Google, Microsoft and News Corp. Fight While Consumers Stay Anchored to Free Content

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by: Michael Steinberg

Google (NASDAQ:GOOG) fights for net neutrality and the right to index all of the world’s information for free. Verizon (NYSE:VZ), AT&T (NYSE:T) and content providers are out to slay the Google dragon. Microsoft’s (NASDAQ:MSFT) Bing search engine fights to grab market share from Google. And News Corp. (NWS, NWSA) is conspiring with Microsoft to take Google down a few notches.

The Associated Press (a cooperative) and its member publishers claim that original reporting is the root of the internet, from which all opinion is derived. Without original content there would be no internet. News Corp. mogul Rupert Murdoch takes this further by saying advertising cannot support original content and rampant exploitation of original content by secondary sites such as search engines goes beyond the doctrine of fair use.

Murdoch’s insistence that profits derived from his content must flow back to News Corp. is likely to be focused on big pocket sites like search engines. Tracing Murdoch’s roots to the end of the internet would obviously produce diminishing returns. Murdoch feels emboldened by The Wall Street Journal’s ability to charge for online subscriptions, a feat few other publications can claim. Even Murdoch is treading carefully with his other publications. But as the printed newspaper becomes obsolete, a new business model must emerge.

“Pay to play” has had many twists and turns in the business community – some legal but most conjure shady behavior or antitrust concerns. Consumer staples manufacturers like Procter & Gamble (NYSE:PG) and Campbell Soup (NYSE:CPB) have to pay supermarkets like Safeway (NYSE:SWY), Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) for shelf space. Intel (NASDAQ:INTC) got in trouble for previously paying rebates to keep AMD (NYSE:AMD) out of Dell (NASDAQ:DELL) and HP (NYSE:HPQ). And now it is widely reported that Murdoch is negotiating to give Microsoft’s Bing search engine the exclusive right to index News Corp.’s content for cash.

Google allows content providers to opt-out of indexing, but I am concerned about payments and exclusivity arrangements. From a public policy perspective, incomplete search results are not a benefit to either researchers or content providers. I do agree, however, that search engines should pay to display copyright text excerpts, images and videos beyond fair use. AP cites uncontrolled fair use abuses.

With consumers anchored to free content, advertising not footing the bill and pay to play on shaky grounds, what is the path forward? I believe the model should focus on subscriptions as a reward for other consumer purchases or behaviors. Customers are anchored to water being free at restaurants and would be insulted if they had to pay for it. But no water would be provided if no food was ordered.

Content providers should pick up where the airlines rewards programs are collapsing under their own weight. At 50,000+ miles for a domestic flight, these rewards are becoming virtually meaningless. But if credit cards offered online subscriptions to The New York Times (NYSE:NYT), which is currently free to consumers, or The Wall Street Journal, consumers have tangible rewards. And their incremental cost to publishers would be minimal; virtually total profit for the sale of rewards. Inventory is not an issue in the online world.

When the consumer is anchored to free content, the much touted micro-payment model has little chance of success. The big packaged food companies as well as “organic grocer” Whole Foods (WFMI) know they have to package each new food fad into a taste consumers will tolerate. True whole-grain is too distasteful, so consumers will only go as far as processed whole-grain. Give consumers what they want and both consumers and business will feel good about themselves. Consumers will not feel good about making payments – micro or otherwise – for content they feel they are entitled to for free.

Content originators must be content with consumers paying indirectly for their work. Trying to change a consumer behavior as strong as free internet content is futile. But purchasing $3,000 a year on VISA (NYSE:V) or MasterCard (NYSE:MA) to earn an online newspaper subscription follows established behavior. So Rupert, go forth and sell rewards. Macy’s (NYSE:M) or even Starbucks (NASDAQ:SBUX) might be just waiting to offer them to their best customers.

I see Murdoch initiating the next Green Stamps revolution. As an added benefit, both the publishers and the retailers would have endless data mining fun.

Disclosure: No Disclosures.