Rupert
Murdoch, Executive Chairman News Corp and Chairman and CEO 21st
Century Fox speaks at the WSJD Live conference in Laguna Beach,
California October 29, 2014.
REUTERS/Lucy Nicholson
Rupert Murdoch recently talked about an interesting
idea: Facebook could solve its Fake News PR nightmare by paying
legitimate media companies for their content. It's a model
that's served the cable industry very well.
Here's the problem, explains former Chartbeat CEO Tony
Haile: the market dynamics for social media distribution are
diametrically opposed to the pay TV world in fundamental
ways.
Plus, it's too late to expect giants like Facebook and
Google to suddenly shift their thinking on this issue.
It seems like a killer idea. Facebook should pay media companies
for their content,
argued News Corp executive chairman Rupert Murdoch on Monday.
For starters, this would be a welcome noble and public gesture
for Facebook as it grapples with the scourge of fake news. Give
some cash to the good guys protecting the world by producing real
journalism!
Plus, there's an obvious media business parallel that Murdoch
latches onto. Cable companies like Comcast pay media companies to
carry their networks, like say ESPN or VH1.
Why does Facebook think it's better than cable companies, Murdoch
might say?
Tony Haile, CEO of the stealth digital news payment startup
Scroll, knows the digital
media world well. As the former CEO of the
analytics firm Chartbeat, Haile has an intimate knowledge of
how consumer traffic flows across the internet, and what tactics
work well for media companies — and which don't.
He thinks Murdoch has it all wrong.
The cable business has been a killer business where everybody
wins.
As Haile laid out for Business Insider, there are four major
characteristics found in the pay TV market that have not only
made it a great business, but have given TV companies actual
leverage with the cable companies.
Shutterstock
1) Cable companies and TV networks have non-competitive
business models. One's in distribution, one's in ad
sales, and they both are able to make plenty of money without
infringing on the other.
2) Cable companies on their own have no value to
give. Without content they're nothing.
3) How people discover content in cable is very different than on
the web, Haile argues. Namely, on TV people actively
seek out channels and favorite shows. This creates high
brand affinity. "People have a reason to care,"he said.
4) In the premium TV world, there are high barriers to
entry. A company like Comcast couldn't just sign up
another ESPN because there isn't one.
"What this has meant is that the value of each thing is utterly
dependent on the other,” said Haile. "That leverage is what
enabled TV companies to thrive."
Sorry Rupert. Social media distribution has almost nothing in
common with cable TV
"If you think about the digital platforms and media, the
conditions are exactly the opposite," said Haile. For example:
1) Facebook and media companies are directly competitive for
advertising budgets.
2) Facebook and Google get most of their value from non-media
content (like baby pictures). "So even if all the publishers
could gang up together, they don't have much leverage," Haile
said. "They are the cherry on the sundae."
3) In news feeds, you have passive discovery patterns
versus active (in other words, you do a lot of aimless
scrolling). Which means you have really low brand affinity.
People often don't know the source of what they are reading.
4) In digital, there are zero barriers to entry. Anybody with a
laptop can publish a blog. That dynamic, combined with low brand
affinity, means substitution costs are minimal. There's always
another post in your feed.
Trying to translate this cable model isn't new to digital media.
And history says nothing will change.
Vivek Shah, CEO of j2
Global.
image via
paidContent.com
Vivek Shah, CEO of j2 Global, which owns digital media publishing
division Ziff Davis, noted that the idea of replicating the cable
model has been floated numerous times in the web's history. In
fact, early internet service provides like AOL and CompuServe
actually did pay some media companies for content in the 1990s.
That changed as the web become more open, and more publishers
starting relying on advertising for revenue. Yet the
pay-us-like-cable notion resurfaces as Google started making
billions sending people to publishers' sites, and then again as
Facebook took off.
"You've got entities profiting from publishers' content, so from
an intellectual and philosophical standpoint it's a fair
argument," Shah told Business Insider. "But history suggests
that none of these guys will pay. And history suggests publishers
aren't willing to remove themselves from these traffic sources."
Basically, it's too late, Shah says.
"We long ago litigated this point, that digital isn't the cable
industry," he said. "It's hard now to change the rules."
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