(Anatole Kaletsky is a Reuters columnist and his opinions are his own)
By Anatole Kaletsky
Oct 4 (Reuters) - Rupert Murdoch conceded defeat this week in his battle with Google and the Internet, an adversary even more powerful than the British government. Murdoch, uniquely among the world's media magnates, decided two years ago to create a "paywall" for the London Times that could not be penetrated by Google and other "parasitic" search engines. In effect, the paper was cut off completely from the public Internet. As one of Murdoch's newspaper managers later described this strategy: "Rupert didn't just build a paywall; he circled it with barbed wire, dug a moat around it and put crocodiles in the moat."
On Monday Murdoch relented. Times articles started reappearing in Google searches, although anyone wanting to read them still has to pay Â£1 for one day's paper or Â£2 per week. Coincidentally, News Corp, Murdoch's holding company, announced the departure of its chief digital officer, Jonathan Miller. And Murdoch himself stood down as chairman of Times Newspapers, the News Corp subsidiary that controls his upmarket British papers.
Murdoch's U-turn sends two interesting signals. The first, already much discussed, is about the disappointing results of this paywall experiment - just 131,000 subscribers after two years. The second is about Murdoch's global empire and the future ownership of the Times. Having spent 20 years at the Times before leaving it six months ago, these signals sound to me like an SOS.
Murdoch's papers, and the Times especially, are now caught in a perfect storm. Like all papers the world over, they are buffeted by technological transformation and recession. But they also face a third threat unique to News Corporation- the fallout from the phone-hacking scandal that has led to the arrest of several of Murdoch's top British executives.
The hacking scandal has been hugely embarrassing and expensive, with legal costs estimated at $224 million in News Corp's latest accounts. But much more important for the Murdoch papers not implicated, including the Times and the Wall Street Journal, is the scandal's impact on News Corp's business strategy - and its rationale for owning newspapers at all.
Outside shareholders of News Corp have long dreamt of the company ridding itself of scarcely profitable newspaper businesses to become a pure TV and movie business. This move was considered impossible under Murdoch, because of his sentimental attachment to print. But that was almost certainly a misunderstanding. Murdoch did not build the world's greatest media empire through sentimentality. The reason why he loved papers, even when they suffered big losses, was because they gave him political power. For News Corp shareholders, in turn, Murdoch's power brought business benefits.
Murdoch's political influence allowed News Corp to overcome regulatory and political obstacles that defeated other media companies. The obvious case was News Corp's recent attempt to take full control of BSkyB, the British satellite broadcaster, but there were many other cases. In fact, Murdoch's ability to overcome obstacles - whether erected by politicians, regulators, unions or business rivals - that thwarted other moguls has been the key to his success.
That success could largely be attributed to audacity and vision. I once heard Murdoch boast that after all his biggest deals, financial analysts mocked him for "overpaying." Yet the accusation that "Murdoch overpaid" usually gave way to an appreciation that he had seen the true value of a concept like satellite TV or sports broadcasting that nobody else had properly understood. But throughout Murdoch's career, his bold personality and vision have been usefully supplemented by the political influence derived from newspaper ownership. This ingredient in the Murdoch formula has now been transformed.
Once the phone-hacking scandal sabotaged the BSkyB bid, the business calculation behind newspaper ownership completely reversed. The papers were suddenly transformed from an asset into an albatross - and the arguments for keeping a print business within News Corp vanished. In July, Murdoch duly conceded this, announcing that all his publishing businesses would be split off into a separate company. Most financial analysts assume, and outside shareholders hope, that this new company will receive a very small share of News Corp's $10 billion cash surplus. If so, it will be unable to subsidize loss-making papers for long.
Which brings us back to this week's events at the Times. Murdoch's decision to stand down as chairman suggests that the Times may be among the first candidates for disposal. But who would take it on?
The usual answer is a billionaire seeking a trophy asset. But print is now an obviously declining industry, threatening cumulative losses that would daunt mere billionaires. Multibillionaires from Russia, the Middle East and China might still afford such trophy assets, but would probably be politically unacceptable. In any case, many of the multibillionaires from these countries seem to prefer British football clubs.
Luckily there is one group of multibillionaires that might still view the Times of London as a worthwhile trophy asset - and have no interest in football, preferring cricket. For an Indian magnate with strong connections to Britain, such as Lakshmi Mittal, owning the London Times might be sufficiently thrilling to justify years of losses. Even more intriguing would be an Indian media group. Imagine the satisfaction for members of the Jain family if they could make the Times of London (circulation 400,000) a subsidiary of their Times of India (circulation 3 million) or for the Birlas if they could make it a supplement to their Hindustan Times (circulation 1.4 million).
In Britain's 19th century heyday, Abraham Lincoln flattered the Times's Washington correspondent by declaring that "I know of no greater power in the world than the Times of London - except maybe the Mississippi." Some smart investment banker could soon be making a similar comparison - this time with the Ganges.
CORRECTION: This piece originally misstated the size of News Corp's cash surplus. It is $10 billion, not $36 billion.
Keywords: KALETSKY MURDOCH/