Posted August 6, 2009 12:53 pm by with 8 comments

Tweet about this on TwitterShare on LinkedInShare on Google+Share on FacebookBuffer this page

225px-rupert_murdoch_-_wef_davos_2007Back in May, Rupert Murdoch dispelled rumors that Murdoch-owned sites would devolve into the free ad-supported content model so many newspapers are struggling to make work online. Instead, News Corp’s hundreds of subsidiaries worldwide will all go to a paid subscription model—everything from the Times to the New York Post to the Wall Street Journal.

The announcement comes immediately after News Corp posted a $203M loss for Q2 yesterday, mostly due to a write-down on MySpace. Although you have to have some level of economic savvy to become the 132nd-richest person in the world, it looks like News Corp is trying to defy basic principles of supply and demand. “We’re losing money here, and we’ve got some paying subscribers over there, so let’s just make everyone pay,” seems to be the rationale.

But the more you charge, the fewer people will buy something. I hope News Corp isn’t counting on keeping its already-struggling ad revenue the same with fewer pageviews once it goes to subscription-only. That struggling ad revenue may be exactly what prompted this move, but further limiting the pageviews and by extension the ad rate you can reasonably expect, News Corp may be shooting itself in the foot.

The WSJ does (appear to) have a working subscription model, but it’s somewhat of a specialty news site—business news that you might not be able to get anywhere else (though that’s debatable, too). But The Times, The Sun, The Post and hundreds of their other dailies all face tough competition in their niches, and while they do have readers online and off, they risk losing them to another paper with free ad-supported content. (And then those papers can charge more for their advertising with more pageviews. It’s a vicious cycle, I tell you!)

But can advertising really support any sites in this economy? Actually, Rupert Murdoch said on the conference call that

Advertising markets, while weak and particularly hurt by the slump in cars and finance, have shown some good signs of life. I think the worst may be behind us but there are no clear signs yet of a fast economic recovery.

But let’s not take any chances with helping that recovery, right, Rupert?

In fact, this is almost the exact story that we had back in May after they posted their disappointing Q1 results. Now Murdoch is adding a deadline—the fiscal year—for the change. The Guardian (not owned by News Corp) reports that Murdoch believes people will pay subscription (or maybe just one-time?) fees for a scoop or an exclusive in celebrity or investigative reporting.

Murdoch is right about one thing—reportage is not cheap, especially with their recent policy change to ignore ready-made news items in embargoed press releases and waste manhours hunting down the exact same story on their own not use embargoed news as sources at the WSJ. But ensuring fewer people read your stories doesn’t sound like a good way to make that money to me.

What do you think? Can News Corp sustain itself with subscription news? Or do the laws of supply and demand tell us otherwise?

  • I hear what you are saying Jordan, but I think paid content is going to be a growing model from here on. I know from experience that even smaller sites will make more money with membership models than advertising. I tried starting all my sites with ads as the main revenue model but over the years ALL have flipped over to paid membership instead. The revenue stream is more predictable, and I’m not so vulnerable to having a large advertiser pull out and immediately wipe out half my earnings.

    Paying for content is the new free and the pendulum will swing that way for years to come.
    .-= Tim Bourquin´s last blog ..TI 2009-07-18 How To Trade Using Fibonacci Retracement and Extension Levels =-.

  • Thanks for sharing your experience, Tim. Advertising is very, very hard to get right as a business model, and it’s possible that it may always lead to less revenue than you would get with the same number of paid subscribers as free visitors. I guess we’ll find out soon enough with News Corp, eh?

    (You know what they say about economists, right? They look at the real world and think, “Yeah, but would that work in theory?”)

  • By building a wall between your readers and your content, you reduce links from other sources, you reduce the potential audience and as numbers drop so will the advertising.

    People still buy bottled water, but they are paying for the *convenience* of bottled water, there is no convenience in pay walls. The New York Times tried pay walls and it failed. Success online requires innovation, openness and experimentation, clinging desperately onto the old business models will not work.

    More on this from a fellow 9ruler:
    .-= Adam Wilcox´s last blog ..Murdoch’s Pay-For Paper Empire =-.

  • Albert Mason

    I agree, they will lose readership, but I suspect the bet that they are making is that subscription fees from the remaining will make up for it.

    Let’s assume a CPM of $15 for a misc newspaper in the Murdoch empire (this number seems quite high to be honest but for simplicity’s sake). Let us further assume that you get 4M viewers a month. Let us further segment that viewership into loyal and not loyal. Loyal users read everything on the site pretty religiously, they read maybe 300 pages a month. Disloyal users come through Google searches and other methods they have maybe 30 page views a month. Both have a click through rate of about 2%. Say 90% of your viewership isn’t very loyal and there are an average of 3 ads per page. That’s about $200K a month in revenue.

    Then assume that you start charging for access. The WSJ costs $2 per week online only. Assume that other newspapers can only charge $0.50. So $2 a month. Further assume that you lose all your disloyal users and keep only 50% of your loyal users. That still crunches out to $400K in revenue per month, not including additional advertisements.

    As an economic decision, you can lose 95% of your viewership in this model and still come out ahead.

    Given the difficulty other media outlets have had in monetizing ad clicks, I was unsurprised that Murdoch has decided to go down this route. I don’t know if it will work, but it’s hardly inexplicable.

  • Any thoughts that a subscription model for something with such mass appeal, but low loyalty, as a news site is utter nonsense. Forget supply and demand, try looking at the last decade and a half of people trying, and failing, at doing exactly what they are proposing. I also find this approach completely contradictory to their cries of woe of how blogging and the internet in general is working to rob the nation of the quality of journalism that freedom of the press affords us. They go on and on about what a public good their reporting is… but now they want to put it behind a lock and key, granting access to only those who have the fare? A fool and their are soon parted, and I guess that will be the headline of some blog post chronicling the story of traditional news’ slow and strange demise, or perhaps in an article in my 2 year old’s future textbook, which will likely be on a Kindle.

  • Pingback: newspapers are dead; long live news « eskimon()

  • It is a tough scenario because people are willing to pat very little for much of what is online and advertisers are having a hard time finding budgets to pay for advertising. Eventually I think we will find a happy medium on how everything can co-exist.
    .-= Nick Stamoulis´s last blog ..Will Google Wave Provide an SEO Benefit? =-.

  • “All Press is Good Press”

    Methinks this is an attempt to take what is rightly theirs, namely premium dollars for premium content. If Rupert Murdoch thinks he will get paid for me-too blog content, he’s dreaming.

    Trouble with a news site is that their content is their calling card. While a blog like Social Media Commando can post blog content free, the goals are much different. I want to build a community, and eventually earn business from a select few who can use help from a services/consulting point of view.

    Not so with the Wall Street Journal. Just look at the huge amount of Twitter users abandoning their daily searches for instant Twitter Feed updates.

    Mr. Murdoch faces an interesting battle to be sure, and I don’t think he’ll sacrifice traffic for a small payday. He’s just setting foot onto the battlefield…
    .-= Social Media Commando´s last blog ..43,000,000+ Free WordPress Plugins =-.