Rupert Murdoch Creates a New Business Model

August 6, 2009
Rupert Murdoch

Rupert Murdoch

The Murdoch Empire faces tough times. It has responded with an attempt to develop a business model which has the features of creative destruction, and may change all ideas of freedom of information

According to the BBC [August 8th 2009]

News Corp is set to start charging online customers for news content across all its websites. The media giant is looking for additional revenue streams after announcing big losses. The company lost $3.4bn (£2bn) in the year to the end of June, which chief executive Rupert Murdoch said had been:

“the most difficult in recent history …The digital revolution has opened many new and inexpensive methods of distribution but it has not made content free. Accordingly, we intend to charge for all our news websites. I believe that if we are successful, we will be followed by other media. Quality journalism is not cheap, and an industry that gives away its content is simply cannibalising its ability to produce good reporting”

Alfonso Marone, of Value Partners Group, told the BBC that the model could work for “for must-read, must-know content such as Wall Street Journal and the Financial Times [which already charge for content, for example] He believes that a micro-charging structure, where readers pay just 5p or 10p to access an article, might work. “This is less than the price of a text message],” he argued.

Sly Bailey, the chief executive of Trinity Mirror, doubted “that it is possible for publishers to charge for general news content when the same content is given away for free by the BBC, Google News and others. I don’t think this is about what Rupert Murdoch wants.”

The BBC is understandably interested in the story. It will inevitably be forced into even more changes which have already seen it go multi-media over the last few years.

The traditional press also has its free to view articles such as this one from The Guardian which argued that the BBC is, in effect, the biggest free news website in the world, and that “ In a world where everyone is taking a gamble, one thing is certain: a new round of Murdoch-led lobbying [threatens to] clip the BBC’s online wings”.

Who made the rule that everything on the internet should be free? It’s the question that beleaguered media executives around the world are have been muttering to themselves for months now. The only certain answer is that it was none of them, because when the decisions about internet strategy were being made in their organisations, none of the most senior bosses were particularly interested.
Now, hit by the double whammy of a cyclical advertising downturn and huge structural change, the news business is going through the same pain that afflicted the music industry. After years of hoping the problem would go away, news organisations are desperately reaching for the same strategy adopted by the music bosses: shutting the paid-for door after the free horse has long since bolted.
It’s not the first time that news organisations have flirted with charging for online content. The New York Times hoisted a pay wall around its columnists, only to find that everyone stopped reading them. After their precious journo-stars started to complain, the Times abandoned the strategy, but it led directly to the birth of the Huffington Post, a free comment website that provides a far more wide-ranging daily analysis of the US political scene.
The (Murdoch-owned) Wall Street Journal and the Financial Times have had limited success in charging for specialist financial news and comment. But the proliferation of free online sources, aggregated by the search giant Google, has doomed to failure any attempt by others to extend such charges to general news content.
Rupert Murdoch’s announcement that all News Corp’s newspaper websites – including the Sun, News of the World, Times and Sunday Times in the UK – will charge by next year is therefore a sign that the news industry is running out of options. The old business model – cover price plus ad revenue – is bust: blown apart by the loss of classified to online networks and collapse of cover-price revenue due to falling sales. The hoped-for cash from online advertising has not materialized, at least not on the scale that would support the kind of journalism practiced by the likes of Murdoch’s papers [ or for that matter the Guardian]

A Case for Creative Leadership

This seems a suitable case for creativity, and creative leadership. It is complicated enough deciding what the problem is. And then what ideas can be developed about what might happen in the future. The stakes are terrifying high for newspaper magnates, and the consequences will impact on a sizable proportion of the world’s population and its businesses.

Image of RM from uptown life