News Corp. Seeking Salvation in Paid Content

Dire situations sometimes call for bold measures. Just ask News Corp. (NASDAQ:NWS) chairman and CEO Rupert Murdoch.

After News Corp. announced Wednesday after market close another disappointing earnings result, Murdoch -- hobbled once again by continued slowness in advertising while also hurt by a write-down made on acquisitions from the high-flying deal era of just a few years ago -- declared his media conglomerate would go full throttle into charging for all online content of his newspapers and television news channels.

The commitment to the pay strategy was a shift by Murdoch when he said in May that his company would test the pay model on certain stronger media properties.

But that initial desire to test charging some readers went out the window when News Corp. realized that its fourth-quarter bottom line would show no improvement. The company posted a brutal fourth-quarter that resulted in a $203 million loss and a full-year net loss of $3.4 billion.

A large chunk of that quarterly loss was attributed to a $680 million write-down related to several divisions it added over the last couple of years to beef up its Fox Interactive Media division. Part of that write-down was a $180 million restructuring charge from its MySpace social networking site where it cut more than 700 jobs in the quarter. News Corp. CFO Dave DeVoe pointed out in the earnings conference call that while Fox Interactive Media's fourth-quarter revenue dipped 15% to $192 million compared to a year ago, the decline was due to a 22% ad revenue fall "primarily because of reductions of ad revenue at MySpace."

News Corp. acquired MySpace.com in June 2005 for $580 million. The deal was expected to give News Corp. a strong entrance to the growing social networking sector, potentially translating to a bevy of growing advertising opportunities. That hasn't necessarily happened yet at MySpace. The Web site has been hampered by a slowdown in online advertising as well as competition from Facebook Inc., which has leapfrogged MySpace by reaching a wider Web audience. According to comScore Inc. (NASDAQ:SCOR), Facebook has passed 300 million unique visitors in April 2009 while MySpace has flatlined at 123 million unique visitors.

Overall, Fox Interactive Media lost $136 million in the quarter, but it can't blame MySpace alone. The company also acquired Internet and media services company IGN Entertainment Inc. for about $650 million in 2005, Photobucket for around $300 million in 2007 and ad targeting firm Strategy Data Corp. in 2007 to bolster that division in the height of the market. But with ad revenue falling over the last several quarters and expectations continuing to be soft, those additions obviously haven't materialized the gains News Corp. had expected. In the meantime, News Corp. is hoping its pay strategy will somewhat offset its M&A misses.

"If we're successful, we'll be followed by all media," Murdoch told the Financial Times, predicting "significant revenues" from charging for various tiers of online news. But if that strategy flops, Murdoch may have to admit defeat and consider offloading some its losing additions to turn the tide from a sea of red to save his wallet as well as please his investors. - Gerald Magpily

Comments

[ajbaren:]

Newscorps online strategy for NY Post and WSJ pay for content is doomed. David Joyce from Miller Tabak on CNBC last night seems supportive of the model, indicating someone had to start the "pay for content" trend.

This will be a complete failure by Murdock, just as it has been for the record labels. The cat is out of the box!

There is simply too much free content out there already. This had to be a federated decision by the media provideers back in the 90's, and it wasn't. Not that that would even stop the free flow of content. I disagree on the quality issue; quality of what? Were are not talking novel writing here or great literature. You have two things - editorial and factual news.

Editorial is just that opinion. Yes, some is expressed more elegantly than others, but that's not to say people look to NY Post writers as these great intellectual minds they are looking for leadership form. Blogs on the web and commentary against published articles are freely available all over the place.

Regarding factual news, you have to look no further than the Huffington's Post coverage of the unrest in Iran, and how fast news of celebrities, accidents, etc. flows over Tweeter.

Bottom line, a pay for content strategy can still work for specialty magazines with true unique focus and expertise, but editorial and news, typically the mainstay of newspaper, will continue to be a failing model with pay-for-content. Newscorp would be much better offer leveraging their existing readership to provide free online content and sell advertising - typically the core review stream of newspapers historically anyway. Their challenge is not how to derive review from online content, but how to drive their offline readership to their online site so they have a unique base of online subscribed to sell advertising into.

Aug 07 07:34 AM

[Zachary Sch...:]

It does appear that charging for all online content would only give competitors an additional edge. For instance, if it cost just $1 per month for myspace, I'll bet a portion of the 123 million users would simply migrate to facebook.

There may be other ways of driving revenue (outside advertising) besides simply charging for all online content. For instance, there could be free and premium levels of content. Maybe a basic myspace page is free but to add certain applications you pay a small nominal fee. The Financial Times offers something like 10 free articles a month and then if your computer looks at more, you have to get a subscription.

Now of course there are ways to work around that, but the bottom line is that SOME users will finally opt to get the premium subscription in order to avoid the hassle. And in the mean time, the free content to start with will help the company reach a broader audience.

Murdoch should be careful not to extrapolate a few quarters worth of data (especially in this environment) and expect it to pertain to all future revenue. The better choice would be to focus on high quality content and some more creative ways to keep readers involved and paying for certain premium products.

I've been reading the Chris Anderson book "Free" and it gives a lot of interesting thoughts behind the concept of free media and the new era of how content is distributed. I would definitely recommend the book for a quick weekend read.
zachstocks.com

Aug 07 08:17 AM

[Maxe Paul:]

"If we're successful, we'll be followed by all media," Murdoch told the Financial Times, predicting "significant revenues" from charging for various tiers of online news.

DREAM ON RUPERT, YOU MUPPET.

Any 13 year old can start a website in a day and link to any newsworthy story online, stick up google adsense and a Yutube link!

But NO, Rupert is going to offer YOU, for a pretty penny, his editorial bias as news. Where do i sign up!!!

WAKE UP RUPERT.

Aug 07 11:07 AM

[Maxe Paul:]

Try this one Rupert, nude models with big boobs, dealing poker whilst reading the FOX news headlines.

You may just get a few morons sign up to that one.

HEEELLLP.

Aug 07 11:14 AM