1

FINAL Hinton WAN Hyderabad

1 Dec. 2009

Thank you.

I was invited here to talk about the value of journalism. About how

we at News Corp and Dow Jones have worked to create a debate

about the future of journalism in the digital world.

We have deployed some lavish language to stir things up.

We have called Google a digital vampire, and a parasite.

We have pointed the finger at the content kleptomaniacs of the

internet whose business models depend on purloining the

expensive journalism of mainstream media.

But now a little context. I use Google just as most of do. What it

does to enhance and enrich our lives makes it a true wonder of

the age.
 2

It is true that Google is at the heart of the crisis confronting

journalism today. That their almost incalculable – and growing -

power warrants great vigilance.

But the main, and most uncomfortable, truth is that this industry is

the principal architect of its greatest difficulty today.

We are all allowing our journalism – billions of dollars worth of it

every year – to leak onto the internet. We are surrendering our

hard-earned rights to the search engines, and aggregators, and

the out-and-out thieves of the digital age.

It is time to pause and recognize this – Free Costs Too Much.

News is a business, and we should not be ashamed to say so. It’s

also a tougher business today than ever before. We have

survived other perceived threats - radio, television, cable TV.

But this time it is different.

 3

How can it be that the Internet offered so much promise and so

little profit? I guess a lot of newspaper people were taken in by

the game-changing gospel of the internet age. It was a new

dawn, we were told. A new epoch, a new paradigm. And we just

didn’t get it.

Like an over-eager middle-aged dad, desperate to look cool, we

ended up dancing obediently to other people’s tunes. For a while.

You can almost hear the music – an algorithm and blues

soundtrack – accompanying the harbingers of the new economy

with the new rules of the new age. Their rules.

These digital visionaries tell people like me that we just don’t

understand them. They talk about the wonders of the

interconnected world, about the democratization of journalism.

The news, they say, is viral now – that we should be grateful.

Well, I think all of us need to beware of geeks bearing gifts.

Here we are in 2009 – more viral, less profitable.

 4

Because news costs. Because quality costs. Because free sets

the price too low. Because free isn’t sustainable. Because free is

too expensive.

I read an estimate the other day by Rick Edmonds of Poynter

Institute. He calculates that U.S. newspapers were a $60 billion

industry in 2006, with advertising revenues around $49 billion and

circulation revenue at $11 billion. This year he forecasts that

advertising will plunge nearly $20 billion and circulation by $2.5

billion.

A $60 billion industry is on its way to $37 billion in three short

years. At the same time, Edmonds figures, the crucial spend on

journalism – on content – fell by more than $1.5 billion.

That’s a lot of jobs. A lot of articles unwritten. A lot of malfeasance

unmolested. A lot of stuff no one will ever know.

 5

The blogosphere has an explanation, if not a justification, for

what’s transpired. The world has changed utterly, they type. The

mainstream media doesn’t understand it. It’s the inevitability of the

Internet.

Or as Jeff Jarvis, one of the leading proponents of the

information-must-be-free imperative puts it: The content economy

is over.

Is it really?

It’s been barely a decade since the Internet bubble burst on the

information highway to the digital future. Ten years ago, it was

taken for granted that Web sites supported by advertising were

the future. Build it, and they will come. Eyeballs and advertisers.

Clicks and cash.

We have learned a lot since then. Today, there is one thing we

must agree about the content economy – the content economy

that they tell us is over. That is, the one thing free news sites have
 6

in common with online newspapers … the one thing free news

sites have in common with online newspapers … virtually none is

making any money.

They are in good company. Even Google is struggling make

money with free content on the Web – its own content, that is.

YouTube probably defined viral on the Web more than any other

site. It lets anyone upload any video they like for free. Millions did

and do. It is a wonder of online traffic, which is why Google paid

$1.65 billion to acquire YouTube just three years ago.

Now Google needs to make a profit on this acquisition. How do

you make money on YouTube? It is supposed to come from

advertising. But as it turns out, not enough companies wanted to

put their advertising alongside home videos of pet dogs having

baths, or kids doing karaoke in their bedrooms. So YouTube –

Google – is resorting to paying millions for quality, professional

content in an effort to lure the advertisers they need.

 7

That makes one wonder just how long it will be before YouTube

asks its viewers to start paying up.

Free costs too much.

Even advertisers, who once cared above all about clicks and

page impressions, are starting to become more discriminating.

More and more, they want to reach quality audiences to burnish

the image of their brands.

A few months ago a study called "The Silent Click" by Comscore

and the Online Publishers Association (OPA) reinforced the

reluctance of brand marketers to rely on click based metrics. It

found that eighty percent of display ad clicks came from only

sixteen percent of internet users.

Furthermore, these obsessive clickers are predominantly younger

and lower paid than most web users.

 8

Two weeks ago the Internet Advertising Bureau and Bain &

Company released a study called "Building Brands Online."

This report highlights the disconnect between what brand

marketers are now asking for in terms of quality measurement on

the Web -- brand awareness, purchase intent, favorability --

versus what online publishers have traditionally been providing

them -- click-thrus, unique visitors, ad impressions.

So, ironically, what they now want is more of the 'old media'

metrics they are used to getting from print and television.

In other words, they are looking for intelligent, quality journalism.

Obviously this is all great for the Wall Street Journal Digital

Network. It supports what we have been saying all along; that

audiences exposed to display advertising on high-quality content

sites are more engaged, more favorable towards a brand, and are

more likely to spend.

 9

We are seeing evidence of this every day. For instance, our

homepage buyouts on WSJ.com have sold out for the last two

months.

We can take heart that high-quality content can break out from

the pack and earn the highest online advertising rates.

This is encouraging, but we know that advertising will never be

enough. We need the primary customer to pay as well. Leaving

the fate of our business in large degree to the cyclical economics

of advertising is too dangerous.

In the digital world, constant innovation, product development and

investment is needed to keep pace with the competition and serve

our loyal customers.

It’s not as if there’s no precedent for charging for content online.

In the U.S., online content from Major League Baseball and

Consumer Reports have attracted large paying audiences.

Quality journalism is for sale too.

 10

The Dow Jones’s flagship - The Wall Street Journal -- has up to

now - been the one major U.S. newspaper charging for content

online.

At the same time it has been the one major newspaper that has

been able to grow circulation and circulation revenue.

The Journal this year became the top-selling – selling –

newspaper in the United States. And it did it by selling more

subscriptions in print and online. It did it while garnering more

individual subscriptions. It did it while charging more for those

subscriptions.

If you are not finding new readers willing to pay, maybe it should

come as no surprise. Newspapers available for free on the Web

surely are making consumers an offer they can’t refuse.

Now if you believe the bloggers, that is what newspapers should

do. They should price their content at zero because the content
 11

isn’t what’s valued. The theory is it’s the links to the content that

give value, and the advertising they bring.

Convenient.

But who will buy all this advertising? Who is going to underwrite

the cost of this content?

Let’s not forget the basic economics: The rates on our ad cards

increase when there is less competition, not more.

There is something else fundamental at work here.

Implicit in the false gospel of the Web is the faith that free is

superior. And those who dare think otherwise are heretics and

fools.

Charging for online news, they say, is unfair. By asking us to pay,

newspapers are depriving readers of something they need and

should have. Deserve, even.

But neither the newsstand nor the Web is a lending library. Even

Google has conceded it can’t just reprint every book without due
 12

consideration to publishers and copyright owners. Why should

journalism be different?

The book business hasn’t surrendered its copyrights. The music

business may have struggled for a time with the issue, but it

hasn’t surrendered either. Neither has television or movies. Why

should we?

Let’s face facts. A business model that assumes we can’t charge

for the content we produce assumes that our content has no

value in the online market. In pure economic terms, such a

business model has to mean one of two things: Either there is no

demand for the content or there are substitute supplies of that

content sufficient to drive the price almost to zero.

I don’t believe it. And I doubt you do either.

It seems rather naïve then – stupid, even - that so many

newspapers would be so self-deprecating. That is the logical

 13

conclusion, after all, if we place zero value on the content – the

news – which is our product.

Newspapers, particularly in the United States, have historically

undersold themselves to their readers. Much as the blogosphere

advocates today, newspapers in the 20th Century sacrificed

circulation revenue for circulation volume in a quest for higher-

margin advertising revenue.

Can’t say it didn’t work for a time. But look where it’s left us…

At the Journal, we put elements of our publication outside the

paid wall as a way to attract traffic and potential subscribers. The

compelling proposition, however, is that the content that

differentiates the Journal isn’t free. You want the Journal’s global

scope, you want news, you want analysis and commentary – print

or online – you pay.

 14

The Journal has more than 2 million paying subscribers – and

among them, more than a million who pay to take the newspaper

digitally.

Why is it that paying for content in 2009 strikes some as such an

outrageous proposition?

Many of us here today are old enough to remember when

television was free. Well, it isn’t any more.

Just check your cable and satellite bills.

Even radio – omnipresent and forever free, right? In the U.S.,

nearly 20 million subscribers pay for radio from Sirius, the satellite

radio operation. HBO built a name and a business entirely by

persuading people to pay extra for content on television. SKY,

Star – millions of consumers are willing to pay for content they

want and value.

There are other examples from the Journal. The Journal now

charges for news via online devices like I-Phone and Blackberry
 15

and the emerging e-readers like Amazon’s Kindle. Already we can

see that these new platforms will deliver millions in revenue.

For Dow Jones charging for content is a vertical proposition that

assimilates the disparate needs of disparate audiences.

Our news has several lives and several levels of value. A

company’s earnings report is instantaneously rendered as news

by Dow Jones Newswires.

In a fraction of a blink of an eye, its first iteration is transmitted as

algorithmic code to be recognized by Wall Street computers

programmed to interpret and perhaps act.

That same headline goes at the same time to trading desks for

subtler analysis. For this content, the price is handsome.

Next, the news is on The Wall Street Journal Web site. A reader

pays up to $149 a year for that. Or maybe he will take it instead

via I-Phone or Blackberry; that costs $100 a year. A reader using

an e-reader pays $180 a year for the news. And in tomorrow’s

 16

print edition, the price – the value, if you will – is $350 a year. In

archival form in Factiva, more value will be delivered for years to

come.

At the same time as we navigate our way into the digital future,

everyone here knows that the newspaper business must

rationalize the lingering inefficiencies which inhibit our industry.

Chief among those is the excess printing capacity which weighs

us down. Behind the journalism, newspapers are of course huge

manufacturing and distribution operations. So many of our plants

sit idle much of the day – or worse, much of the night. The ROI on

idle, the return on our investment, costs too much.

The Journal is reducing its cost base significantly by tapping that

excess capacity. Contracting with printers in locations around the

U.S., we not only reduce the cost of production, we cut the cost of

transportation.
 17

Our production team also is on the other side of the

rationalization equation. Our own excess capacity was put to work

to print another newspaper. In this case, someone else’s

efficiency is our revenue.

Not so long ago – in America at least – this kind of co-

dependence was unheard of. Newspaper companies were self-

contained, relying entirely on their own staff and their own

facilities.

Today newspapers are sharing delivery trucks. Outsourcing

customer service operations. Consolidating regional news

functions. These trends will accelerate – and they should.

Watch for the Internet to be yet another inflection point in this

regard. There is no reason why newspapers should build unique

content- and payment-management systems on the Web.

 18

Might as well build more printing plants…

The lesson we should take from the Internet revolution isn’t that

free is final. It’s not that trust and authority are unwelcome.

The lesson is that new efficiencies are possible. It is possible to

re-conceive our business in a less costly context. It is possible to

sell differentiated content to familiar audiences and extended

ones.

What makes sense for newspapers is to consolidate Web

commerce functions. As a pioneer in online news payments,

Dow Jones already has such a platform. When we rebuilt it

recently, we added the capability to allow other newspapers to

share our expertise.

Unique content wins unique users; unique facilities don’t.

I don’t know when newspapers will no longer be characterized by

the paper on which they are printed. I do know most of us in this

room charge for content on paper and still collect a tidy sum in the
 19

process. Most of us still collect enough to continue to produce

quality news and still produce a profit.

Eric Schmidt, Google chief executive, said recently about the

debate on free versus paid:

As long as you’re on the side of the consumer, you’re pretty much

on the right side of all these debates.

No doubt he is right. The consumer will determine the business.

Consumers will seek the valuable over the vapid because they

always do.

They subscribe to HBO and SKY when broadcast television and,

indeed, YouTube, is free. They will continue subscribing to

newspapers if the newspapers provide the value they seek.

 20

Barney Kilgore, the inestimable former editor of the Journal and

CEO of Dow Jones, said something we ought to remember in

this time of transition.

The man who would create the first national newspaper in the

U.S. and redefine journalism in the process said a long time

ago:

The fish market wraps fish in paper. We wrap news in paper. The

content is what counts, not the wrapper.

We can only wonder how things might have been different today

had other newspapers done as the Journal did in 1996 and set a

fair price for content online. We can only wonder what we would

be talking about here today had newspapers recognized the

import a decade ago of the bursting of the Internet bubble.

 21

There isn’t enough advertising to support every online aspiration.

Now we must regret the stories not covered because we didn’t

demand what we truly were due.

And yet this remains an age of great promise for what we do.

Only a few hours ago in Washington DC, Rupert Murdoch, the

chief executive of News Corporation and my boss, told the U.S.

Federal Trade Commission:

…We now have the means to reach billions of people who until

now have had no honest or independent sources of the

information they need to rise in society, hold their governments

accountable, and pursue their needs and dreams.

… The future of journalism belongs to the bold, and the

companies that prosper will be those that find new and better

ways to meet the needs of their viewers, listeners, and readers.

And they should fail, just as a restaurant that offers meals no one
 22

wants to eat or a car-maker who makes cars no one wants to buy

should fail.

And he went on:

In the future good journalism will depend on the ability of a news

organization to attract customers by providing news and

information they are willing to pay for.

Free costs too much. Good content is valuable. That hasn’t

changed. It never will. The question is who will provide the

content and who will be compensated fairly for the value

delivered.

Thank you.