- 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.
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 competing 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.
- 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.”