Wednesday, December 09, 2009

Rupert Murdoch makes some good points and misses a few in his op-ed column in yesterday's WSJ.

Undercutting the view of many on the right that newspaper circulation losses are a result of the newspapers' liberal editorial bias, Murdoch correctly notes that much of the decline is due to readers no longer needing newspapers for information they can now get through sources such as Craigslist, Monster.com and so on.

And he also correctly notes the incongruity of newspapers bragging about the number of journalism awards they have received at the same time they have fewer readers than ever (even accounting for the loss of readers as described in the above paragraph, newspapers have fewer 'news' subscribers than they used to have).

And he correctly notes that while Internet advertising on newspaper web sites is growing, it isn't ever going to be large enough to support the high costs of running a full scale newsroom.

But while he is right that the future of journalism requires giving readers/viewers content that they're willing to pay for, he is deluding himself if he thinks there are more than a handful of news content providers that will be able to do that... and I wouldn't necessarily include Murdoch's News Corp. in that group.

There are two pricing models that work for any business: high prices/low volume or lower prices/higher volume (the dream is to get a high price from a large number of people but that happens only in dreams). The former works for products that are (1) in demand, and at a level that exceeds supply, (2) perceived to have high quality, and (3) not easily substituted by others. The latter model applies to everybody and everything else.

But even though charging a high price allows a business to survive with a smaller customer base, you still need enough people paying the high price to cover your costs... and it still costs a lot to operate a newspaper newsroom, even after the substantial cuts in staffing they have made over the past several years. And the problem for journalism is that there is no shortage of players in the industry offering very similar products. There are too many providers of virtually identical information to support a high subscription price... and that is counting only the legacy newspaper news operations (NYT, WaPo, LAT, etc), I'm not even including the news provided by the major networks and cable operations. Why pay hundreds of dollars a year for news when there's someone else pretty much giving it away?

Nor are the masses going to step up and even a nominal fee to receive news... because - except in certain situations - they just don't care about it. They'll just turn to free TV. Why pay even $10 a year for news when there's someone else pretty much giving it away?

And that, ladies and gentlemen, is the biggest threat to traditional newspaper news operations - free TV. TV is still able to subsidize its news operations with the profits from their entertainment and sports programming, unlike newspapers which long lost their ability to subsidize their news operations with profits from classified ads. And even though the networks don't make money on their news operations, their egos refuse to let them drop that aspect of their offerings.

And with TV being able to take advantage of the Internet and the wide range of devices with which to communicate to viewers, someone seeking news will have a very easy choice to make: pay some legacy newspaper news operation a fee to get news from them... or get their news from the TV news operation for free. And with viewers making very little qualitative distinctions between the news from the Washington Post and the news from ABC TV, on which side would you place your bets?