Rupert Murdoch vs. The Internet

Rupert Murdoch vs. The Internet

Sixteen years ago, an eternity in Internet years, media mogul Rupert Murdoch became one of the first NEWSPAPER publishers to venture online. In a now-forgotten deal, his sprawling News Corp. empire snapped up Delphi Internet Services, one of America's first dial-up providers, with a plan to meld it with his newspaper and TV content. Analysts were ecstatic at the prospects. "Rupert Murdoch has bought an electronic engine for his media empire," one gushed. But the engine didn't just sputter; it more or less failed to start altogether. Since then the newspaper industry has been marred by bankruptcies, mass layoffs and plunging advertising sales as publishers stumbled from one flawed INTERNET strategy to another. Just last month Editor & Publisher, the 125-year-old industry bible that has chronicled scores of newspaper closures, was forced to write its own obituary online, ahead of its final January issue.

But momentum is building in the media industry for a counteroffensive, and Murdoch is once again leading the charge. The News Corp. founder and CEO, and other publishers, have trained their guns on search engines and news aggregator sites like Google and Digg.com, calling them "content kleptomaniacs" and accusing them of stealing content to line their own pockets. More importantly, large numbers of publishers and news wire services are on the verge of erecting pay walls around their online media properties, cutting off much of the torrent of free content that fuels the Web 24/7. "The Internet now is this socialist model where everybody can access everything for free, but the democratization of the industry has become unsustainable," says Alfonso Marone, a media strategist with Value Partners in London. Everyone is mocking the 78-year-old tycoon, he adds, but at the same time, they're praying he succeeds. As Murdoch sets out to stop the Internet, all eyes are watching. Because if he wins, his campaign could shape the very nature of the Web and how we use it.

Murdoch and his lieutenants have begun their assault with a barrage of vitriol, most of it directed at Google. "Should we be allowing Google to steal all our copyrights?" he asked a gathering of publishers last year. In November, Murdoch laid out his opposition to the Federal Trade Commission in Washington, which is looking into the fate of the newspaper business. "There are those who think they have a right to take our news content and use it for their own purposes without contributing a penny to its production," he said. "They are feeding off the hard-earned efforts and investments of others. And their almost wholesale misappropriation of our stories is not 'fair use.' To be impolite, it's theft." Other News Corp. executives have been even more scathing. Robert Thomson, for instance, the editor-in-chief of the Wall Street Journal, has called Google and news aggregators "parasites or tech tapeworms in the intestines of the Internet."

Murdoch has vowed to back up his tough talk with action. His main tactic is to block Google's search engine from indexing News Corp. sites. Theoretically that would mean stories from his papers would not appear among the assembled headlines on Google News or pop up in Google search results. While keeping mum about the exact timeline, News Corp. says a final decision could be made within months. The move, not surprisingly, has drawn scathing criticism from fans of Google, and even the company itself. For one thing, they say, if Murdoch really wanted his content off the search engine, he could have done so at any time by adding some simple programming code on its websites to block search engines from indexing its pages. "If publishers want their content to be removed from Google News specifically, all they need to do is tell us," the tech giant said in a statement, adding it sends news outlets around 100,000 hits a minute. "Google is the scapegoat for newspapers," says Sarah Rotman Epps, a media analyst at Forrester Research. "That's unfortunate because it's blinding newspapers from focusing on real solutions to their problems."

Yet for all Google's talk about how much traffic it sends to newspaper websites, the company has profited wildly from all the free content on the Web, earning billions of dollars from its ability to sell advertising alongside search results. At the same time, Google has made it a snap for anyone to access stories hidden behind existing newspaper pay walls. A quick search on Google generates a multitude of tricks for using the search engine to pilfer premium content. In fact, Google is a bit like a key cutter who willfully ignores that little message stamped onto some keys that says "Do not cut." Or at least it was. Shortly after rumours started to swirl in November that News Corp. is in talks to give Bing, Microsoft's search engine, exclusive access to its news sites, Google beat a partial retreat. The Mountain View, Calif., company has agreed to give publishers more control over their paid content. Readers who access a paid site through a link from Google will be limited to five free page views a day before being told to register or subscribe.

Score one small victory for Murdoch.

I t's now obvious the decision to throw the doors wide open to free stories was a colossal mistake from the start for newspapers. Walter Hussman, owner and publisher of the Arkansas Democrat-Gazette, could have told anyone that. Prior to 2002, the paper had followed the lead of bigger news organizations and made all of its content available online for free. But after watching in horror as readers cancelled their subscriptions, Hussman put his foot down and began charging for all online news. "We were just throwing it all away," he recalls. Many readers were angry at the decision, but Hussman would calmly inform them that the paper pays $10 million a year to run its newsroom and maintain a bureau in Washington, one of a dwindling number of papers to do so. And while some readers probably stayed away, most came back. Between 1998 and 2008 the Democrat-Gazette maintained its paid circulation at 270,000, while other papers in the region that stuck with the free model saw subscriptions plunge more than 40 per cent.

Traditionally, newspapers earned about 80 per cent of their revenue through advertising, with the rest coming from subscriptions. Many believed the sheer number of eyeballs on the Web would help maintain that model, even if some newsprint readers cancelled their subscriptions. But while the professional content produced by reporters and editors was eagerly snapped up, copied and pasted across the blogosphere and online news sites like Newser, newspapers themselves have gotten little in return. Newspapers in the U.S. earned just US$623 million in online advertising in the third quarter, compared to US$5.8 billion from the dead tree variety, according to the Newspaper Association of America.

Since publishers no longer seemed to value their own product enough to put a price on it, neither did subscribers, who fled in droves, or advertisers, who followed closely behind. With the added impact of the recession, U.S. newspapers are earning less from all forms of advertising, after adjusting for inflation, than they did in 1972, when Woodward and Bernstein were exposing the Watergate scandal.

With the traditional newspaper business model dying, Murdoch and others hope to create a new one built around paid content. The Wall Street Journal already requires readers to fork over US$119 a year to access most of its online stories, an amount that has risen steadily from roughly US$80 a few years ago. At the same time the paper is able to charge roughly 30 per cent more for ads visible to paid online subscribers, versus those available for free. Murdoch has said he plans to have pay walls in place by this summer at his other papers, including the New York Post, the Times of London and the Australian.

Not surprisingly, many bloggers and even other publishers dismiss the move. A common knock against Murdoch's plan is that readers shut out of News Corp. sites will simply feast on the glut of free news available on the Web. The problem with that argument, though, is that a huge amount of that content still originates with newspapers, magazines and wire services. And there is a surprisingly long list of news organizations who've been emboldened by Murdoch and plan to put at least some of their content behind pay walls. Among them is MediaNews Group Inc., which publishes the Denver Morning Post along with 55 other dailies across the U.S. The chain plans to start charging for some content in 2010. So does A. H. Belo Corp., publisher of the Dallas Morning News and other papers in Texas and California. The wire services Bloomberg and the Associated Press are both said to be looking at ways to restrict unfettered access to their content.

Here in Canada some publishers are also planning to close the door somewhat on free content. Gordon Fisher, publisher of the National Post, says he's spoken with News Corp.'s Dow Jones division about pay wall alternatives. And at the Winnipeg Free Press, they're considering charging online readers who live outside of Manitoba. "We realize that we won't be able to charge for access to general news that is widely available," says publisher Bob Cox. "[But there is] a group of former residents of the province who are highly interested in keeping up with what is happening here." (Cox says his paper's biggest problem is the CBC, which pours taxpayer money into local online news, with no need to find a sustainable business model.) For the record, Maclean's, except in rare instances, puts magazine content online only after the magazine is off the newsstands, and some content never appears online.

Meanwhile many papers have already started charging for news, from NewsDay to Variety. Back in June the Newport Daily News in Rhode Island began charging Internet-only subscribers a whopping $345 a year. The move puzzled many at the time, yet things have worked out exactly the way publisher Albert Sherman hoped - within two weeks the number of online hits plummeted 50 per cent, but newsstand sales jumped eight per cent, driving up the paper's overall revenue. "We were waiting for somebody with more resources and much bigger operations to come up with a model for the Internet and nobody did," he says. Now newspapers from all over the world are calling Sherman and expressing interest in doing the same themselves.

Many critics of paid content like to point out that newspapers have already tried this before, and failed. That's not entirely true, however. The New York Times and Globe and Mail did charge for access to columns and opinion pieces a few years ago, before backing down. The problem with that approach was that opinion is the cheapest form of content to produce, and the Web is drowning in the stuff. Original reporting and scoops cost money, and so there's far less of it online.

So expect many more news organizations to join the surge. A number of companies have sprung up this year to help newspapers erect pay barriers. One of them is Journalism Online, a New York firm that offers a variety of pay models to online publishers, ranging from micropayments - where readers pay for individual stories - to "freemium" models like that employed by the Financial Times, which limits the number of free pages that can be viewed to 10 every 30 days. According to Gordon Crovitz, former publisher of the Wall Street Journal and a co-founder at Journalism Online, the company has signed up 1,200 news providers, including newspapers, magazines and purely online sites, which will begin charging over the next few months. "People certainly won't pay for information that's easily available elsewhere for free, but I do think there's a lot of evidence that they will pay for truly differentiated, distinctive journalism," says Crovitz.

There are many logistical and legal questions left to be answered. For one thing, what's to stop people from simply copying and pasting stories onto their blogs? In the view of some, what's needed is an overhaul of copyright laws. Last summer, Richard Posner, a U.S Court of Appeals judge, suggested "expanding copyright law to bar online access to copyrighted materials." Posner also proposed a ban on "linking to or paraphrasing copyrighted materials without the copyright holder's consent." The idea was roundly panned, and many journalists accused Posner of trying to protect an outdated version of the news industry. But Murdoch has also raised the spectre of lawsuits, threatening to go after the BBC's online news site. "If you look at them, most of their stuff is stolen from the newspapers now, and we'll be suing them for copyright," he said recently.

Media lawyers are doubtful legislators would rewrite the copyright rules. But David Ardia, a fellow at Harvard University's Berkman Center for Internet & Society, says a recent case involving the New York Times could offer a precedent for the future. Oddly enough it was the Grey Lady that was on the receiving end of the suit. GateHouse Media, a publisher of hundreds of local print newspapers and websites, accused several Times Co. websites of stealing content when they reproduced the first sentences of GateHouse stories. The case settled out of court. But if companies like News Corp. do take Google to task in the courtroom, that principle could be pushed. Already, there are rumblings. Just this month, a Paris Court convicted Google of copyright infringement in a case involving online books. And Google is very careful to remove pirated videos from its YouTube site to avoid legal action.

Of course, all of this flies in the face of the utopian ideal that everything on the Internet must be free. Yet Barry Diller, the CEO of IAC InterActiveCorp., which owns 50 online brands including the Daily Beast and Ask.com, has called the present situation an accident of history. "I absolutely believe the Internet is passing from its free days into a paid system," Diller said at an advertising conference a few months ago. "Not every single thing, but anything of value." In fact, it's conceivable that if enough papers prove that charging for content on the Internet works, some purely online news sites and blogs that generate original content may follow suit.

It will take time to undo the damage newspapers have inflicted on themselves. Any company that relies on deep discounts to sell its products will inevitably struggle to get consumers to pay full price again, and it's no different for papers. But that doesn't mean readers will never pay. History has already shown that people can be prodded to radically alter their media consumption habits. One need look no further than the emergence of cable TV in the 1960s and '70s. The notion that anyone would willingly pay for TV, then freely available via bunny ears, seemed as far-fetched as charging for online content today. As the New York Times put it in the mid-1960s, "Pay-TV may turn out to be only a wonderful vision because the public is so indoctrinated with free TV that it will not bear the cost." It took a long time to find the right payment model, too. In one almost comical 1963 experiment near Toronto, 1,000 households were given cable boxes. When they wanted to watch movies, they had to insert up to $2 in the coin machine attached to the receiver. These were the first micro-payments, and the system failed miserably. But today the average household in North America pays about $50 a month for TV. And Apple's iTunes service has shown that even though it's possible to steal music, lots of people don't anymore.

For publishers, the transition from free to fee won't be easy. Many will undoubtedly perish, especially those news organizations that have slashed their newsrooms to the bone and are no longer able to generate compelling, original content of their own. But Murdoch and others are banking that if they can make it easy enough to pay for news, and difficult enough to get it for free, readers will come around.

Maclean's January 18, 2010