Murdoch mauled

Media mogul Rupert Murdoch declared overnight that it is “increasingly clear that the worst is over” for the US economy.

He’d better pray he’s right, because News Corp is taking a terrible hammering as consumers and advertisers shut their wallets and bunker down.

News Corp’s third quarter net profit result was basically flat at $US2.7 billion, but that included a one-off $US1.2 billion boost from the sale of an asset.

To get the real picture of how News Corp is travelling, we need to look at the company’s operating profit, which plunged 47% to $US755 million.

Most of News Corp’s divisions did badly, but by far the worst performer was the company’s newspaper division, where operating profit fell a stunning 97%.

Murdoch tried to be an optimist on the issue of advertising revenue: “At the very least, we’ve hit a floor, and we seem to be getting a bounce,” he bravely declared – he was also forced to admit that newspaper ad revenues would probably never bounce back.

“Even though the present situation, I think, has been greatly exaggerated by the current recession, revenues are undoubtedly migrating to the web, probably not to return,” Murdoch says.

“There’s no doubt that the traditional newspaper model has to change.”

This admission must have really stuck in Rupert’s throat. For so long his empire has been built around the idea of selling lots and lots of newspapers. The web was never seen as much of a threat and thus all of News Corp’s content was published online, free of charge.

That model has come back to bite Murdoch. Not only are people just reading his news online and not paying a cent, but he is also complaining that his copyright is constantly being violated by other websites stealing his content.

Murdoch’s solution is to go into lockdown. Encouraged by strong online subscriptions at the Wall Street Journal, Murdoch is now looking for ways to charge for more online content.

“We will control the prices for our content and we will control the relationship with our customers,” he thundered last night.

Nice idea Rupert, but you are about a decade too late. While wealthy readers may be prepared to pay for a specialist news service like the Wall Street Journal, Murdoch is fooling himself if he thinks punters will suddenly start paying to read the Herald-Sun, Daily Telegraph or the News of the World online.

The internet just doesn’t work like this. People simply expect that things will be free, as proven by the rampant use of open source software and file sharing. If they are going to have to pay, it will only be for something really, really good – and daily news certainly doesn’t fit this description.

Murdoch is right to think his business model is broken. But he’d better come up with a better solution – and fast.