Rupert_Murdoch_-_WEF_Davos_2007It’s difficult to know at first sight whether Rupert Murdoch doesn’t understand the internet, or whether he is just going through contortions to to delay the likely loss of value it represents for his multi-billion dollar media business. The evidence for the former is that News Corp was late in engaging with the internet, despite his well-publicised splash on MySpace. The evidence for the latter is that News Corp’s businesses tend to be built around businesses where value can be defended through infrastructure, and his latest remarks are designed to defend this. There’s a third theory as well; that he’ll make deals wherever they make sense.

Obviously such considerations are opened up by Murdoch’s recent remarks that he plans to exclude his newspaper content from the Google search engine. The broad sweep of strategy had some detail added to it by his “chief digital officer”, the other, less famous, Jonathan Miller, who explained that Google didn’t provide very high value consumers:

The traffic which comes in from Google brings a consumer who more often than not read one article and then leaves the site. That is the least valuable of traffic to us… the economic impact [of not having content indexed by Google] is not as great as you might think. You can survive without it.”

The Ad Lab blog at MIT tries to dig into this case, and in a way that looks for some rationale for News Corp, but the story they tell doesn’t match the data they’ve dug up; on the News Corp financial services, Google is second or third largest search traffic provider, on news services it’s usually top.

Squeeze points

The evidence for the clash of business models comes from a look at News Corp’s preferred businesses, and they’re typically in sectors where a squeeze point in the value chain offers some control over the market and creates barriers to entry. In the newspaper business, that’s the sheer cost of printing presses and the complexity of distribution networks. In the pay-television business it’s the encryption technology (where News Corp also owns businesses which do the encryption) and the rights deals with sports bodies and studios. Both are backed up by some of the best competition lawyers that money can buy.

The competition between such business models and the internet is like the battle between water and stone; water will win, but it will take time. This is the best explanation for Murdoch’s positioning; he gets the internet perfectly well, and understands its long term impact on his businesses, and is looking to squeeze out value in the meantime through whatever delaying tactics are to hand.

Cory Doctorow points out that the MySpace acquisition – certainly overpriced – was offset by a sale of the search rights, and  that Google competitors out there might – just – pay for exclusive rights to search News Corp’s online properties. Using the ‘Boston Box‘ model, this suggests that Rupert knows the game’s up for the papers, at least in the medium term, and that he will milk his cash cows (high market share, low market growth) for what he can get.

Playing the lobbying game

And maybe there’s a lobbying game going on here as well. The old joke about the definition of chutzpah is of the boy who who kills his mother and father and throws himself on the mercy of the court because he’s an orphan. As a well-practised monopolist/oligopolist, Murdoch knows one when he sees one, so drawing attention to Google, particularly, makes sense. I think we’ll see more of this from News Corp in its public pronouncements in the future. (Indeed, James Murdoch may even now be regretting wasting his Edinburgh platform on attacking the BBC and Ofcom).

And we’ll see more positioning along the lines of ‘ickle-lickle newspapers being beaten up in the playground by big ugly internet monsters’. The other part of Jonathan Miller’s remarks at the Monaco Media event, in which he also acknowledged that News Corp wouldn’t go it alone, is likely the shape of kite-flying to come:

“We will lead. There is a pent up need for this. There has to be a resolution for the free versus pay debate otherwise we cannot afford to pay for things like news bureaus in Kabul.”

I’d like to believe Cory Doctorow’s account of Murdoch as, Kane-like, “an out-of-touch moustache-twirler who’s set his sights on remaking the web as a toll booth”, and Doctorow seems alarmed – rightly – by Murdoch’s attack on the notion of “fair use“, which is one of the deep underpinnings of independent and academic research, and of free speech. These things are dangerous fall-out from people trying to hold onto an empire as it starts to totter. Murdoch’s position here is designed to cause ambivalence, as News Corp so often does. I’m supposed to believe in the value of the freedom of speech and information created by news bureaux ‘in Kabul’, (and of course News talks about Kabul and not about Gaza). But I also know, over and over, the way in which that news is distorted in the Sun and the New York Post. This isn’t about protecting independent news media; it’s about welcoming the decline and fall of a media monopoly.

Update, 15th November: John Naughton notes in his Observer column (available here via his blog) that people rarely pay the full value of content in print media either – and usually, it’s not even close.

Update, 16th November: Emily Bell argues that this is about politicking by News Group:

The Murdoch threats to block the search engine, take away his highly original content and build a big paywall are a signal to politicians with a grasp of digital markets that he would like something done about this. For all his public dislike of big government, Murdoch’s most audacious business gains have always come from playing a brilliant political game.