Murdoch's Second Online Mistake

"The digital revolution has opened many new and inexpensive methods of distribution, but it has not made content free," he argued during last week's earnings call. "Accordingly, we intend to charge for four of News' websites. The Wall Street Journal's wsj.com is the world's most successful paid news site, and we will be using our profitable experience there and the resulting unique skills throughout News Corp. to increase our revenues from all our content."

Now, before you find yourself nodding in agreement, let's point out the flaw in Murdoch's logic.

Folks are perfectly happy to pay up for content that improves their financial state. Morningstar (Nasdaq: MORN), TheStreet.com (Nasdaq: TSCM), and our beloved Fool.com charge for premium research.

Readers won't necessarily pay for financial news, though, now that selective disclosure is toast. They pay for dissection, analysis, and advantage. In short, people pay for anything that gives them an edge in this market. Subscribing to wsj.com or barrons.com isn't about leisure reading: It's an investment in investing.

And that approach works. Charging for celebrity gossip, local news, and even investigative reporting, however, will be much harder sells in the real world.

Murdoch's first online mistake
Just three years ago, Murdoch figured that MySpace -- the social-networking site that he astutely purchased as part of Intermix for a mere $580 million -- was a $6 billion company.

That's a lot of money, and that's before MySpace even peaked.

But Murdoch should've cashed out while the going was good. Things have turned for the worse since 2008 for Murdoch's online arm, with Fox Interactive hosing down its targets last year and Facebook overtaking MySpace.

Murdoch's price tag was high, but CEOs owe it to their shareholders to talk up their properties. You never know when you'll smoke out a sucker. But still, $6 billion? That's a bit rich. That figure came out around the time Facebook and Yahoo! (Nasdaq: YHOO) couldn't come to terms in a reportedly $1 billion deal.

In the end, Murdoch overestimated the value of his new media. And now he's aiming too high on the perceived value of old media.

All the print that's news to fit
Murdoch is right that there is no such thing as a free-content lunch. Newspapers plaster their sites with ads in an attempt to subsidize their costs. If that's not enough, newspapers have to either cut costs or grow their page views.

Billionaire blogger Mark Cuban chimed in on Murdoch's proclamation over the weekend. He suggests that Murdoch should remove his sites from most news aggregators. But that would just make matters worse. The last thing a newspaper -- online or not -- needs at this point is to lose readers.

Forget about the exclusivity of premium news. That kind of exclusivity just doesn't exist.

You know how I learned about the deaths of Michael Jackson, John Hughes, and Farah Fawcett this summer? Twitter and Facebook.

News spreads quickly in cyberspace, and the notion that folks will pay up for one-of-a-kind celebrity photos or a single movie review -- when News Corp.'s own Rotten Tomatoes site demonstrates the power of community critiques -- is so old-fashioned that it's embarrassing.

Burning bridges with Kindle
Murdoch isn't just getting greedy about walling up his Web presence. Even his relationship with Amazon.com's (Nasdaq: AMZN) Kindle isn't safe.

"We're changing the price of The Journal on the Kindle," Murdoch notes. "We will get a better share of the revenue, though I can't say that I'm satisfied."

"It's not a big number, and we're not encouraging it at all, because we don't get the names of the subscribers," he adds. He also notes that the company is looking into Sony's (NYSE: SNE) e-book reader and monitoring the rumor mills on Apple's (Nasdaq: AAPL) tablet. "Kindle treats them as their subscribers, not as ours," Murdoch says. "I think that will eventually cause a break between us."

If Murdoch follows his own advice and turns his back on the Kindle -- or follows Cuban's advice and turns his back on news aggregators -- I'm guessing this experiment will die cold and alone.

You can't go back to the past, no matter how badly you want to change the future.

Copyright 2009 by United Press International.