JIN-514 -- Possible Microsoft and Murdoch deal - the future of Internet news media?

[jin at mailman.japaninc.com]

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J at pan Inc Newsletter
The 'JIN' J at pan Inc Newsletter
A weekly opinion piece on social, economic and political trends in Japan.
Issue No. 514 Thursday November 26, 2009, Tokyo

Earlier this year, when News Corporation chief Rupert Murdoch
whispered about removing his vast array of media properties from
Google’s search index, many seasoned veterans of the technology/media
space seemed skeptical. The wide skepticism is by and large an after
effect of the egalitarian "Web 2.0" Internet ideal that has already
seeped into the mainstream of media culture. For the last few years,
the Web 2.0 meme promulgated the idea of an Internet populated by
largely free content, somehow supporting a new environment in which
independent bloggers, writing for free from the comfort of their
homes, were elevated to an equal footing with large news organizations
like CNN, The New York Times and Murdoch’s own Wall Street Journal,
just to name a few.

Now, thanks to a report this week in the Financial Times, it looks
like Murdoch’s contrarian musings may, in fact, hold the key to saving
the dying newspaper business. The report describes a deal in which
Microsoft, the creator of the new Bing search engine, would pay News
Corporation for the right to index the company’s media titles, which
include heavy hitters like The Wall Street Journal, The Daily
Telegraph, The Australian, The Sun, and The New York Post. Because
Murdoch has already publicly expressed a desire to remove his content
from the Google search index, this kind of deal could set up the
template for news organizations around the world to once again assign
value to their content rather than allowing it to be consumed for
free, tenuously supported by dwindling advertising revenue.

According to comScore, as of October Bing's U.S. search increased to
9.9 percent, versus Google at 65.4 percent and Yahoo at 18 percent.
The significant factor here is that Bing now provides the search
technology for Yahoo, thus giving Microsoft a two-pronged attack
against Google that represents nearly 30 percent of the search market
in the U.S. The 10-year deal between Bing and Yahoo is still subject
to a U.S. anti-trust review in early 2010, but the fact remains that
Microsoft is in a perfect position to provide leadership to the rest
of the search and media community by essentially offering to pay for
content that is now largely being consumed for free via Google.

Amazingly, the skeptics are still grumbling that Murdoch's plan will
do little to save media, and may even diminish the fortunes of media
mainstays like the Wall Street Journal and The New York Post. The fear
is that Microsoft and News Corporation may marginalize themselves by
setting up this new pay-for-indexing dynamic. But these naysayers are
overlooking the fact that ever since the rise to commercial prominence
of upstart, independent blogs, old media has been desperately looking
for a revenue savior and will likely glom onto the coattails of anyone
who can effectively come up with a solution that will save the
shrinking profits of the newspaper industry.

According to FT, Matt Brittin, Google's UK director, gamely responded
to the possible Murdoch/Microsoft move by saying, "Economically
[newspaper content is not] a big part of how we generate revenue."
That may be true in terms of hard numbers (Google's cash cow is
advertising), but when it comes to audience engagement, non-content
(read: academic, research, etc.) oriented searches probably represent
only a portion of consumer Google use, while content searches that are
somehow connected to newspaper and magazine websites are likely far
more important than Google would have the media business believe. In
short, Google needs content creators, because without content to
index, the value of Google decreases significantly.

How this will all play out in the Japanese Internet economy is a
mystery, but somewhat predictable. Japan's search leader, Yahoo Japan,
is not wholly owned by the U.S. version of Yahoo, but any move that
promises to monetize the newspaper business on the Internet is sure to
be given serious consideration by the Yahoo Japan stake holders

As for the future of Bing, the search engine has already defied the
odds and won its fair share of fans from the tech community. If the
deal with News Corporation comes to fruition, we may see a mass
movement of media properties stepping up to the table in the hopes of
securing a similar deal with Microsoft. In turn, the pressure will
then move to other search engines with fewer resources to pay content
creators for indexing.

Another byproduct of this Murdoch move is the possible marginalization
of smaller, independent content creators who will likely have a harder
time convincing the likes of Microsoft to pay them to index their
websites. Imagine if an independent website like Techcrunch, started
as a one-man operation just a few years ago and now the top technology
news website, had been faced with the prospect of having to convince a
company like Microsoft to pay to index its content in a search engine
before any significant traffic or influence had accrued. Given the
huge role search engine discovery plays in startup websites gaining an
audience, Techcrunch and many other startups would have been hobbled
from the beginning. In the new reality proffered by Microsoft and
Murdoch, we may see the rise of two Internet communities: the
commercial Net and the independent Net. Ultimately, what may save the
newspaper business may serve to destroy the independent Internet media
business.

Despite this dark, bifurcated Internet scenario, among the old media
set, Murdoch's strategy gains currency with each passing day. Just
months ago dismissed as the rantings of an out-of-touch, 78 year-old
media baron, the notion of leaving the Google index is now something
worth seriously considering if you're a major news organization. If
the deal goes through, and other major media organizations follow
Murdoch's lead, the only question remaining will be how long Google
can hold out in hopes of continuing what has been a free ride on the
back of major news content without paying something back into the
Internet economy, like Microsoft.

Adario Strange
Editor-in-Chief

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