarded as authorities in their fields – witness Retail Week, whose website access now comes as part of a subscription package – are also in a better position to charge.

On the whole, however, many publications will likely find it difficult to simply copy the FT or WSJ format.

"For more generalist news, then different kinds of models need to be explored," says McCabe. "This could be anything from bundling in the print version with the internet down to splicing off certain sections of a newspaper and charging for access to those."

Indeed, though used as a general term, a paywall can mean many different things: a flat yearly subscription charge; a fee for access to certain "premium" content; a set price for viewing a certain number of pages per month; or so-called "micro payments" of a few pence for every article read.

News Corp has yet to publicly discuss which methods it may adopt as it walls in the content of its hundreds of newspapers around the globe. However, it's difficult to imagine that tabloids such as the Sun, the News of the World or the New York Post will adopt structures identical to those of broadsheets such as the Sunday Times or The Australian.

Work is already in progress to create a separate website for the Sunday Times, which is currently housed with the Times under the Times Online banner. The move, which reverses a long-standing policy of blending the content of the two papers into a single internet offering, is expected to create a test-bed for News Corp's online charging mechanisms in the UK.

David Joyce, media analyst with Miller Tabak & Co in New York, believes News Corp will eventually implement a successful online charging model, though the process will undoubtedly be painful.

He notes that the group benefits from access to other media channels such as broadcasting – including BSkyB in the UK – giving it more scope to bundle its online activities together with other offerings.

Success for all online newspapers looking to charge will come at the expense of lower unique viewership numbers, he adds, but the move is crucial to the print industry's survival."It is a direction that the newspaper industry as a whole needed to take, and everyone will be looking at how to do something similar," Joyce says.

"There will be a loss of viewership for a while as people look for free content elsewhere, but they will eventually return as quality free content disappears."

The urgency is underlined by the sharp decline in the financial fortunes of publishers around the world.

News Corp reported an 81 per cent drop in operating income from its newspaper division during the three months to 30 September, though other parts of its sprawling media empire helped the group to an overall 11 per cent increase in profits for the period.

Gannett, the US's largest publisher and owner of Newsquest in the UK, publisher of the Herald, Sunday Herald and Evening Times, said last month that its profits fell by more than 50 per cent during the third quarter.

It's been a similar story across the sector, as the industry's long-term structural problems vis--vis the internet have been exacerbated by this year's torrid economic climate.

McCabe, at Enders Analysis, says that under these circumstances some publishers will be relieved that Murdoch is taking the lead in the quest to secure new revenue streams. Even so, the debate on charging looks likely to rumble on.

John Fry, chief executive of Johnston Press, publisher of The Scotsman and Scotland on Sunday, says he understands News Corp's position, but he is watching the market and the reaction of others closely.

"Having examined JP's traffic, the most valuable comes from loyal users. Those who come to JP from search engines tend to come from a sensationalist angle, and are therefore are not as valuable from an advertising point of view. Content owners have lost value to internet engines like Google which has understandably led to Murdoch's actions."

McCabe adds: "There are lots of unknowns. There has not been anything resembling a consensus among publishers about this, but I have seen a shift in thinking. If there is a consensus, then it is that something needs to be done now rather than later."