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Economics

Murdoch to the Rescue?

9 August 2009

Murdoch to the Rescue?

By Gwynne Dyer

Can Rupert Murdoch save the newspaper industry by making people pay to read the news online? Probably not, though his reputation as a financial wizard (he is many times a billionaire) has bewitched a lot of people into believing that he can. More importantly, does the newspaper industry as a whole need to be saved, or is this largely an American problem?

The “Dirty Digger” declared last week that he would start charging for the online content of all his newspapers, including the “New York Post” and “T he Times” and “The Sun” in London, before next June. In the United States, where many if not most big-city dailies are in a financial “death-spiral” (as one editorial page editor put it to me last year, explaining why she was taking the buy-out and retiring early), the whole industry prayed that he was right.

Murdoch’s reputation as a master of the media universe is so high that even his competitors hope that he can make it work. “I believe that if we’re successful, we’ll be followed fast by other (print) media,” he said, and that’s perfectly true. But past experience argues that he won’t be successful: there are too many free alternatives.

When the first newspapers began putting their content on the web fifteen years ago, they made it available free in the belief that the online version would supplement rather than replace the highly lucrative print editions, and in the hope that eventually online advertising would provide a healthy new stream of revenue. But the online versions did cut into the print readership, and online advertising rates never rose to match those of the print editions. In the past couple of years, online revenues have ceased to grow entirely.

So when the recession came along, most American newspapers were already in a very vulnerable position, and now many are at death’s door. I’m getting used to lawyers’ letters from US dailies explaining that they are now in “Chapter 11″ (bankruptcy protection), and so I can forget about what they owe me for the column as I am not a secured creditor. (However, they CAN pay me for articles I send in the future – the law is strange that way.)

Now, here’s the odd thing. Large numbers of journalists have also been laid off by their papers in other countries, because advertising revenues and the actual physical size of most papers both shrink in a recession. But this column runs in papers in almost fifty other countries in every continent except Antarctica, and not one of them has declar ed bankruptcy.

You can’t explain it by saying that internet use has been lower in all of those countries. In fact, the United States has only recently caught up with most other developed countries in the proportion of its population that is online. A likelier explanation for the American disaster is what happened to the US newspaper industry in the 1980s and 1990s.

It was a time of “greed is good” in American capitalism, and newspapers were still profitable in those decades. The old family owners were bought out by chains that sought returns of 10-15 percent a year, far more than the former owners had ever expected. The new owners’ first priority was to keep the share prices up, so they had to keep the profits high, so they started cutting costs – and the biggest cost in running a newspaper is the journalists.

There are few newspapers in the United States that employ even half as many journalists as they had fifteen years ago. Yet news-gathering was and remains a highly labour-intensive business. In effect, the new owners and managers gutted the content in order to maintain their high profit margins. Now most of them are out on golf courses, and the newspapers they ran are on the rocks.

Since many US newspapers are also saddled with huge debts because of those take-over deals, the papers were in no shape to withstand the cash famine of the recession. Nor is it obvious how charging for newspaper content online is going to transform their finances now, even if they don’t simply drive their current viewers away to the many free sites. It’s late in the game, and they just cannot raise enough money through increased internet revenue to transform their catastrophic balance sheets.

Elsewhere in the developed world, most newspapers will probably start charging for their websites too: Murdoch is right in thinking that the competition will follow his lead. And elsewhere, that will win newspapers some further time to think about how they deal with the new reality, for it is very unlikely that we will be getting our news on paper in twenty or thirty years’ time. But for many American papers, it is too late now.

Where does the news business go from here? Blogs and “citizen journalism” are not the answer: serious news-gathering costs serious money, and there has to be a business model that supports it. Whoever comes up with the solution will be the new Bill Gates, but we may have to wait a while. As American internet guru Clay Shirky said recently, the immediate future may consist of “decades of random experimentation, much of which will fail.”

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To shorten to 725 words, omit paragraphs 10 and 11. (“Since…now”)