James Murdoch: Hoping All Media Businesses Act Like Pay TV

from the monaco-media-forum dept

I spent last week at the Monaco Media Forum, which was quite an event overall. Of course, as with many such events, many of the most interesting and valuable parts happen outside of the main sessions in the conversations and meetings you have with people separate from the scheduled topics. The good thing that I took away from the event was a pretty wide sense of optimism about the vast media world that we're heading into. Having attended plenty of entertainment industry conferences lately, which seem to be surrounded by doom & gloom predictions, this event was blissfully full of a pretty optimistic viewpoint, which was refreshing and a bit encouraging. Of course, as a caveat on that, there really weren't that many actual media people at the event. Instead, there were lots of technology/infrastructure companies as well as ad and marketing firms -- and all of those have plenty of incentives to be as optimistic as possible. Perhaps it's the media folks who are depressed... but they stayed away.

One exception was James Murdoch, who was actually a "co-chair" of the event, and he gave an interview discussing a wide range of things that are happening around News Corp. The entire video is about 37 minutes, but it's quite interesting:
Having questioned many of James Murdoch's recent statements on paywalls and copyright, I have to say that my initial impression was actually to be impressed. Here's a guy who -- without much experience -- is running a huge swath of the media industry around the world, and seems to have a very strong working knowledge of what's going on across the board, and can speak knowledgeably about them all. Many people I spoke with at the event felt the same way. On top of that, I actually agreed with many of the larger points he made about innovation, and the need to make bets on innovating, rather than just protecting their businesses and milking them for cash.

However, when he got down to the specifics, I went back to questioning many of his assumptions, and thinking that his world view may, in fact, be a bit skewed by his previous success (after, it should be noted... a string of failures, not mentioned at the interview) at BSkyB, a satellite TV provider in the UK. The more the interview went on, the more I realized that Murdoch appears to view much of the media world through that lens, and seems to saying that, in the end, the media world will end up like a giant pay TV system, with a big subscription. I think this is more wishful thinking, rather than where the internet is actually heading, and treating the internet that way will almost certainly result in failure -- such as with his paywall experiments.

He talks up the various successes with pay television (satellite and cable) around the globe, including Italy, Germany and India, and again that seems to influence his views. He points out, repeatedly, that no one really thought that going into those markets would work, but News Corp. proved all the doubters wrong -- as he no doubt believes the doubters on the internet will also be proven wrong. He gets into the discussion with the following statement, which got most of the attention (and a bunch of Twitter messages of support from those in the audience):
I think there's a lot of talk about monetizing content and there was hand-wringing and for years and years... I remember in the late 90s I was in Singapore, and people were talking about mobile media and what is it going to be and what are the killer apps and all that sorta stuff... And I guess, I just look at it more simply. I think the first rule of is if you're going to monetize something is that you should probably not give it away for free.
This is at 14:25 in the video, and you really have to see the sarcastic eye rolls when he says that last line. And, you can immediately hear the laughter in the audience (which was much louder). But here's the thing: he's wrong. And he must know that he's wrong. Media businesses have made tons of money for years while giving away stuff for free. The very, very successful network television business (of which News Corp. owns one), for example, was always based on giving stuff away for free, but selling the attention of viewers. The newspaper business (which is where News Corp. originated) wasn't based on giving away stuff for "free" totally, but on subscriptions that never even covered the cost of printing and delivery.

No, this doesn't mean everything should be given away for free, but as the CEO of a large chunk of News Corp's media business, and supposedly being thought of as the guy at the company who "gets" new media and new media economics, it seems troubling that he so flippantly ignores the basic economics of non-excludable, non-rivalrous content, and how it can be utilized as part of a larger business model, by making other things more valuable and selling them.
So if you think about it and you're investing in things and you say 'I'm trying to figure out how to make money for this,' and then you give it away, it doesn't seem to work.
James might want to check out a little company called Google, which has done rather well giving away lots of things for free.

From there, he talks about "fair" pricing, and how they want to invest in content and price it fairly knowing that not everyone will consume it. But, of course, that's not really the issue. It's not about "fair" pricing. It's about market pricing. And if everyone else is offering market pricing and you're focused on "fair" pricing -- and your so-called "fair" pricing is above the market pricing, it's not that "not everyone" will consume it, but almost no one will consume it. And that's where you run into problems. Hell, I put a ton of work into this site. Let's say I think a "fair" price for anyone reading this site is a dollar a day. But, the market says otherwise, so my job, as someone running a business, is to figure out a way to get that money by offering something of value that can be priced not fairly, but competitively that the market will want to buy. That's what business is about. It's not about "fairness." It's about understanding the market.

Now, that said -- the point he makes following this is one I agree with wholeheartedly -- which is that if someone is not willing to pay, then it doesn't mean that it's the users' fault, but that as the content producer/copyright holder/etc. It's News Corp's job to innovate and convince people that there's something worth paying for. That's the whole basis of my "reason to buy" concept. But, the problem here is that simply designating a "fair price" when it's way above market price, is usually not a reason to buy, especially when your product is in a highly competitive and dynamic market, as is the case with news.

It's the next bit where you realize how much he's still focused on the pay TV business. He notes that, in Europe and Asia, 70% of the company's revenue is from subscriptions -- rather than advertising. He uses this to suggest that people online were so focused on reach and audience share, that they weren't focused on actually making money. Again... he's right on the facts, but wrong on where that leads him. It's true that many in the online world did not focus on making money, and that was a huge mistake. But that doesn't mean that putting up a paywall is a good strategy to make money. And that's where I think the major disconnect comes in.

He then makes the specific statement that the online news business will become like the cable business, with bundles and affiliate revenue. Here he's making the classic pay TV industry error of being so infatuated with the fees that are being passed around to carry channels, that they're hoping to recreate such a world online. But, this ignores the reason those setups have developed (limited competition and scarcity of access -- both of which don't apply in the online world) as well as the incredible frustration this has created with consumers, who are fleeing in droves (something Murdoch more or less tries to dismiss during the Q&A by saying many of the cord cutters in the US are doing so because the "deals" to get people to switch from analog to digital TV are up).

It's a bit amusing to hear him note that iPad apps for newspapers are much more cannibalistic than news websites. Again, I believe that point is absolutely true, but he seems to ignore the implicit other point he's making here: which is that web pages really weren't all that cannibalistic of newspapers.

Of course, the other funny thing is that you can see pretty clearly throughout the interview that one of his key talking points is this idea that "News Corp." isn't that big. Towards the beginning he starts to call it a big media company, but then corrects himself and says "mid-size." Later, he makes sure to note that Apple is ten times the size of News Corp., and that a company like BT is making much more money in the UK. The banker interviewing him mentions Amazon as a larger company. But that's all smoke and mirrors. News Corp. is the third largest media company in the world, only behind Disney and Time Warner, has over $30 billion in revenue and $54 billion in assets. Sorry, James, you're not a mid-sized business. You're a big, big business.

Towards the end, in response to an audience question about cord cutting and how it will impact News Corps.' business, Murdoch again brings up how they'll just make it like cable to some extent, and then falls back on the "but content is really expensive to make" line, by pointing out that, while other industries may find that things get cheaper thanks to technology, that's not true in content production. He pops out this lovely line:
There is no new technology that makes athletes not greedy.... And I think that's really something that the telco industry and a lot of the tech industry hasn't really understood -- that there's (chuckle) a whole economy behind this...
It gets a laugh, and afterwards I heard a lot of people say they agreed and it was a good point. But, I think it's a line that sounds good and masks that he's discussing two separate things. The first question is the cost of producing content. The other question is how do you make money. But those two are not the same question. No one has said that you don't make money. Saying that your business model has to change is not the same thing as saying you don't make any money. If your content is expensive to produce, then yes, of course, you need to figure out a way to have it make money, but that doesn't mean that simply charging for it is the way to do that. You can get away with charging for ancillary things (convenience being a big one), but it's important to recognize what people are really paying for, or you risk alienating them quite a bit, and driving them to alternative means of content consumption.

On the whole, I actually came out of this more impressed with Murdoch than when I went in. However, I still think that he's making some pretty serious mistakes in his assumptions, and it's going to come back to haunt him and News Corp. in the long run. The failure of the paywall for The Times is just the early warning sign.


Reader Comments (rss)

(Flattened / Threaded)

  1.  
    identicon
    out_of_the_blue, Nov 17th, 2010 @ 5:55pm

    '... business ... It's not about "fairness."

    Oy, is that right. And I see major societal upheavals coming from the confluence of police state and corporate plutocracy. My bet is the US system breaks, or is broken, from all the financial shenanigans, and so the future doesn't include the luxury of endless media content.

    I see that you can't actually pin your disagreements with Murdoch down to more than he's a "Pay TV" guy. Pretty damning, there.

     

    reply to this | link to this | view in thread ]

  2.  
    identicon
    Josh Taylor, Nov 17th, 2010 @ 7:32pm

    Internet as Pay TV, No way, Boycott

    If Murdoch thinks that they want the internet to be turned into Pay TV, they I say we ditch our internet, cut our phone and cable. Throw out our TVs, computers, and phones, read a book, go outside, and go back to the Good ol' Pony Express by writing letters. Better yet I might sell my house and everything and start a congregation in the wildnerness preaching nothing but God's Word.

     

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  3.  
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    ChronoFish (profile), Nov 17th, 2010 @ 8:03pm

    Just Remember...

    Murdoch has to balance what he "thinks" with what he knows he has to spin on behalf of his company. The part you agree with is the part that he "thinks". The part you disagree with is the part he is spinning.

    News Corp will be trying to negotiate and convince its rivals to follow suite. That requires spin - and commitment.

    The rivals know that it's spin, but if they believe News Corp is committed, then it becomes a price-fixing game. When Murdoch winks, everyone will increase rates 10% at about the same time and close off more of the "free" stuff.

    That's my prediction anyway. I don't think it will work - but if News Corp wants to keep its current cash flow they may not have a lot of options.

    -CF

     

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  4.  
    identicon
    Anonymous Coward, Nov 17th, 2010 @ 9:32pm

    Pay TV Industry Lost 119,000 Viewers In 3Q

    http://www.dslreports.com/shownews/Pay-TV-Industry-Lost-119000-Viewers-In-3Q-111419

    ya cause he wants more money....ROFL
    stupid idiot. NO really murdoch YOUR A BONIFIED MORON.
    ME thinks the older you get the more i think an alien anal probed you....

     

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  5.  
    icon
    Mike Masnick (profile), Nov 17th, 2010 @ 11:14pm

    Re: '... business ... It's not about "fairness."

    I see that you can't actually pin your disagreements with Murdoch down to more than he's a "Pay TV" guy. Pretty damning, there.

    I spent 2,000 words explaining very specific differences. Perhaps you might wish to try reading the post next time?

     

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  6.  
    identicon
    Elvenrunelord, Nov 18th, 2010 @ 12:32am

    Crazy Guy But

    I do see much of the video, audio, and literary content moving toward a subscription model, but I don't believe it will be as profitable or as expensive as Murdoc wants it to be.

    Customers have fallen in love with and demand all you can consume buffets and content here in America and they pretty much know what they expect to pay for it.

    Netflix offers more content than you could watch in several years for about $120 a year.

    Hulu offers most of your major network content for either free or about $100 a year for the plus model.

    I do not feel these prices are going to go up, rather they will go down over time.

    If Murdoc is looking for a new idea then he needs to innovate. I could give him the golden egg for media content profitibility, but I think I'll sell that idea on Ebay or something for a few thousand dollars.

     

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  7.  
    icon
    techflaws.org (profile), Nov 18th, 2010 @ 2:17am

    Pay television success in Germany?

    He talks up the various successes with pay television (satellite and cable) around the globe, including Italy, Germany and India, and again that seems to influence his views.

    All the first german pay tv channel "Premiere" has done over the years is haemorrhaging money. Since Germans do have their own version of the BBC they pay monthly mandatory fees which result in quite some quality content (TV and radio).

    Now that Premiere was bought by SKY not much apart from the logo has changed. They're still burning lots of money and get very few subscribers. I don't see any reason why this would change anytime soon.

     

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  8.  
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    Richard (profile), Nov 18th, 2010 @ 3:31am

    Upstart

    It reminds me of another speech Murdoch gave recently in which he complained about the "establishment" (his code for the BBC) clocking innovative "upstarts" like News Corps. The problem is that he hasn't realised (or won't admit) that he is no longer an upstart (not for nearly 40 years). He is the new establishment. The upstarts are Google, Facebook, Twitter etc...

    When faced with these competitors he (ironically) behaves in exactly the same way that he complains about elswhere!

     

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  9.  
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    Richard (profile), Nov 18th, 2010 @ 3:32am

    Re: Upstart

    Sorry - "clocking" should be "blocking"

     

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  10.  
    identicon
    abc gum, Nov 18th, 2010 @ 5:22am

    Re: Just Remember...

    They might need their very own anti trust exemption first.

     

    reply to this | link to this | view in thread ]

  11.  
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    Hephaestus (profile), Nov 18th, 2010 @ 6:32am

    "Murdoch again brings up how they'll just make it like cable to some extent, and then falls back on the "but content is really expensive to make" line, by pointing out that, while other industries may find that things get cheaper thanks to technology, that's not true in content production. "

    He really doesn't see how wrong he is. Its not the content that is expensive to make it is the cost of the people in the content.

     

    reply to this | link to this | view in thread ]

  12.  
    identicon
    Anonymous Coward, Nov 18th, 2010 @ 6:39am

    "Here's a guy who -- without much experience -- is running a huge swath of the media industry around the world, and seems to have a very strong working knowledge of what's going on across the board, and can speak knowledgeably about them all."

    The "without much experience" part really needs some justification since it would be hard to find people with more relevant experience (his Dad being the obvious exception).

    A description of Masnick's qualifications might include "Here's a guy who -- with no experience -- having nothing to do with running even a small part of the media industry in any town of village, thinks he has a very strong working knowledge of what's going on across the board, and blogs prolifically about it all."

    which is not to say you have nothing to say, but I know who I listen to most carefully !.

     

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  13.  
    identicon
    BBT, Nov 18th, 2010 @ 6:58am

    Re: Pay TV Industry Lost 119,000 Viewers In 3Q

    "YOUR A BONIFIED MORON."

    LOL epic fail.

     

    reply to this | link to this | view in thread ]

  14.  
    icon
    Mike Masnick (profile), Nov 18th, 2010 @ 11:35am

    Re:

    A description of Masnick's qualifications might include "Here's a guy who -- with no experience -- having nothing to do with running even a small part of the media industry

    Last I checked, I've run a rather successful media publication for over a dozen years. But that doesn't count?

     

    reply to this | link to this | view in thread ]

  15.  
    identicon
    Anonymous Coward, Nov 18th, 2010 @ 2:16pm

    Re: Re:

    "...Approximately 80% of visits to Techdirt.com consist of only one pageview (i.e., are bounces)...."

    (http://www.alexa.com/siteinfo/techdirt.com)

    I don't think that counts but fee free to argue the point !.

     

    reply to this | link to this | view in thread ]

  16.  
    icon
    Mike Masnick (profile), Nov 18th, 2010 @ 11:12pm

    Re: Re: Re:

    Relying on Alexa kinda kills all credibility, doesn't it?

    Though, I'm not sure what that stat means. Our own numbers are quite different (perhaps because only clueless noobs use Alexa's toolbar, and those are not our audience).

    Amusingly, I'll quote James Murdoch in the talk above, where he points out that many idiots used the wrong metrics in measuring what is and what is not a successful media property, and he relies on the most important one: is it profitable.

    I do the same.

     

    reply to this | link to this | view in thread ]

  17.  
    identicon
    hothmonster, Dec 12th, 2011 @ 12:58pm

    Re: Re: '... business ... It's not about "fairness."

    Mike, I am here from the future to tell you, he still doesn't actually read the articles.

     

    reply to this | link to this | view in thread ]


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