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Speech from Les Hinton, Dow Jones CEO, to World Association of Newspapers conference

Speech from Les Hinton, Dow Jones CEO, to World Association of Newspapers conference

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04/17/2010

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FINAL Hinton WAN Hyderabad 1 Dec. 2009

Thank you. I was invited here to talk about the value of journalism. About how we at News Corp and Dow Jones have worked to create a debate about the future of journalism in the digital world. We have deployed some lavish language to stir things up. We have called Google a digital vampire, and a parasite. We have pointed the finger at the content kleptomaniacs of the internet whose business models depend on purloining the expensive journalism of mainstream media. But now a little context. I use Google just as most of do. What it does to enhance and enrich our lives makes it a true wonder of the age.

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It is true that Google is at the heart of the crisis confronting journalism today. That their almost incalculable – and growing power warrants great vigilance. But the main, and most uncomfortable, truth is that this industry is the principal architect of its greatest difficulty today. We are all allowing our journalism – billions of dollars worth of it every year – to leak onto the internet. We are surrendering our hard-earned rights to the search engines, and aggregators, and the out-and-out thieves of the digital age. It is time to pause and recognize this – Free Costs Too Much. News is a business, and we should not be ashamed to say so. It’s also a tougher business today than ever before. We have survived other perceived threats - radio, television, cable TV. But this time it is different.

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How can it be that the Internet offered so much promise and so little profit? I guess a lot of newspaper people were taken in by the game-changing gospel of the internet age. It was a new dawn, we were told. A new epoch, a new paradigm. And we just didn’t get it. Like an over-eager middle-aged dad, desperate to look cool, we ended up dancing obediently to other people’s tunes. For a while. You can almost hear the music – an algorithm and blues soundtrack – accompanying the harbingers of the new economy with the new rules of the new age. Their rules. These digital visionaries tell people like me that we just don’t understand them. They talk about the wonders of the interconnected world, about the democratization of journalism. The news, they say, is viral now – that we should be grateful. Well, I think all of us need to beware of geeks bearing gifts. Here we are in 2009 – more viral, less profitable.

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Because news costs. Because quality costs. Because free sets the price too low. Because free isn’t sustainable. Because free is too expensive.

I read an estimate the other day by Rick Edmonds of Poynter Institute. He calculates that U.S. newspapers were a $60 billion industry in 2006, with advertising revenues around $49 billion and circulation revenue at $11 billion. This year he forecasts that advertising will plunge nearly $20 billion and circulation by $2.5 billion. A $60 billion industry is on its way to $37 billion in three short years. At the same time, Edmonds figures, the crucial spend on journalism – on content – fell by more than $1.5 billion. That’s a lot of jobs. A lot of articles unwritten. A lot of malfeasance unmolested. A lot of stuff no one will ever know.

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The blogosphere has an explanation, if not a justification, for what’s transpired. The world has changed utterly, they type. The mainstream media doesn’t understand it. It’s the inevitability of the Internet. Or as Jeff Jarvis, one of the leading proponents of the information-must-be-free imperative puts it: The content economy is over. Is it really? It’s been barely a decade since the Internet bubble burst on the information highway to the digital future. Ten years ago, it was taken for granted that Web sites supported by advertising were the future. Build it, and they will come. Eyeballs and advertisers. Clicks and cash. We have learned a lot since then. Today, there is one thing we must agree about the content economy – the content economy that they tell us is over. That is, the one thing free news sites have

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in common with online newspapers … the one thing free news sites have in common with online newspapers … virtually none is making any money. They are in good company. Even Google is struggling make money with free content on the Web – its own content, that is. YouTube probably defined viral on the Web more than any other site. It lets anyone upload any video they like for free. Millions did and do. It is a wonder of online traffic, which is why Google paid $1.65 billion to acquire YouTube just three years ago. Now Google needs to make a profit on this acquisition. How do you make money on YouTube? It is supposed to come from advertising. But as it turns out, not enough companies wanted to put their advertising alongside home videos of pet dogs having baths, or kids doing karaoke in their bedrooms. So YouTube – Google – is resorting to paying millions for quality, professional content in an effort to lure the advertisers they need.

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That makes one wonder just how long it will be before YouTube asks its viewers to start paying up. Free costs too much. Even advertisers, who once cared above all about clicks and page impressions, are starting to become more discriminating. More and more, they want to reach quality audiences to burnish the image of their brands.

A few months ago a study called "The Silent Click" by Comscore and the Online Publishers Association (OPA) reinforced the reluctance of brand marketers to rely on click based metrics. It found that eighty percent of display ad clicks came from only sixteen percent of internet users.

Furthermore, these obsessive clickers are predominantly younger and lower paid than most web users.

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Two weeks ago the Internet Advertising Bureau and Bain & Company released a study called "Building Brands Online."

This report highlights the disconnect between what brand marketers are now asking for in terms of quality measurement on the Web -- brand awareness, purchase intent, favorability -versus what online publishers have traditionally been providing them -- click-thrus, unique visitors, ad impressions. So, ironically, what they now want is more of the 'old media' metrics they are used to getting from print and television. In other words, they are looking for intelligent, quality journalism. Obviously this is all great for the Wall Street Journal Digital Network. It supports what we have been saying all along; that audiences exposed to display advertising on high-quality content sites are more engaged, more favorable towards a brand, and are more likely to spend.

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We are seeing evidence of this every day. For instance, our homepage buyouts on WSJ.com have sold out for the last two months. We can take heart that high-quality content can break out from the pack and earn the highest online advertising rates. This is encouraging, but we know that advertising will never be enough. We need the primary customer to pay as well. Leaving the fate of our business in large degree to the cyclical economics of advertising is too dangerous. In the digital world, constant innovation, product development and investment is needed to keep pace with the competition and serve our loyal customers. It’s not as if there’s no precedent for charging for content online. In the U.S., online content from Major League Baseball and Consumer Reports have attracted large paying audiences. Quality journalism is for sale too.

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The Dow Jones’s flagship - The Wall Street Journal -- has up to now - been the one major U.S. newspaper charging for content online.

At the same time it has been the one major newspaper that has been able to grow circulation and circulation revenue. The Journal this year became the top-selling – selling – newspaper in the United States. And it did it by selling more subscriptions in print and online. It did it while garnering more individual subscriptions. It did it while charging more for those subscriptions. If you are not finding new readers willing to pay, maybe it should come as no surprise. Newspapers available for free on the Web surely are making consumers an offer they can’t refuse. Now if you believe the bloggers, that is what newspapers should do. They should price their content at zero because the content

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isn’t what’s valued. The theory is it’s the links to the content that give value, and the advertising they bring. Convenient. But who will buy all this advertising? Who is going to underwrite the cost of this content? Let’s not forget the basic economics: The rates on our ad cards increase when there is less competition, not more. There is something else fundamental at work here. Implicit in the false gospel of the Web is the faith that free is superior. And those who dare think otherwise are heretics and fools. Charging for online news, they say, is unfair. By asking us to pay, newspapers are depriving readers of something they need and should have. Deserve, even. But neither the newsstand nor the Web is a lending library. Even Google has conceded it can’t just reprint every book without due

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consideration to publishers and copyright owners. Why should journalism be different? The book business hasn’t surrendered its copyrights. The music business may have struggled for a time with the issue, but it hasn’t surrendered either. Neither has television or movies. Why should we? Let’s face facts. A business model that assumes we can’t charge for the content we produce assumes that our content has no value in the online market. In pure economic terms, such a business model has to mean one of two things: Either there is no demand for the content or there are substitute supplies of that content sufficient to drive the price almost to zero. I don’t believe it. And I doubt you do either. It seems rather naïve then – stupid, even - that so many newspapers would be so self-deprecating. That is the logical

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conclusion, after all, if we place zero value on the content – the news – which is our product. Newspapers, particularly in the United States, have historically undersold themselves to their readers. Much as the blogosphere advocates today, newspapers in the 20th Century sacrificed circulation revenue for circulation volume in a quest for highermargin advertising revenue. Can’t say it didn’t work for a time. But look where it’s left us… At the Journal, we put elements of our publication outside the paid wall as a way to attract traffic and potential subscribers. The compelling proposition, however, is that the content that differentiates the Journal isn’t free. You want the Journal’s global scope, you want news, you want analysis and commentary – print or online – you pay.

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The Journal has more than 2 million paying subscribers – and among them, more than a million who pay to take the newspaper digitally. Why is it that paying for content in 2009 strikes some as such an outrageous proposition? Many of us here today are old enough to remember when television was free. Well, it isn’t any more. Just check your cable and satellite bills. Even radio – omnipresent and forever free, right? In the U.S., nearly 20 million subscribers pay for radio from Sirius, the satellite radio operation. HBO built a name and a business entirely by persuading people to pay extra for content on television. SKY, Star – millions of consumers are willing to pay for content they want and value. There are other examples from the Journal. The Journal now charges for news via online devices like I-Phone and Blackberry

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and the emerging e-readers like Amazon’s Kindle. Already we can see that these new platforms will deliver millions in revenue. For Dow Jones charging for content is a vertical proposition that assimilates the disparate needs of disparate audiences. Our news has several lives and several levels of value. A company’s earnings report is instantaneously rendered as news by Dow Jones Newswires. In a fraction of a blink of an eye, its first iteration is transmitted as algorithmic code to be recognized by Wall Street computers programmed to interpret and perhaps act. That same headline goes at the same time to trading desks for subtler analysis. For this content, the price is handsome. Next, the news is on The Wall Street Journal Web site. A reader pays up to $149 a year for that. Or maybe he will take it instead via I-Phone or Blackberry; that costs $100 a year. A reader using an e-reader pays $180 a year for the news. And in tomorrow’s

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print edition, the price – the value, if you will – is $350 a year. In archival form in Factiva, more value will be delivered for years to come. At the same time as we navigate our way into the digital future, everyone here knows that the newspaper business must rationalize the lingering inefficiencies which inhibit our industry. Chief among those is the excess printing capacity which weighs us down. Behind the journalism, newspapers are of course huge manufacturing and distribution operations. So many of our plants sit idle much of the day – or worse, much of the night. The ROI on idle, the return on our investment, costs too much. The Journal is reducing its cost base significantly by tapping that excess capacity. Contracting with printers in locations around the U.S., we not only reduce the cost of production, we cut the cost of transportation.

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Our production team also is on the other side of the rationalization equation. Our own excess capacity was put to work to print another newspaper. In this case, someone else’s efficiency is our revenue.

Not so long ago – in America at least – this kind of codependence was unheard of. Newspaper companies were selfcontained, relying entirely on their own staff and their own facilities.

Today newspapers are sharing delivery trucks. Outsourcing customer service operations. Consolidating regional news functions. These trends will accelerate – and they should. Watch for the Internet to be yet another inflection point in this regard. There is no reason why newspapers should build unique content- and payment-management systems on the Web.

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Might as well build more printing plants… The lesson we should take from the Internet revolution isn’t that free is final. It’s not that trust and authority are unwelcome. The lesson is that new efficiencies are possible. It is possible to re-conceive our business in a less costly context. It is possible to sell differentiated content to familiar audiences and extended ones. What makes sense for newspapers is to consolidate Web commerce functions. As a pioneer in online news payments, Dow Jones already has such a platform. When we rebuilt it recently, we added the capability to allow other newspapers to share our expertise. Unique content wins unique users; unique facilities don’t. I don’t know when newspapers will no longer be characterized by the paper on which they are printed. I do know most of us in this room charge for content on paper and still collect a tidy sum in the

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process. Most of us still collect enough to continue to produce quality news and still produce a profit. Eric Schmidt, Google chief executive, said recently about the debate on free versus paid: As long as you’re on the side of the consumer, you’re pretty much on the right side of all these debates.

No doubt he is right. The consumer will determine the business. Consumers will seek the valuable over the vapid because they always do. They subscribe to HBO and SKY when broadcast television and, indeed, YouTube, is free. They will continue subscribing to newspapers if the newspapers provide the value they seek.

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Barney Kilgore, the inestimable former editor of the Journal and CEO of Dow Jones, said something we ought to remember in this time of transition. The man who would create the first national newspaper in the U.S. and redefine journalism in the process said a long time ago:

The fish market wraps fish in paper. We wrap news in paper. The content is what counts, not the wrapper. We can only wonder how things might have been different today had other newspapers done as the Journal did in 1996 and set a fair price for content online. We can only wonder what we would be talking about here today had newspapers recognized the import a decade ago of the bursting of the Internet bubble.

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There isn’t enough advertising to support every online aspiration. Now we must regret the stories not covered because we didn’t demand what we truly were due. And yet this remains an age of great promise for what we do. Only a few hours ago in Washington DC, Rupert Murdoch, the chief executive of News Corporation and my boss, told the U.S. Federal Trade Commission: …We now have the means to reach billions of people who until now have had no honest or independent sources of the information they need to rise in society, hold their governments accountable, and pursue their needs and dreams. … The future of journalism belongs to the bold, and the companies that prosper will be those that find new and better ways to meet the needs of their viewers, listeners, and readers. And they should fail, just as a restaurant that offers meals no one

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wants to eat or a car-maker who makes cars no one wants to buy should fail. And he went on: In the future good journalism will depend on the ability of a news organization to attract customers by providing news and information they are willing to pay for. Free costs too much. Good content is valuable. That hasn’t changed. It never will. The question is who will provide the content and who will be compensated fairly for the value delivered. Thank you.

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