Sounds really silly as content on Facebook is typically provided by users. But Fox chairman Rupert Murdoch, whose company earns a healthy amount of money from publishers fees paid by cable content distributors to cable content creators, made headlines recently by saying that if Facebook wants genuine, quality news, they should pay for it. That means taking the cable distribution fee model and replicating it in the social media world.
The major shortcoming of Murdoch’s argument is that the dynamics of news distribution in the social media world are much different than the dynamics of news distribution in the pay-TV world.
Firstly, pay-TV news is not free, but social media news is free.
Consumers pay a television service provider like AT&T (T) a monthly fee for access to a suite of channels. A handful of those channels are news channels, meaning consumers are accustomed to paying for news provided via television. Because consumers are paying distributors for the news, it makes sense that distributors are in turn paying creators for the news. There is money flowing from consumer to creator.
Social media news, however, is free. And so is most news on the internet (with exception to news that is locked behind a paywall, like the Wall Street Journal). There is no flow of money from consumer to creator. Instead, the creator creates content, seeks distribution for the content, and is compensated most normally through ad revenue (which is based on breadth of distribution). Consequently, because there is no flow of money from consumer to creator, there shouldn’t be any flow of money from distributor to creator.
Secondly, social media news distribution is essentially a monopoly, while pay-TV news distribution is a highly fragmented, highly competitive market with multiple bidders.
There are four major players in the pay-TV market, and nobody is the clear distribution leader. While AT&T is the largest player, its only 10% larger than the second-largest player, Comcast (CMCSA). Moreover, who your pay-TV service provider is often depends on location. In other words, there is no go-to pay-TV distributor. Instead, there are multiple distributors, each with their own unique geographic dominance.
Because there are lots of bidders and no dominant distribution channel with unparalleled reach, it makes sense that pay-TV distributors pay for content. Healthy competition on the distribution side of things means that distributors need creators more than creators need distributors.
That isn’t the case with social media news. Facebook is the unrivaled distribution leader in this space. At 2 billion-plus monthly users, no other player on the internet comes close to touching the amount of traffic Facebook gets on a daily basis. And the next biggest social networking sites are WhatsApp and Messenger, both owned by Facebook.
In other words, if you are an online content creator and you want distribution, you have to go through Facebook. It is the only way you will maximize breadth of distribution, and thereby, ad revenue. From this perspective, lack of competition on the distribution side of things means that creators need Facebook more than Facebook needs creators.
Of course, this changes if top-notch news sources all band together and tell Facebook they aren’t giving them their content until Facebook pays for it. But why would they do that? Facebook is helping content creators make money through maximizing distribution, traffic, and ad revenue. Even if top-notch new sources did band together and withhold news from Facebook, how are they going to do that exactly? Facebook users can presumably just copy and paste news links from Fox into their Facebook feeds. In order to fully block news from Facebook, these content creators would have to hide all their news behind a pay-wall.
As stated before, consumers don’t pay for most internet news. Hiding formerly free news behind a pay-wall would be disastrous for content creators.
All in all, Murdoch’s claim that Facebook should have to pay for quality and genuine content seems off-base. It misunderstands the dynamics of free news distribution across most of the internet and underestimates the tremendous leverage Facebook is granted as the largest distribution platform in the world (outside of the internet itself).
Good try Rupert.
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