We’re here today with Jonathan Miller, former chairman and CEO of AOL and currently chief digital officer for News Corporation. Jon, thanks for joining us.
My pleasure, good to see you.
You and I have been in meetings and conferences for the last couple of decades in which various august chairman and CEO figures have made the argument that everything is going be great because content is king. What’s your sense? Is it content that’s going to be king or is it something else, possibly distribution or aggregation?
The good news is that content is valuable. Let’s start with that as the base line. How valuable, under what circumstances, and to whom is very much in play now.
If you look at the value that iTunes has created more broadly with all of its related products for Apple and the fate of the music industry, you could argue that content may be valuable, but it’s more like the goose that lays the golden egg rather than the golden egg itself.
That’s a really important discussion. You now have people who use content to make money somewhere else. Apple is a case in point. They do a great job of providing experiences and filling those experiences with content, but they make their money on the sale of devices, not on the content itself. One of the questions is: What are the terms of trade for content owners and are we getting a fair shake?
And what’s the answer?
I think the answer unfortunately isn’t a simple one if you’re going to play at this scale. If you’re one of the large media companies, as we are, you have to think differently than if you’re a start-up. If you’re a start-up, you would pick one of those areas and you would try to nail it and see how far you could take it. When you’re in our position, you have to think about how many pieces you need on the chessboard to extract the maximum value. So the answer, I believe, is you need to play at multiple levels.
Do you think significant amounts of enterprise value can be created on the content side? Or are we going to see more of the model in which companies develop unique content but the way they create value from it is downstream in aggregation and distribution?
Both are legitimate. Not all content is created equal, and I think you have to have a strategy as to where you think you fit. This company needs to be at the high end. We created highly produced content that requires investment—things like Glee on the television side or Avatar on the movie side, and Dow Jones on the news and information side. It is highly branded and expensive content.
That is different from saying, “I’m going to be an aggregator of all different kinds of content.” I think you have to know who you are; that’s who we are. I think you also have to consider being in the aggregation business and owning some form of distribution.
Hulu is an example of that. Hulu is an aggregator. It started by combining content from two—and now has three—studios that are equity participants, and many other sources. Now Hulu has almost 200 sources of content, or suppliers. Essentially, it’s an aggregation. Hulu.com gets more visits than fox.com, nbc.com, and disney.com combined.
Let’s turn to the economics of television. Hulu recently made an announcement about Hulu Plus, a subscription-based service. What’s your view on the balance between advertising- and subscription-based models in the web video space?
Let’s start with what’s worked in the world as we know it. Dual revenue streams have worked. Businesses that have both subscription and advertising revenue—as cable networks do—fare better. They’re better than broadcast networks or stations, certainly today. And they are better than subscription-only models. Hulu has the best chance across the landscape right now to recreate that dual revenue stream in the so-called digital space.
You could make the argument that consumers are at their limits in terms of what they’re willing to pay for subscription-based television. There is this pent-up demand for a lower or no-cost access to TV that someone is potentially going to tap into.
I actually think you hit on the biggest issue. When you look at your cable or satellite TV bill, it’s $120 a month—or more—for those services. The question arises, how far can a consumer be pushed? I think this is a fundamental issue for the industry.
News Corp. is one of the few, truly, multicontinental newspaper organizations. You must have been doing a lot of thinking about the future models for newspapers. The Wall Street Journal is increasing its physical circulation at a time when everybody else’s is declining by double digits. What will the new world look like?
I think the biggest issue with the news business is not consumption. Consumption is up. People consume more news than ever before, through a variety of means.
The issue is irreplaceability. If I don’t get it from here, I get it over there. If I didn’t see The Wall Street Journal article, did I see the excerpt? And is that good enough?
That’s the fundamental issue. What are underlying sources are required? In the case of The Wall Street Journal, we think we have one of them. That’s what you have to aspire to be. If you’re going to be a primary news provider, you have to be irreplaceable. Or you have to be a pure aggregator.
I think we’re as good at that as anybody in the world. And then you have to have models that support it, and that goes back to dual revenue streams. Unless you can translate that irreplaceability into having both subscription- and advertising-based models, I don’t know how you can sustain the business.
The other interesting thing to contemplate is whether a national or international paper will take its content and put it for free on every tablet that exists in an ad-supported model in order to get mass distribution. A paper might get less revenue per edition through this approach but have very little cost in distribution and potentially an interesting alternative model.
Advertising is cyclical; it goes up and it goes down. And when it goes down, it doesn’t feel good. People get laid off, and all kinds of uncertain things happen as the business contracts. The news business can’t sustain too many more of those contraction cycles. It has to have a basic underpinning in order to provide the kind of services that I think people want.
I believe we’ll see in this next period that shakeout and that the businesses with the dual revenue streams will be the ones that thrive.
How does the notion of a purely digital-only newspaper fit in the broader scheme of News Corp.?
We have a number of projects under way. And not all of them will make it out of the house. The one that you are referring to, which has been widely rumored, is not derivative. It is a new experience of news, designed from the ground up. That’s inherently interesting to us—and hopefully, to many people.
It is not print based, per se. It is very heavily video, very heavily graphics, and very heavily interactive, and there are some surprises. It’s meant to be a rethinking of what news consumption could be on a daily basis.
We talk a lot about the need for adaptive strategy. In spaces like this, you should be pursuing a portfolio of things, several of which will fail. And those failures are actually successes, if in fact you’ve gone about them right. What’s your view?
I agree. And by the way, that’s not an excuse to just spend money on anything. You don’t want to be irresponsible. But in the entertainment business, if you make ten movies, you hope that three are great and huge hits. You hope three or four pay back their investments. And you know that three or four are not going to pay back a penny—or relatively speaking, not much. Alternatively, if the job were about picking perfectly and finding the one perfect shot at each major opportunity in the world—one and done—we wouldn’t hit too many of those.
Jon, thanks for joining us. We really appreciate the time.
It’s my pleasure.