News Corp.'s latest plan to charge for most of its publishing and video online content intensifies the festering free-versus-pay media debate, but doesn't come close to solving the industry's immediate revenue problems.
While the Wall Street Journal's well-heeled business audience may be more willing than most consumers to pay for information they now can access free elsewhere on the Web, any widespread user pushback will only exacerbate continuing revenue declines evident in media companies' recent earnings. Sirius XM Radio is just one example of the challenges confronting media companies migrating from a free to a paid model. Confusion caused by the merger of two former digital-radio rivals, the collapse of the auto industry and the prolonged recession have tested consumers' willingness to pay for bundled premium services when they can still get plain vanilla radio for free.
No one -- not even News CEO Rupert Murdoch -- appears sure how the shift to more paid content will play out over the next 12 months, although Murdoch called it part of "a new company-wide economic model to profitably transition our print properties to digital" on an earnings call this week.
Completely going digital is a gargantuan task for any media company saddled with costly legacy operations such as publishing plants and TV stations. Eliminating much of that cost base is as important as generating revenue streams such as online subscriptions and one-time micro-payments, both of which require servicing. Evolving digital economics is a quandary for all news-gathering organizations, which Murdoch oversimplifies by insisting "the market is willing to pay for that quality."
It's no accident that online journalists and bloggers are feeling more optimistic about their financial future as they're rooted in more modest business models and modest remuneration, according to the Pew Project for Excellence in Journalism. Traditional media's efforts to establish the same will be akin to raising the Titanic.
Little wonder, then, that Murdoch is handing off the details of his all-pay plan to News digital chief Jon Miller. Miller recently told me media companies must learn to more effectively aggregate content across many different revenue-generating outlets. "It will no longer be as simple as making a movie, selling a DVD and the rights to HBO, and making 19 percent of the gross from a television network," he said.
More paid and subscription content will co-exist with more effective advertising to targeted consumers, all of which will command a higher access fee. The legacy operations will present entirely separate -- and painful -- issues.
As it turns out, News' push for a more all-encompassing pay strategy is reinforced by a new five-year forecast from New York-based private equity investor Veronis Suhler Stevenson. The firm reports that last year marked the first time consumers spent more time with media they paid to access (mobile, cable, video-on-demand) than with primarily advertising-supported channels such as print, broadcast TV and radio. Advertising will continue to be a less important contributor to overall communications revenue, declining nearly eight percent this year and resuming only modest single digit growth in 2011 on permanently weaker print and television segments, VSS said.
The public debate already raging around free versus paid content heated up this week in response to the Murdoch cross-website plan, which represents a complete reversal of his intention in 2007 to back a free, ad-supported model enhanced by select paid content. News and other established media could be their own worst enemy in the process as they continue to bungle online. Look no further than News' recent $680 million impairment charge and a $136 million operating loss at the Fox Interactive Media unit that includes MySpace.
The weakness in Murdoch's vague pay-for-everything plan is that it assumes News grasps digital dynamics well enough to make a wrenching transformation throughout its complex global organization.
Murdoch's argument that branded quality content is expensive to produce and so should command a premium runs counter to equally vigorous dissenters. Those include Chris Anderson, who promotes what he calls a "freemium" strategy, and the pay-for-convenience movie distribution pioneered by Netflix and Redbox, which Murdoch is trying to stifle by delaying rental release of its films.
If media conglomerates are going to make money off anything but their cable networks, they have to figure out how to make their content fee-worthy to fickle and savvy tech-empowered consumers, who know how to get what they want for free. It's going to take more than Murdoch mandating as much from Mount Olympus.