Friday, August 07, 2009

Advice to Rupert Murdoch not hidden behind a paywall

(photo by Indio)

“I am pleased that we are reporting adjusted operating income right in line with the guidance we previously provided during the last six months which reflects a decline of approximately 30%.”

This was the optimistic opening statement of News Corporation's CEO in his announcement of the company’s recent drastic decline in fortunes. In the 12 months between 30 June 2008 and 30 June 2009 NewsCorp has gone from being a company making a $5.39 billion profit to one making a $3.38 billion loss. Yet Murdoch could say “I was pleased” because he could correctly predict the scale of the disaster when the company realised they were heading for a train wreck in December.

This small crumb of comfort shows the old dog hasn't lost his newspaper ability to spin a line. Because in truth, there wasn't much pleasing about the report. The global financial crisis has come calling and taken a big slice out of the enterprise. And even despite the recent “guidance”, News Corp's final quarter revenue fell 10.5 percent and the company lost $680m. Market Watch put this reverse down to “impairment, restructuring and other charges”. News’s stagnant social networking site Myspace was turning into a particularly bad impairment dragging $363m off the bottom line.

The asset list threw up one other important fact: In 12 months, $10 billion of assets have disappeared. But whereas current assets such as cash actually increased, the loss was sustained primarily in intangible assets and goodwill. I don’t know how they measured $10 billion of intangibles, but the goodwill will hardly improve after Murdoch’s parallel announcement that News would charge for access to all its major websites by the Northern Summer of 2010. "Quality journalism is not cheap," Murdoch told the fourth quarter earnings conference. "The digital revolution has opened many new and inexpensive distribution channels but it has not made content free,” he said.

Rupert is right about the quality journalism but wrong about the digital revolution. It HAS made content free. Newspapers should have thought about charging before they began putting it out on the Net for free. But they didn’t. People got used to the fact that they can get their news online without having to reach for their wallet. And News Corporation, despite its vast power, cannot change that. Closing this gate now well after the horse has bolted won’t make any difference. Because no other media company will follow suit. All a paywall will mean is that News Corporation will lose further audience share and those nasty loss brackets will be even more common on the balance sheet.

I sympathise with News Corporation’s desire to monetise their online content - I would like to do that myself. I make a tiny income from sponsored links and have a tipjar that is gathering dust over on the sidebar. But putting a paywall round my content won’t work. No-one is going to pay to read me. Nor, I venture, will many people pay to read The Sun, The New York Post, The Times, The Australian or any other of Murdoch's digital offerings. There are simply too many other sources of credible information out there.

Yet I wish them well. With the talented and creative people at their disposal, I trust News Corp can find an imaginative way to fix the problem. But they cannot afford to see the solutions of the past as a guide to how people will behave in the future. As Jeff Jarvis says when you “cut yourself off from links behind pay cut yourself off from the internet and its real value”. Murdoch himself admits there are “revolutionary changes taking place throughout the media Industry”. He must know that News Corp’s empire will fall to that revolution if they don’t tear down the paywalls and build something new instead.

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