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*.

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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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Peter Fray
Peter Fray
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