Rupert Murdoch’s talks with Microsoft about removing his newspapers’ stories from Google, and giving the rights to index them to Microsoft’s Bing, could be a pivotal moment in internet economics.
Mr Murdoch appears to be willing to sacrifice a lot of traffic to the websites of papers such as the Wall Street Journal and The Times in return for a payment from Microsoft. In effect, he would be swapping his revenue stream from online advertising with a payment from Microsoft for drawing visitors to Bing.
That suggests one of two things: either, as a lot of digital evangelists have suggested, he is getting old and does not “get” the internet, or he has looked at the figures and decided that Google traffic is not worth very much. Personally, I think the latter is more plausible.
Ryan Chittum of the Columbia Journalism Review did some calculations the other day and suggested that the Journal gets less than $12m a year in advertising to people who come to its site through Google, although it accounts for 23 per cent of the Journal’s traffic.
The [New York] Times typically gets about twice the traffic the WSJ does. For simplicity’s sake (I don’t know if the WSJ gets more or less per unit of traffic than the NYT does), let’s say the Journal will get half what the Times will in online ad revenue this year, or $51 million. If all visitors were equal (and they’re not!), that would imply Google brings just $11.7 million a year in ads or $978,000 a month.
In fact, as he says, this estimate is probably too high because it equates the yield from advertising to people who arrive at the Journal site through Google with the yield from advertising to paid subscribers. In practice, advertisers are willing to pay far higher rates to reach paid subscribers.
As I pointed out the other day in a column for the FT, advertisers (correctly) do not value random traffic from search engines on a par with paying subscribers. The former are readers while the latter are customers who are signalling loyalty to the product.
So traffic drawn to news sites through links and search engines is better regarded as a marketing device to attract subscribers than as a big revenue stream. The Journal’s policy of giving away some of its stories and charging for others is thus a “freemium” strategy.
Mr Murdoch appears to have decided he will not lose very much by ditching Google traffic and even a fairly small payment from Microsoft would compensate. He is attempting to get distributors to pay for content in the way that US cable operators pay cable networks for programming.
He may have got the idea from the fact that Google was willing to pay News Corp $900m three years ago for the right to provide search and sell advertising on MySpace until 2010. The deal has not worked as planned because MySpace’s traffic has fallen below target.
Presumably, any payment from Microsoft for the right to index news would be a lot lower than this, even if it included rights to advertising revenue from people clicking through to News Corp sites.
Nonetheless, the principle does not strike me as far-fetched, even if we have yet to find whether he can pull it off. If the revenue from search traffic is low, why not swap it for something else?
