News Corp., Paywalls, and Online Economics

August 1, 2012

Most businesses are simple. Buy low. Sell high. When I worked at Booz, Allen & Hamilton in the pre-azure chip days, a joke was popular. I jotted down its particulars and it resonated with me when I read “The Daily Lays Off a Third of Its Staff.” The Daily was one of those digital innovations which would pump much needed revenue into a real journalistic operation owned by the News Corp. I know should have a more open mind, but when I hear “News Corp.”, I associate the firm with allegedly inappropriate methods of information collection. I will work on becoming more open minded and understanding. Really, I promise situationally right this instant.

image

A happy quack to Image source: Tainted Pen at http://taintedpen.blogspot.com/2011/04/how-to-form-breadline.html

And the joke:

A graduate of an Ivy League MBA who worked as a manager at a financial services firm walked out of her building in Midtown. Waiting to cross Lexington, a chauffeur driven Rolls Royce pulled up. The window slid down. A voice said, “Remember me? We were in MBA school together.” The Ivy Leaguer said, “Yes, but you quit during the first semester. Nice car. What are you doing now?”  The limo’s occupant said, “I buy those little paper cocktail umbrellas for one cent each in Shanghai and I sell them to bars worldwide for 10 cents each. That 10 percent mark up produces a lot of dough.” The window slid up and the limo took off.

Yep, pretty good income but not so good math. When something works, apologies and Excel speed skating don’t make much difference in my opinion.

The News Corp. story of the staff cutbacks at the News Corp.’s The Daily is an example of a company unable to generate income. Good math or bad, when a good idea produces lots of revenue, the exact math does not matter too much. When a business cannot generate revenue, then I watch cutbacks, fancy dancing, and ostrich-like maneuvers. Like my beloved boxer Tess. If she turns her head and cannot see me, she thinks I cannot see her.

Here’s the passage I noted in the “real” journalists write up about his employer company engaged in “real” journalism:

News Corp. officials have publicly defended The Daily, which News Corp. CEO Rupert Murdoch thought would serve as a template for newspapers’ transition to the tablet era. Murdoch’s team worked closely with Apple and its late CEO Steve Jobs to produce a publication initially tailored for the iPad. But while Daily executives say they now have more than 100,000 paying subscribers for its iOS and Android editions, the paper hasn’t been able to live up to Murdoch’s expectations, and the money-losing publication has been under scrutiny since launch.

Was The Daily Apple’s idea. Okay. I think that is an interesting angle. The deceased don’t talk.

My view of this situation is based on my distance from “real” journalism.

First, the business model of the traditional publishing business was predicated on having low costs, advertisers, and control of a communication channel. With digital information winging around, the costs are tough to control, advertisers want results or will bolt unlike those auto dealers advertising in local papers, and zero control of a single communication channel to a specific market with few info options.

Second, in today’s run and gun information world, the key to making money is value. If the person in need of the information does not perceive high knowledge value in the content, then that person will not pay for the information. The problems with for fee digital publications is that few provide must-have information. Most recycle information so why not just do a couple of queries and get what you think you need or want. Good enough is the catchphrase for most free or low cost information. Coming up with a home run in the knowledge value game is a different kettle of fish.

Third, big publishing companies are now faced with having to master a number of very complex moving parts. Unlike our numerically gifted paper umbrella wizard who dropped out of MBA school, digital products and services are just darned hard to figure out, sustain, and grow. The publishing business relied on cultural and societal behaviors which still exist—just to a smaller degree. Applying the old formula to the digital world is expensive and requires different skills from running a newspaper in a town in the Midwest in the early 1900s.

What is fascinating is that it is not just News Corp. which continues to struggle with new media, the Internet, and the wild and wacky devices which are turning up in the most unexpected places like coaching sessions at the Olympics. Companies which have generated empires on the buy low, sell high models that worked in the past are likely to face even more severe challenges in the future.

Do I have a solution for these outfits? Maybe. Partially. But the problem becomes one anchored in expertise, executive compensation, staff, and business savvy in touch with the 20 somethings thrashing for survival. Change is tough when the problem is not understood. Revenue, not fancy degrees, decide.

Stephen E Arnold, August 1, 2012

Sponsored by Augmentext

Comments

Comments are closed.