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Murdoch shows he doesn’t understand how content works

News Corp. (s nws) founder Rupert Murdoch caused a stir over the weekend with some comments he made on Twitter after the Obama administration criticized the SOPA anti-piracy bill, in which the octogenarian billionaire accused Google (s goog) of being the “piracy leader” and “stealing” content from movie companies and others. Whether he was trolling the social network or not, these comments reinforce the sense that Murdoch doesn’t understand how content works in a digital era — one in which, as venture capitalist Fred Wilson noted in an unrelated blog post, trying to impose scarcity is a sign of an increasingly broken business model. That fundamental misunderstanding has cost News Corp. a lot, and will likely continue to do so.

In one of his first comments, Murdoch criticized President Obama for siding with “Silicon Valley paymasters” who threaten software (and presumably content) creators with “plain thievery.” Then he attacked Google for being what he called the “piracy leader online,” and for streaming movies for free while selling advertisements around them — something that appeared to be a reference to copyright violations on YouTube. Finally, the News Corp. chairman said he had searched Google for links to the movie Mission Impossible and found several sites offering free links.

It’s more than a little ironic that Murdoch made these comments just a day or so after admitting that his company screwed up royally with Myspace, the social-networking leader it paid more than half a billion dollars for in 2005 — only to be forced to sell it last year for just $35 million after mismanaging it into oblivion. In a message that seemed to be a response to his many critics on Twitter, he admitted that the simple answer to the entity’s massive failure was that News Corp. had “screwed up in every way possible,” but the company had “learned lots of valuable [and] expensive lessons.”

Failing to learn the lessons of digital content

Were any of those lessons about how content works now, in an age of digital abundance and the “democratization of distribution,” as Om has called it? Murdoch isn’t saying, but his repeated attempts to lock up content in as many ways as possible don’t bode well. In addition to exporting his paywall model from the Wall Street Journal to British papers like the Times of London — where readership immediately plummeted by as much as 90 percent — News Corp. has also launched expensive projects like the iPad newspaper The Daily, which took the bizarre step of posting articles to its website as images with no links.

Perhaps the News Corp. founder doesn’t mind blowing hundreds of millions of dollars on (arguably) failed experiments like that — or like the news portal/aggregator code-named Project Alesia he spent a year trying to build and then shut down. But as author and journalism professor Jeff Jarvis describes in a post about Murdoch, he would be better off trying to understand the digital content market a little, instead of trying to recreate the scarcity entities like the Wall Street Journal have had in the past.

Financier and digital veteran Fred Wilson of Union Square Ventures has written a couple of posts that sum up this problem quite well. In the first one, which he wrote earlier this month, Wilson complained he was forced to find a pirated version of the New York Knicks game online because he couldn’t find any way of actually paying a rights-holder to watch the game in a more legitimate way — despite paying hundreds of dollars a month to his cable company, and subscribing to the pay-per-view NBA service, and routinely buying tickets to Knicks games. As Wilson put it in his post:

I’ve long believed that piracy is largely a business model problem not a human behavior problem. If you give people a legal way to consume the content they want, they will pay for it. But when you make it impossible to legally consume the content they want, they will pirate it.

Make it easy — and reasonably priced — and people will pay

In a post on Sunday, the New York-based venture capitalist described another episode in which he and his family tried to find something to watch through their cable company’s “movies on demand” feature, as well as through Netflix, (s nflx) Amazon’s video service (s amzn) and some other methods. Unable to find anything worth paying for, Wilson said they wound up watching a free TV show — and reiterated his point that the kind of artificial scarcity the media and entertainment industries rely on is broken:

I am sure there was a time when scarcity was a good business model for the film industry… I understand their muscle memory in terms of the scarcity business model. But restricting access to content is a bad business model in the age of a global network that costs practically nothing to distribute on.

This is the simplest possible rebuttal to Rupert Murdoch’s claims about Google and the web, and how it engages in what he sees as rampant piracy. While there will always be people who prefer to find ways of accessing content without having to pay for it, the simple fact is that many more people who do so are like Fred Wilson, and would be more than happy to pay for that content if someone made it easy to do so, and charged a reasonable price. The recent experiment by comedian Louis CK was a great example — it proved that millions of people will pay for something even if it is available for free.

Can Fox and the Wall Street Journal and other mainstream media outlets operate the same way, and simply hope that people will pay them for their content if given the chance? Perhaps not, but one thing is for sure: If even well-off venture capitalists are admitting they pirate content because they can’t find any way to pay for the things they want to watch, Murdoch and his scarcity-mongers are in deep trouble — and railing against Google is going to get them exactly nowhere.

Post and thumbnail photos courtesy of Flickr users World Economic Forum and Paul Sapiano

16 Responses to “Murdoch shows he doesn’t understand how content works”

  1. Richard Wingard

    I believe that technology more than law will solve the video piracy issue facing content and distribution companies. There will be technical capabilities in new video compression algorithms that will control access of video content to only intended users.

  2. invisibleinkdigital

    Just to add another angle to Murdoch’s position, there is a fantastic 5m video on his background by the documentary maker Adam Curtis.

    The main point of the clip, is that Murdoch was the Google of his day in wanting to monitise information by liberating it out of the hands of the UK establishment.

    I’m no fan of Murdoch, but an interesting perspective emerges of Murdoch actually being a freedom fighter for giving people the news they wanted but couldn’t get (or dumbing down depending on a person’s perspective)

  3. Okay, to make you understand how Google profits from YouTube with stolen content, I’m taking your article, removing your name and replacing it with mine, uploading it to another website, replacing all your links with links to other material I stole, and inserting all my own advertising content. Please write more articles next week to help support my new site.

  4. Rhythm King Warriors

    Everything you speak is the simple and plain truth. Anyone who doesn’t agree with this post should go ahead and buy stock in tower, news corp, and all those other ancient worthless garbage production and distribution company’s and see how long it takes to go bankrupt.

  5. People like myself checkout movies posted online, and if it is good, go and buy the DVD for keeps or watch it in good clarity.

    I wonder what Murdoch thinks of radio. They are streaming music to the ears of millions. That is also piracy. The only difference is, content is being pushed to the listeners instead of listeners pulling the content to them. Same goes with TV. May be those who get sued by Hollywood should sue TV and Radio stations for tempting them with content.

  6. Chase Garbarino

    Nice post, Mathew. I certainly don’t know the pressures of leading a public, global media company, but I find it fascinating that Murdoch and other legacy players, who are all very smart people, ignore the simple economics of what has happened online.

    Any 18 year old college student taking econ 101 learns that when you have a supply side surplus, this drive price down. News, content and information online has arguably seen the largest supply side surplus of any industry in history, and these guys want to raise/maintain price for the product. It is simply economically irrational.

    While video content like TV shows and movies are different – a pay model can work here because quality is much higher than amateur players – news/text is very difficult to differentiate as the product can be replicated and ultimately has a shorter life expectancy.

    Will be interesting to see how News Corp is set up to fair over the next 10, 20, 30 years. They are so massive they certainly won’t disappear any time soon, but I’d imagine some of the media behemoths won’t survive what is probably just the beginning of the digital disruption.

    • That’s a great point about supply and demand, Chase — and another great economic maxim is that it isn’t the competitor who is better than you that represents the greatest risk, it’s the one whose product is good enough (or convenient enough) for people to switch. And switching costs in a digital age are minimal, if not non-existent. Thanks for the comment.

      • Chase Garbarino

        Thanks Matthew, and you’re right about switching costs and the complete lack of friction in the digital content space. The complete economic structure of the industry is quite fascinating – production costs are at an all time low and value per unit of output is arguably also at an all time low, however the potential for advertisers in how/when/where they reach consumers is at an all time high. Biggest challenge I’d say is holding a consumer/users attention as, like you said, with the click of a button they can “switch.”

        It is also interesting that in the face of supply side surplus, co’s like GigaOm have found a way to work in paid models – though you are not charging for news, the research content is differentiated enough people are willing to pay and the news is essentially a marketing cost that can also make money through advertising. Would be interesting to explore the different emerging business models in the news space.

  7. Think about it

    Maybe Murdoch is trying to distract us from his own hacking scandal? Doesn’t seem like he cares much for private property when HE’s the one doing the pirating.

  8. Mi Mathew. I ran across Fred Wilson’s post as well, great discussion. But buried in the comments was a link to a post by Bill Gurley on affiliate fees, and the whole structure of the film and television industry. It very clearly explains what the current Hollywood business model is, and why shifting away from scarcity might not actually make sense for any of the players any time in the near future. Anyway, a very intelligent take on a different perspective.

    • Thanks, Jonathan. I agree that’s a great post by Bill, and he is quite right about how tied to affiliate fees the entire ecosystem is — but as he admits, that doesn’t necessarily mean disruption won’t happen, it simply means it could take longer and be more painful. Yet another reason why the incumbents in an industry are almost never the ones who successfully disrupt it. Thanks for the comment.