Murdoch courts trouble if he blocks Google on news

NEW YORK Tue Nov 24, 2009 7:19am EST

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NEW YORK (Reuters) - Rupert Murdoch has spent months complaining that Google is ruining the newspaper business, and now he wants to do something about it.

But, his proposal is a gamble, and one that could hurt News Corp instead of helping it.

Murdoch is considering removing News Corp's news from Google's Web search results, and is talking to Microsoft Corp about listing the stories with its Bing search engine instead. Microsoft would pay for the privilege, sources have told Reuters, but it was not clear how much.

If Murdoch pulled this off, he will likely be followed by other newspaper publishers looking for ways to make money when all the old ones are waning in the digital age.

Newspaper owners resent Google because the Internet company makes money from the advertisements that it displays next to news search results.

News Corp's proposal is a way to get a cut of the action. Risks include destroying ad revenue most news websites depend on if traffic goes down because Google users can't find the stories. It's also not clear how regulators would feel about such a move.

"You're immediately cutting off audience," said Jeff Jarvis, media blogger and author of the book "What Would Google Do?"

Google brings as much as 14 percent of incoming traffic to News Corp's U.S. news websites, including the New York Post and Fox News, Bernstein analyst Jeffrey Lindsay estimated.

If News Corp blocked access to Google, he wrote in a note to investors, it would hurt only News Corp.

Many people find their news on Google, which has 65 percent of the U.S. search market according to comScore. Newspaper publishers whose websites depend on advertising sales want lots of visitors, and need Google to supply them.

Google provides news organizations about 100,000 clicks a minute, said company spokesman Gabriel Stricker. "Each of those visits offers a business opportunity for the publishers to show ads, win loyal readers and sell subscriptions," he said.

Making Microsoft's Bing search engine the only way to look for news would slice away visitors and lower the amount of money news websites could charge advertisers.

There is little chance people will abandon Google, which has become such a giant that its name is also a verb.

"Consumers do not expect search engines to be exclusive," Forrester analyst Shar VanBoskirk wrote. "If they can't find something through search, it may as well not exist."

WEB SUICIDE?

Microsoft declined to comment, but in theory would like partnering with News Corp to increase Bing's share of the lucrative search advertising market at Google's expense. Microsoft had a 10 percent share of the U.S. search market in September, according to comScore.

Some shareholders worry Microsoft might pay more money to News Corp and publishers than the privilege is worth.

"I don't want Microsoft to throw a lot of money toward News Corp, and I don't know why News Corp would do this to themselves," said Kim Caughey, senior analyst at investment fund Fort Pitt Capital Group, which holds Microsoft shares.

There could also well be U.S. government scrutiny over an exclusive deal between News Corp and Microsoft, or any sort of joint action by news publishers, at the expense of other Internet companies or consumers.

News Corp declined to comment, and sources close to the discussions emphasized talks so far are ideas, nothing more. Nine of the largest U.S. newspaper publishers also refused to comment.

Other U.S. publishers, if they joined in, would feel more pain because they are far smaller than News Corp and depend on ad sales more than anything else, analysts said.

"It's nothing short of suicidal," Jarvis said.

Risking suicide might not seem so crazy to publishers. Many people say they face creeping death as readers drop print subscriptions and ad revenue falls.

As many deal with looming piles of debt, they must consider some radical moves after laying off thousands of workers.

"They cannot survive at the scale they are accustomed to online unless they can find a new economic model," said Tom Rosenstiel, head of the Project for Excellence in Journalism.

"If it works, Google might say, 'wait a second, it's very important for us to maintain our market share of search'," he said. "Google has an interest in the news industry surviving."

CARTEL

Betting on that is risky.

"The only way such a strategy would hurt Google in our view is if all of the major newspapers and the major news sources including the AP and Reuters were to agree to a watertight cartel," Lindsay wrote in his Bernstein note.

Jarvis agreed. "It would be a mosquito bite on the elephant's butt," he said.

Also, consumers could complain about media companies choking off access to news, something that would spark ire from Congress to the White House, analysts said.

It could carry the whiff of collusion among news outlets to fix prices, something publishers fear being accused of.

"None of this sounds to me to be pro-competitive or efficient," said David Balto of the Center for American Progress, a former Federal Trade Commission policy director.

One possible outcome of News Corp threatening to drop Google could be detente: a common way for publishers to get paid for news that search engines from Google to Yahoo make available to readers, said Outsell analyst Ken Doctor.

"I don't think the endgame for anybody here is to expect that Google's going to get turned off... although you never know," he said.

(Reporting by Robert MacMillan, additional reporting by Bill Rigby in Seattle and Diane Bartz in Washington, editing by Tiffany Wu)

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