carson smith’s blog

You may have recently read of media mogul Rupert Murdoch’s rumored plans to de-index his newspapers’ content from Google. “The Philistine phase of the digital age is almost over,” he proclaimed at the October World Media Summit in Beijing. He threatened that the likes of Google “will soon have to pay a price for the co-opting of our content.”

The casual observer might deem this idea mad, given that about 25 percent of The Wall Street Journal’s web traffic comes through Google. Indeed, comments on the popular social media blog, Mashable, lambast the 78-year-old industry titan:

“This guy is off his rocker.”
“What a greedy old fool.”
“Murdoch is just another in a long line of execs who don’t understand the technology.”
“Ok, this is probably the most ignorant thing I have ever heard.”

Sure, call the old billionaire foolish if you’d like. But there’s one thing Murdoch does understand: his newspapers may go bankrupt without a change in the online economic landscape. The business basics of the journalism industry today are grim:

• On the web, advertisers can now reach consumers very cheaply (Blogs, Facebook, etc)
• Traditional news publishers, who rely on ads to support costs, must compete at these cheap ad rates in the open market
• This revenue does not come close to covering the overhead of a major online news operation

In this business context, Rupert Murdoch can either work to protect his billion dollar empire, or let it go to the blogs, so to speak. Obviously he wants to do the former. So what’s his strategy after giving Google the finger?

A deal with Microsoft?

According to reports, Microsoft and News Corp have discussed a possible content deal on its fledgling search engine—errr Decision Engine— Bing. Desperate to increase its market share, some think Microsoft may be willing to pay for exclusive access to Mr. Murdoch’s content. But what about the lost Google traffic?

Analysts estimate that The Wall Street Journal makes about $15 million a year in ad revenue from Google’s search traffic. Given cash-rich Microsoft’s recent $100 million promotional campaign for Bing, it seems a no brainer to pay Mr. Murdoch well beyond a measly $15 million for an exclusive content opportunity.

Will the industry follow suit?

As one blogger put it, it’s a kind of prisoner’s dilemma. If one company leaves Google, the company that stays with Google will see its traffic and revenue increase. But if all news websites band together and jump ship, they could all collectively be better off.

Using elementary game theory, I’ve created a hypothetical example of how Mr. Murdoch might view the competitive business situation in favor of choosing a Microsoft deal. To simplify the marketplace, let’s imagine that there are only two players: News Corp (player A) and the New York Times Co (player B).

Currently, both companies allow their articles to be indexed on Google, generating in the neighborhood of $15M from that traffic. This scenario is represented by the upper left-hand box.

Now let’s say News Corp decided to move to Bing’s exclusive deal, while the NY Times Co remained indexed on Google. In this scenario (upper right-hand box), revenue increases for both. Why? Microsoft pays News Corp $40M per the signed deal. The NY Times gets $10M more in search traffic because News Corps content is gone from Google, giving it greater market share.

However, using logic, neither of the above scenarios would happen given the game’s conditions. Based on the revenue potentials, it makes most sense to chose Bing no matter what. Even though you’d make more money if you were the only one on Bing, it will not happen. Both are better off choosing Bing. While revenue will be slightly lower (their content is now competing for the same eyeballs on Bing, so Microsoft does not pay quite as much to each), it is still better than choosing Google.

Does this have any grounding in reality? Not really, because we don’t know what the conditions will be in real life. And according to an inside source familiar with the Microsoft negotiations, “the economics do not seem to be there for the common arrangement initially rumored to be under discussion.” One thing is for sure: the economics must change if News Corp wants to keep its newspapers. In an indication its willing to help publishers change their losing equation, Google today announced more options for news publishers to control their content.

Looking into the future

In America today, news publishing is a business. For these companies, the only right choice is the one that yields the greatest long-term profit. Given the rapidly changing media landscape, I’m not sure anyone can predict what will work best in 10 years. But I’m glad we have companies experimenting with different models. The sad part is that many ideas will fail, and more than likely, many journalists will lose their jobs in the coming years.