Why Rupert Murdoch’s decision to charge for content online could save the news industry.

After Rupert Murdoch made the decision to charge for online access to content across his suite of newspapers online properties, there was considerable consternation across the Internet. With many armchair pundits in the blogosphere/twitter-verse crying foul at the idea of charging for content online that was previously available for free, citing their own usage expectations and a belief that the content isn’t worth paying for given the perceived drop in journalistic standards and cost cutting amongst newspapers. While I have considerable time for the case against changing to a cash for content mode, I believe in Murdoch’s case it has merit and might actually save the hemorrhaging news industry. Here’s why;

Charging for content online suddenly makes printed newspapers relatively less expensive

So you are running a newspaper company, what is your biggest cost? Sure journalists salaries figure in here somewhere, but it is the actual printing presses and distribution networks that are the significant cost centres in a newspaper operation. With declining readerships of actual newspapers over the last 10 years, advertisers are paying less for space than they used to, and less income is coming in from actual newspaper purchases and the fixed costs of running the printing press aren’t getting any lower and such make up a larger proportion of your total operating costs.

In order to make purchasing an actual news-‘paper’ a more attractive proposition for consumers, one way to drive that change is to make other sources of news relatively more expensive. If you charge for the online version of your newspaper, the actual printed version becomes an attractive option for consumers who had moved to the previously free online alternative. This will drive a percentage of readers back to the paper version and patch up the hole in the traditional newspaper component of Murdoch’s enterprise. For how long, this is debatable, but in localised markets where Murdoch’s papers have near monopolies over content/distribution, it will have a larger effect than in more competitive geographies.

Murdoch doesn’t own the entire news industry, many news sites will remain free and become profitable (or at least, lose less money)

Assuming that all the readers of Murdoch’s online properties do not continue with the site in a cash for content capacity, their eyeballs and the advertising revenue they represent will venture elsewhere. What this means is that free online news sites that were really struggling to meet their costs with a drop in online advertising revenue (exacerbated by the GFC) will be able to stop the revenue bleed with a greater share of the news audience. This ‘tiering’ of the online news audience is good for everyone provided that Murdoch can make a compelling value proposition for readers of his sites to pay for content that they unable to find elsewhere (Ideally, shifting the focus to quality journalism in lieu of the click generating sensationalism seen now).

Will all this save the news(paper) industry?

Maybe. In the long run the competitive forces of citizen journalism and sites such as wikinews will continue to place downward pressure on the operational costs of running a newspaper. With the costs of distribution online almost zero there is nothing stopping an upstart news operation running out of a garage to unseat a large monolithic operation such as News Corp if they can’t continue to offer a decent value proposition while charging for content.

At the very least, this decision will breathe some life back into printed newspapers until some industry shake out has occurred and people adapt to the new online news landscape. This might just buy Murdoch some time to regroup, will it be enough?

4 thoughts on “Why Rupert Murdoch’s decision to charge for content online could save the news industry.”

  1. Nice post with some interesting conclusions.

    I think the decision by Murdoch to charge for content is a mistake and shows his lack of understanding of the internet age. I think some newspapers will survive – there will just be fewer of them and they will get most of their readership online. The really proactive ones will expand their audiences by expanding overseas. I read somewhere that the Guardian web site is the third most visited newspaper site in the US which was staggering. I still read the Guardian online despite having left Britain nearly 15 years ago. I firmly believe that quality journalists can be funded on quality web sites like the Guardian with increasingly large audiences. Of course this means far fewer newspaper web sites.

    The other way that some newspapers will survive is by expanding into other knowledge areas such as education. I talked in a post recently (http://www.masmithers.com/2009/08/09/new-players-in-higher-education-challenges-for-universities/) about the fact that the Washington Post gets more than half of its revenue from its Kaplan education subsidiary.

    So essentially Murdoch is saying I give up innovating by expanding into other knowledge intensive industry and I give up competing to make my sites of such high quality that they will generate sufficient revenue to pay quality journalists salaries and he just going to go back to a 20th century business model. It might work for the WSJ but its not gonna work for The Sun or even the Times.

  2. I agree with your artcile about Murdoch charging for his news websites for a number of reasons:
    Yes: Keeping the printed media going a bit longer, although can only see this on a limited scale but still maybe for a limted time. ( I love reading the Sunday paper at my favourite Cafe over a strong capuccino!)
    Yes: Making better news services, including the investigative, deep analysis news services more viable.
    Also: Making Murdoch’s cheap, sensational right wing biased, 24 minute sensational news cycle media less available and less attractive to people who actually want value for their money 🙂

  3. Great post, but as you pointed out in another discussion the potential winners are:
    ABC
    NineMSN
    Yahoo7

    So is it a matter of time before Yahoo or Bing make a subscription only news service that will offer a wider range of content. Im not going to read any News Corp content online if i have to login, this stupid move will just kill their online readership….

    So congrats to Rupert he has potentially killed a growth area, online is not going back and taking your bat and ball and locking the gate wont make you any new friends…

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