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Beecher: Why Murdoch defies gravity while other owners have to play by the rules

When people talk about the need to create a new “business model” to pay for journalism, the implied formula is one that makes a profit.

But there’s another prevailing funding model for journalism that, while it appears to lose a lot of money, is highly profitable in a different currency — the currency of power and influence.

This is the Rupert Murdoch “subsidy model”  for funding his global flagship newspapers — The Times, The Wall Street Journal, The New York Post and The Australian — which between them last year lost an estimated $300 million, or even more*.

It’s a unique business model crafted by Murdoch for Murdoch, combining his two professional passions: publishing printed newspapers and parlaying those newspapers into political and financial power.

The fact that News Corporation loses a great deal of money on its flagship newspapers doesn’t necessarily mean this is not a profitable formula. It just depends on how you measure profits.

Without doubt, there is immense value for News Corp in owning strategically positioned newspapers to influence government policies  — like media and broadcasting legislation, ownership limits, cross-media regulations, foreign ownership laws  —  which have a direct impact on the company’s profits.

According to one seasoned Murdoch watcher who has crunched the numbers, those flagship newspaper losses are an astute investment that pays for the bully pulpits that generate billions of value in other News Corp businesses.

This observer cities the UK, where the political muscle of The Times helps underwrite the monopoly profits of BSkyB.

As the former Downing Street press officer Lance Price has noted, Rupert Murdoch is effectively the “24th member of the Cabinet … His presence was always felt. No big decision could ever be made inside Number 10 without taking account of the likely reaction of three men — Gordon Brown, John Prescott and Rupert Murdoch. On all the really big decisions, anybody else could be safely ignored.”

Of course, the “subsidy model” is not a formula that will save anyone else’s newspapers or assist other more civic-minded media owners as they attempt to reinvent the parlous business model for financing journalism in an internet age.

But it does help explain why Rupert Murdoch can afford to take a somewhat detached, possibly uneconomic attitude towards charging for online content in his flagship mastheads. And it helps explain why he and he alone has been able to defy gravity while the other media owners are forced to play by conventional rules.

*According to figures filed at London’s Companies House recently, and reported in The Guardian, pre-tax losses for The Times and Sunday Times for the year to June 2009 were £87.7 million ($A145 million). Given the historical profitability of The Sunday Times, this suggests losses at The Times are well in excess of the total loss recorded.

According to a report in The New York Times, The New York Post loses an estimated $US70 million ($A76 million) a year, and The Wall Street Journal lost $US80 million ($A86 million) in the year ended June 30, 2009, according to the same reports in the NYT, citing a forthcoming book by Journal reporter Sarah Ellison.

Meanwhile, according to industry analysts, The Australian is close to break-even or marginally profitable.

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  • 1
    mark
    Posted Wednesday, 7 April 2010 at 5:00 pm | Permalink

    There was an article a few years back that suggested that newspapers being run for profit was a reasonably modern phenomenon - mid 20th century in fact. That prior to this newspapers were principally owned for the purposes of businessmen to have an influential forum to advance their commercial interests or personal hobby horses. The “proof” posited was that most of the origianl owners of newspapers were the robber barons of the day.

    From memory, the article argued that the shift to a profit based model was driven from the US where you had many small newspapers that were driven more by entrepreneurial reasons.

    Would be interesting to see if we have just come full circle.

  • 2
    Michael
    Posted Wednesday, 7 April 2010 at 5:01 pm | Permalink

    Eric whatever his methods one cannot fault his reasons.

    As a seasoned newspaper man you will surely agree that the World has never and will never again see the likes of Murdock. He is the real Citizen Kain.

  • 3
    Graeme Orr
    Posted Wednesday, 7 April 2010 at 10:37 pm | Permalink

    How could The Australian break-even?

    It is given away in huge quantities (not just in hotels and airports, but is$20 pa on campuses, including cost of weekend delivery).
    It carries almost nil advertising Monday-Friday.
    Its circulation is modest though it has the costs of nationwide distribution.

    Could these losses really be covered by the modest online ads and Saturday circulation and advertising?

    Its ‘model’ is like the others: an uneconomic subsidised organ for political leverage. What is amusing is the same paper constantly bleats and berates the ABC for being subsidised.

  • 4
    Most Peculiar Mama
    Posted Thursday, 8 April 2010 at 9:41 am | Permalink

    I find it laughable that you (again) rail against Murdoch whilst ignoring the haemorraghing carcass that is Fairfax.

    …Without doubt, there is immense value for News Corp in owning strategically positioned newspapers to influence government policies…”

    Barack Obama has 1.7 million followers on Twitter, around 500,000 fans on Facebook, and 70,000 email subscribers.

    What does Obama need the media for?

    He has an unfiltered conduit direct to the people…unprecedented in history.

    Kevin Rudd has it too.

    And you in your infinite wisdom choose to host it on your own semi-paywalled news site.

    Turnbull twittered his political abdication rather than via official press release from his electoral office.

    What does that say about the future role of the media?

  • 5
    john2066
    Posted Thursday, 8 April 2010 at 1:22 pm | Permalink

    One thing is clear - there should be no government advertising in the Australian. It boils my blood to see this ‘news’ paper filled with government ads that we are paying for. All needless, as all this advertising should be moved to the web.

    I call for an immediate government inquiry and an open taxpayer revolt to force all govt advertising from the pages of the Australian.

  • 6
    john2066
    Posted Thursday, 8 April 2010 at 1:40 pm | Permalink

    Every Australian taxpayer should be standing up, right now, and demanding that govt departments stop advertising in the Australian newspaper. And every person who places such advertising should know, right here and now, that such advertising cannot be justified and must be stopped.

  • 7
    Michael
    Posted Thursday, 8 April 2010 at 1:57 pm | Permalink

    Hmmm

    So John where do you suggest the Govt should direct it? SMH? AGE? Crikey?

  • 8
    john2066
    Posted Thursday, 8 April 2010 at 3:59 pm | Permalink

    Michael - the advertising should be moved to the internet, either main sites like Seek etc, or just put on a government site. No print advertising. You can see this mentioned in my first comment.

  • 9
    Michael
    Posted Thursday, 8 April 2010 at 4:03 pm | Permalink

    JOHN

    So you would sacrifice freedom of the press because you don’t like what the Oz writes?

  • 10
    Dave Richards
    Posted Thursday, 8 April 2010 at 9:11 pm | Permalink

    Is this exercise in envy really one of Crikey’s “top stories”? Having mastered the grown-up art of not believing everything I read, I appreciate the volume of news and variety of opinion in The Australian even when I don’t agree with everything in it. But when it comes to Crikey, I know what its writers are going to say about almost everything before I read them and the “quality” content is linked to other providers. I would subscribe to an on-line Oz if I had to, but Crikey has been unable to tempt me. Who wants to buy a bunch of sour grapes?

  • 11
    john2066
    Posted Sunday, 11 April 2010 at 3:11 am | Permalink

    Michael, I’m saying ALL govt advertising should be removed from ALL papers including Fairfax.

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