Why Rupert Murdoch Is Right About The Daily

This article was published as a guest post on paidContent.org

There are plenty of naysayers who point out that Rupert Murdoch’s new initiative The Daily — the first major-media publication created expressly for tablet computers like the iPad — is an expensive and risky bet.

But here are four reasons why Rupert is right:

1) Rupert knows the ad model of publishing is doomed. Print and broadcast command the heftiest premiums, and both are at risk of price and volume erosion as consumers cut their ties to offline media. In the digital environment, online advertising is highly commoditized: the explosion of content publishers is outpacing the shift in demand, while technologies target audience ever more efficiently. Advertisers have plentiful ways to reach a consumer.

For his part, Rupert knows that his offline publications are at risk from decreasing ad revenues, and web-advertising models are hardly an adequate solution. Whether it’s out of desperation or vision, Rupert is willing to break through — and lose money in the short term — in pursuit of a better model.

2) Rupert can afford a long-shot bet — and can’t afford not to make one. He’s leveraging his considerable influence by putting something out there that can be truly cutting-edge. A $30 million investment may seem ridiculous for a new publication — and it is. But even with that hefty price tag, this is an insignificant bet relative to the industry and consumer behavior Rupert is trying to move. Throwing money at this is OK, because the possibilities are so great; if The Daily succeeds — or even provides the key insights so his next venture can succeed — it will be worth billions.

3) Rupert has influence to change consumer and industry behavior. He beat his drum loudly last year to get paywalls on the agendas of other publishers’ boardrooms. And it’s worked; just look at The New York Times’ pending move to a metered system. This is what I love about Rupert: Unlike other leaders in publishing, he uses his voice — and his treasury — to influence the industry and consumer behavior. He’s all about trying to get to a more successful model.

4) Rupert has a friend in Steve. Steve Jobs has a lot riding on this, too. Is Apple (NSDQ: AAPL) in the device business or the media business? To date, the lion’s share of its revenue and growth has come from the sales of ever-more-advanced devices. But as device categories mature, Jobs knows growth will get harder to come by: iPod sales grew at just 2% for Apple in 2010, as the venerable device line nears saturation.

In a world where mobile devices are ubiquitous and fiercely competitive, the fat margins of media revenue-share arrangements can powerfully fuel profits. But even more attractive is the tremendous expanse of the pool:  Apple’s media revenues are currently around $5 billion — a paltry sum compared to the global media and entertainment market that PricewaterhouseCoopers pegs at $1.3 trillion.

Apple has already proven that in its remarkably successful closed media ecosystem, the company’s store can earn an estimated 30% of the top-line for media sales — without having to produce any media. This happens when Apple creates compelling devices, exciting user-experience platforms, and fresh marketplaces. For Steve, the upside here is huge. And so he should be happy to tie that upside with anyone who is as crazy-aggressive as he is about getting legions of consumers in the habit of paying for media. And that list has just one name on it: Rupert Murdoch.

A fresh start and a new division — with a new concept and a new design for a new platform — is the only way someone like Rupert can have the freedom he needs to reinvent media for a new age. And only Rupert can do this — without falling into the ruts of compatibility with existing businesses or holdover assumptions from old models.

Kudos to Mr. Murdoch for summoning up the courage, and putting up the money.

The New Generation of Media Moguls

Simon Dumenco wrote at AdAge this week about the billionaire benefactors of old media:  the Sulzbergers, Rupert Murdoch, Bruce Wasserstein, Sam Zell, John R. MacArthur, and more.  He laments their aging, and in a subhead asks “where’s the next generation of Richie Riches willing to take losses on worthy media properties?”

It’s easy to take a melancholy view that the good old days of media are behind us.  But “who wants to take a loss?” is the wrong question.  Let’s get real:  The future of media had better not be about finding philanthropists to fund it.  It needs to be about creating successful businesses.  Those successful businesses will create wealth, not consume it, when they deliver content and experiences that are worth paying for by advertisers and consumers alike.

So who are these emerging emperors of the digital media age so far?

  • Steve Chen & Chad Hurley – YouTube defied the idea that media is created in publishing houses.  It’s a liquid marketplace for video content that consumer can’t get enough of as evidenced by 20 minute average visits.  To do that, they’ve merged content created by consumers, entrepreneurs, and media industry alike. While it hasn’t proven to monetize yet on-site, the concept alone was rewarded with a $1.65B purchase.
  • Mark Zuckerberg – Facebook reaches over 100 million per month in the U.S. alone, and is an addictive communications medium by which we connect to the world around us. Mark redefined content so broadly that it now includes anything anyone would want to share – whether it’s personal photos or articles or games or brand experiences.
  • Biz Stone and Evan Williams – Twitter has become the de facto network for propagating fresh content among distributors.  It plays a major role building audiences not only for itself but for every other media property.
  • Steve Jobs – Apple has redefined the music industry and remade the consumer experience of music.  By changing how music, video (more recently), and book (soon) content is consumed, Jobs has exploited consumers’ love of experience:  it’s not just the content that matters, but how we consume it.
  • Jeremy Stoppelman – More than anyone else, Yelp has successfully merged the notions of community and content:  and in the process, they have created the most successful example of a local content empire without an empire’s worth of payroll expenses.
  • Mark Pincus – Zynga has redefined media consumption by creating games in the social networks, and by moving well beyond advertising to get revenues.  Mark has literally created a new category of media.

Each one of these figures has created a new model that matches the digital age.  And, in fact, every one of them has done it by breaking with traditional publishing to interleave content and consumption so that they are inseparable.

That interactivity of content and consumption is a defining difference between the new world of media and the falling empires of legacy publishing.  Those who master the synergy between their audience and their content can transform their consumers into far more than just a target for advertising:  their audience participates in building the empire itself.

(Missing anyone?   Post a comment with your thoughts.)

Rupert’s Campaign To Make Subscription The New Free

While Rupert Murdoch is pumping up paywalls, many in the industry are resounding in their criticism: “But consumers won’t pay for content.”

It’s clear that they are right, sort of: by and large, consumers won’t pay for content for the sites they visit as long as there is a good-enough free alternative.

But that isn’t what this is about.  In all likelihood, the brainy folks at News Corp agree too; and their point is not to fight to convince the consumer with their bold statements in the press, but to change the industry.

In fact, from all the clamor they are making, it’s been clear that the goal of their campaign isn’t even all that much about making their own strategic shift to paywalls. Instead, it looks like News Corp’s goal is to get the entire industry to do so. And they’re right to do so: let’s face it, if everyone went pay, consumers who value content significantly wouldn’t have a choice but to change their behavior.

So how would News Corp go about making paywalls pay well? If I were them, I would plan something like this:

  1. Force the conversation. Make as loud a noise as you can about going pay, and importantly, get as much press coverage as you can. Make sure that paywalls are the topic of every executive team and board level conversation in major publishers. Highlight that there must be a better way – that the industry needs a better structure than the current one.
  2. Create air cover. More importantly than just starting these conversations, give air cover to the other executives.  The best way to do it is to make huge public proclamations:  let everyone see you throw the steering wheel out the window so they know you’re not turning back.  Give executives of other companies the air cover under which they can boldly start modeling and pitching pay services without being laughed out of the room. And when they do get questioned, give them the out that, “If Rupert Murdoch is committed to this, we’d be crazy not to take a deep look at it.”
  3. Get others on board. Start working behind the scenes on bundles and alliances. Get as many other publishers on board as you can – convince them that they will have precedent from the News Corp giant to fall under. Make sure to make loud promises about timing of the change, and demonstrate that strong commitment, so no one has to worry “what if News Corp switches back to an ad model and we’re standing out there all alone?”

The goal is to get enough of the top players in the industry on board to tilt the balance to where consumers need to pay up for paywalls.

For most of the readers of this post, if you couldn’t get the bulk of the sources you read for free, would you even think twice before subscribing (as long as the rates were reasonable)? If the New York Times, CNN, TechCrunch, PaidContent, and my local paper were all behind paywalls, there is no question that I would subscribe to one (or more likely a bundle with more than one) of them.

With the right consumer offering with good value for money, and the elimination of high-quality free alternatives, it doesn’t even take much creativity to find proof points: that’s exactly the model that built the daily newspaper industry to its $50B ad expenditure peak in 2006 (NAA).

If Rupert and his team at News Corp can bang the drum loudly enough to get enough others on board, he has the chance to make subscription the new free.