News Corp. and the Business of Search; Media Has Little to Lose

(MoneyWatch)  Many have been pontificating about the rumored potential deal between Microsoft (MSFT) and News Corp (NWS). One of the criticisms of the New Media Economy set is that Google (GOOG) would be unscathed and Rupert Murdoch's holdings would be financially decimated. But when you look at the numbers, you start to realize that the NME crowd has mainly focused on the same underlying Kool-Aid spring that you find in the Old Media Stalwarts. Too many are sustaining themselves on wishful thinking, not real analysis.

For example, Jeff Jarvis has gone on about the rumored deal between News Corp. and Microsoft:

See this post: WSJ.com would lose 25% of its inbound web traffic, according to Hitwise, which also says that 15% of the people who come to WSJ.com on the web come from Google immediately prior and 12% come from Google News.

Jarvis is quoting what turns out to be a string of posts. Hitwise measures US traffic, so let's try another service going after the same number, Compete.com (because it makes data available):

As of October 2009, WSJ.com had about 12.7 million visitors. Although I don't have an account that would get me page views, according to AdAge (via The New York Times), the number was close to 22 million, and the monetary math as interesting (and disappointingly low) as I expected:

According to Compete, the big three search engines drove about 21.9 million page views to WSJ.com in October. Revenue per thousand pages is likely around $24, given the WSJ.com's high ad rates and number of ads per page. That means about $525,000 in October; assuming October is representative of a typical month, that's about $6.3 million a year. Even if revenue per thousand pages runs much lower, say $10, that's still almost $3 million a year.

Forget the low end and let's say $10 million annually. That is chicken feed to Microsoft. And most publications are actually lower than the bottom number. I recently spoke with Richard Gingras, CEO of Salon.com who claims about $10 revenue per thousand page views (RPM) and estimates that the New York Times is probably at about $8 to $9 RPM.

I'd bet that many publications are even lower. Suddenly, when you have a Microsoft-type revenue, it doesn't take a whole lot of cash to completely subsidize all of the ad revenue of a number of major publishers. It could take $100 million and get, what, 50 of the largest?

The really scary part is that the media companies simply don't seem to have that much to lose at present from missing web advertising. For media, because of prevailing ad rates, the search game is a dead end road leading to a slasher movie set. Or, as Gingras puts it a tad more gently:

"I think what has happened, and in a sense understandably so, technologically savvy entrepreneurs have understood what they can get out of search. The quality of content won't matter. Companies that actually produce high quality content have been far less savvy in how they take advantage of SEO in how they get their content out there. Search engines can only get good content out there to the degree that the producers use SEO well."

The media companies are already behind the search eight-ball because they aren't the best at letting people, via the search engines, know what they have. And even if they were, the ad rates are so low as to make it unimportant. For a moment, I'll go back to Jarvis on News Corp. quitting Google:

This silliness is emblematic of the end of the Gutenberg age, the industrial age, the age of control, the age of centralization, Murdoch's age. The problem here is that Google-virgin Murdoch simply does not understand the dynamics of the link economy. He roars against them. Google et al do not take his content, they send it audience and value. It is up to him to exploit that. The business failure here is Murdoch's, not Google's.

No, the failure is on the part of Jarvis and others who can't seem to sit down with a calculator, let alone a spreadsheet. Murdoch isn't roaring. He's crunching numbers and sees how they come up, as the New York Times reported:

"The fact is there's not enough advertising in the world to go around to make all the Web sites profitable. And we'd rather have fewer people coming to our Web site, but paying."

It's a case of where much popular opinion is based on a vague sense of how things "should" work in the new world. But as happened during the tech bubble, the value of new economic and business models may have been over-sold, and the insight of cold fact under-appreciated.

Unfortunately for the media, however, the nature of publishing is changing, and that's going to mean less revenue, which, in turn, will likely mean drastic cut-backs in publishing efforts, as the costs are too high.

Image copyright 2009 Erik Sherman, all rights reserved.