I always listen to Rupert Murdoch when he talks. Partly it's habit. I was a reporter for Reuters in Sydney from 1996 to 1999 and covered News Corp over that period. I went to Murdoch's annual meetings (then in Adelaide) and lobbed a few questions to the great man in-between elbowing my reporter colleagues out of the way. He was always charming and answered my questions. I liked how he obviously didn't care what anyone thought of his answers and answered directly, unlike most CEOs I had dealt with.
I listen particularly closely to the 'Dirty Digger' when he talks about the internet. He has often been more right than anyone else. In the late 1990s and early 2000s he was a renowned Luddite who said the internet thing didn't make sense from a business point of view. He was conspicuously absent during 1999 and 2000 when most other media companies lost their marbles and spent enormous sums buying internet companies or building ruinously expensive websites. One of his major competitors, Time Warner, essentially destroyed itself by buying AOL.
But in July 2005 Rupert Murdoch appeared to get religion and he jumped head first into the internet with the US$580 million acquisition of social network MySpace.com. Within a year he sold the advertising space on it to Google for US$900 million in what is still seen as one of the savviest deals of the internet age. Then during 2007 Murdoch suggested he would remove the subscription wall around the Wall St Journal when he bought the financial newspaper group, which seemed particularly enlightened, or at least in tune with the 'everything is free' ethos of the internet.
So far so good. Then a bombshell from the great one last week. He told a conference call after News Corp's results that the Wall St Journal had proved it was possible to charge for news online and he wanted to do it for all his news operations because the 'everything is free' business model for news online was 'malfunctioning'. Here's the full report in The Guardian.
"The current days of the internet will soon be over," he said.
What is he on about?
Over recent weeks a backlash against 'free' news online has been building within newspapers. Newspapers in the US, UK and Europe are under intense pressure because of the recession and a drift (turning into a flood) of classified advertising to websites such as Ebay and craigslist.org. It has finally dawned on them that an audience online earns about a tenth of the advertising revenues of that same audience delivered in newspapers.
The idea that somehow the shift in the audience online could fund the current news publishing infrastructures is now dead. A fiction developed that online news was profitable, largely because it was generating marginal profits from its marginal costs and largely because the core news content was paid for out of the revenues of the core print operations.
Now that the print revenues are drying up, the idea that online news could be profitable in its own right has been exposed as the tide has gone out. I think it was never a realistic expectation, but it is over now.
So we've seen a string of high-powered publishing executives thrash out at all and sundry. WSJ managing editor Robert Thomson described Google and other search engines as "parasites or tech tapeworms in the intestines of the internet", while others are attacking bloggers for stealing content and operating in an unreliable and bile-filled "echo chamber."
Associated Press (AP) is now trying to renegotiate its deal with Google where Google hosts its news and shares the revenues from the Google adsense key words placed around the news. Some newspapers have attacked the (AP) for giving their news away too cheaply to news aggregators and portals such as YahooNews and AOL.
But the newspaper guys are not just moaning about it. They want to put the genie back in the bottle and make people pay for their news online. Last month a new operation was launched called Journalism Online that wants to set up a micropayments system, which charges a few cents every time a news story is read. Here's more detail.
Murdoch has also set up a brains trust of News Corp executives to come up with a way to charge for the news, possibly using some sort of Kindle like hardware device. Here's some of the early thinking in a story at The Daily Beast.
So will it work?
Readers like yourselves will be the best judges in the long run. Previous attempts to charge for mainstream news and opinion, as opposed to very high value business news or trade-specific news, have failed.
The New York Times abandoned its New York Times Select service for specialised comment some time ago. The New Zealand Herald also dropped its own premium content service, despite the initial hopes of Tony O'Reilly.
But would you pay Rupert Murdoch for news and opinion online from the likes of The Times, The Australian, News.com.au, The Sun and BSkyB?
I would not and do not pay for general, political and other news. I do pay Murdoch (through gritted teeth) for WSJ.com, but that's my business. I can save the invoice as a tax deductible expense. I also pay for an upgraded version of FT.com.
I do not think Murdoch and the rest will succeed in pushing the genie back into the bottle. There is simply too much information, too much news and too many opinions out there already for free. Much of it is better than what can be found in the print versions of newspapers.
But there is a problem. The big news rooms in most newspapers cannot be supported by the kind of advertising revenues being made right now online and I doubt the revenue side will change much. It may even get worse. This is the apparently irreconcilable equation driving the news industry right now. Something has got to give.
Some may be surprised at my view (which is mine alone and not necessarily that of the NZHerald). My main job is running a free news and information website aimed at borrowers and savers (www.interest.co.nz). We don't charge our readers for this news and information, but we do make some money from advertising and from selling data, charts and other content to banks and some media companies. We know this is sustainable because we keep our costs ruthlessly low and we don't rely only on advertising alone.
The best illustration I have of our approach is that our entire video setup (for two videos a day) costs less than one wireless microphone used by TVNZ or TV3.
The difference between our operation and Rupert Murdoch's is all about cost. We have started with a low cost base and will stay that way. He has started with a high cost base and will somehow have to move to a low cost base. It can be done, but it will be painful.
Murdoch is a wily old bugger. He will find a way to make his costs lower than his revenues. He is one of the lucky (or clever) publishing moguls who has gone into this recession with relatively low debts and diversified revenues that include movie production, television production, pay television and newspapers. He'll survive. Others may not.
I'll still be watching Rupert closely, although I think his attempts to charge us will fail this time.
Bernard Hickey is the managing editor of interest.co.nz.
Photo: Rupert Murdoch - Wikimedia Commons/World Economic Forum