Three Truths About the Media Future -- Including the End of Rupert Murdoch

Plus: Magazines Are Making a Comeback and VCs Might Be Getting Desperate

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Simon Dumenco
Simon Dumenco

1. This really might be The End of Rupert Murdoch -- but not for the reasons you might think.
Imagine if a reporter at a big newspaper figured out a way to secretly access your cellphone's voicemail. Imagine if, one night, you'd engaged in some sort of perhaps ill-advised leisure-time pursuit -- say, visiting a strip club, even though you've got a girlfriend. Imagine the reporter later hacking into your voicemail. And then imagine that reporter's newspaper running a big, splashy piece that prints the verbatim text of a voicemail your brother left for you (How the hell did they get that?!, you think), in which he teased you about how pissed off your girlfriend is about your indiscretion.

Now imagine you are England's Prince Harry, your brother is Prince William, and the reporter works at Rupert Murdoch's News of the World.

This actually happened in 2006, and after not too much time it seemed like old news -- Scotland Yard got involved and seized files from the home of a private investigator on the News of the World's payroll. Turns out he had the cellular numbers of thousands of potential high-profile phone-hacking victims. The PI and the reporter he worked with ended up in jail. The scandal seemed contained, and Murdoch's News Corp. insisted that it was an isolated incident resulting from the actions of a couple rogues. But then, earlier this month, The New York Times Magazine published a cover story detailing the rather delicious fruits of a months-long, three-reporter investigation of News Corp.'s phone-hacking scandal that suggested, rather forcefully and convincingly, potentially widespread abuses -- a culture of lawlessness, if you will, in a Murdochian newsroom -- and an all-too-deferential-to-Murdoch Scotland Yard that failed to even scratch the surface in deciding to prosecute only one reporter and PI.

Now the crap is hitting the fan anew. Additional high-profile Brits outside the royal family have been slowly learning that their privacy has been illegally violated by News of the World; at least one has sued and has already scored a million-pound settlement. Hundreds more such suits might be forthcoming. "Getting a letter from Scotland Yard that your phone has been hacked is rather like getting a Willy Wonka golden ticket," a lawyer told the magazine. "Time to queue up at Murdoch Towers to get paid."

News Corp. sees the Times Magazine piece as an act of war -- which, of course it is, because Murdoch has essentially declared war on The New York Times in his repositioning of his Wall Street Journal as a national general-interest newspaper. But, geez, "Tabloid Hack Attack!" (as the Times Magazine cheekily titled its cover story) is still a damn good yarn -- and a solid investigative report.

The repercussions for Murdoch keep getting uglier and uglier. Slate's Jack Shafer just ran a column titled "Murdoch's Watergate" and subtitled "The U.K. phone-hacking scandal will undo the media mogul." A lot of the ugliness has to do with the fact that Andy Coulson, the top editor at the News of the World in 2006 -- he ultimately resigned but claimed ignorance of the phone hacking -- ended up on the payroll of the Conservative Party. And he's now the top communications aide to British Prime Minister David Cameron. (The Times Magazine investigation suggests quite vividly that Coulson knew about, and condoned, the phone hacking that happened on his watch.)

Is this potentially the end of 79-year-old Rupert Murdoch? Sort of -- but not directly because of the phone-hacking scandal. Remember, News Corp. has a frightfully powerful war-room -- and Murdoch personally owns/controls much of the British press, which is why it took America's newspaper of record to convincingly turn up the heat on the News of the World crimes. And legal fees -- even if News Corp. has to pay out hundreds of individual settlements to hackees -- likely won't materially affect the bottom line.

No, what's really going to do in Murdoch is the distraction -- and the humiliation. The New York Times has not only gotten the better of him, it may just mobilize the British government to properly investigate News Corp. ... which is just not fair, because Rupert thinks he's the only one who gets to control British pols!

Epic legal distractions are bad enough for 79-year-olds at war with The New York Times, but right now Murdoch is also waging another big war -- vs. reality. I don't mean the reality of actuarial tables (the average Australian man lives 79.33 years). I mean the reality of free vs. paid in the web's general-interest news ecosystem. Murdoch is currently engaged in a quixotic quest to get online newspaper readers to pay up, sealing News Corp. papers, tomb-like, behind paywalls -- including, starting next month, News of the World (hilariously enough).

Last week, the usually sober Bloomberg News ran a piece with the wry headline, "Murdoch Banks on Rooney Hooker, Cocaine for Paywall Plans." For non-Brits not familiar with current Murdochian scandal-mongering, those are references to a News of the World scoop about boxer Ricky Hatton supposedly snorting cocaine on video and the paper's interview with a prostitute who allegedly bedded soccer star Wayne Rooney. Bloomberg's Kristen Schweizer writes that Murdoch's son James (doing his father's bidding as chairman of News Corp.'s European and Asian operations) is "extending his paywall model even as advertisers flee websites of two of his other newspapers where internet readers have to pay." Schweizer quotes Chris Bailes, digital trading manager at Starcom MediaVest Group, as saying, "I can go to the Guardian or CNN and get an audience. No one is indispensable."

Appallingly -- but not surprisingly -- News Corp. is keeping mum on the extent to which traffic at its two newly paywalled papers, The Times and the Sunday Times, has collapsed. But Bailes isn't taking any chances; he's slashed his ad spend at those papers more than 50%, telling Schweizer, "We wouldn't put our money where we don't know the numbers, just as you wouldn't invest in a stock."

Let's recap, shall we? While Murdoch attempts to do the impossible -- get readers to pay for the first version of stories about coke-snorting and hooker-screwing athletes that almost instantaneously get aggregated and disseminated around the free web -- he's also personally getting entangled in his own Watergate, a scandal that could very well consume his attention until he dies.

At which point News Corp. -- which today gets most of its revenue from its non-newspaper operations, including 20th Century Fox (which distributed "Avatar") -- shutters its money-hemorrhaging newspapers (e.g., the New York Post) and sells the remainder of Rupert's inky fetishes (e.g., The Wall Street Journal -- to Bloomberg, I'd bet).

This will happen a lot sooner than the increasingly mortal Rupert Murdoch could ever imagine.

2. The magazine industry is roaring back, baby!
Next week Advertising Age releases its closely watched annual magazine A-List -- a compendium of thriving titles masterminded by our lead magazine-industry reporter Nat Ives. I'm not going to give you any hints about who's on it, but I can tell you this: Putting together the 2010 list was way more enjoyable than putting together 2009's list (last year, in the throes of one of the magazine industry's worst-ever years, flat or only slightly down was the new up -- as opposed to down-30%-in-ad-pages, which was the case at many of the biggest national titles).

I think the A-List package (what I've seen of it so far) will be an essential -- even inspiring -- read, because it chronicles the efforts of whip-smart editors and publishers who are finding ways to make magazine brands exciting again, both on and off the page.

Please check it out next week.

3. The Web 2.whatever bubble isn't popping, exactly, but it is going to start getting a lot less fun.
Last week influential (and feared) Silicon Alley blogger Michael Arrington, founder of TechCrunch, published a widely shared post titled "So a Blogger Walks Into a Bar..." He wrote of attempting to crash a meeting of investors at Bin 38, a San Francisco restaurant/bar. He'd been tipped off about the meeting and thought he'd peek in to say hi, see who was present, and perhaps join the group "for a drink or two before being shooed off while they talked about whatever they thought should be kept off record."

Instead, he was met with icy silence and was shooed away immediately. He paints this scene of the private room in the back of the restaurant: "Sitting around the table, 'Godfather'-style, were 10 or so of the highest-profile angel investors in Silicon Valley. These investors, known as 'super angels' because they have mostly moved on to launch small venture funds of their own, are all friends of mine. I knew each person in the room very, very well."

Perplexed by their hostility, he did some after-the-fact investigating and has concluded that these investors -- who he says "account for nearly 100% of early stage startup deals in Silicon Valley" -- had a discussion that flirted dangerously with "colluding (and I don't use that word lightly)" with the goal of, among other things, freezing out other investors and depressing valuations of startups.

C'mon, let's not all act so shocked, shocked. Because I think we're arriving at that moment when the Web 2.whatever (2.0? 2.6? 3.1?) bubble is potentially going to seriously start sagging. The history of venture capital, remember, is that VCs mostly throw good money after bad. Investing, especially at the startup -- fetal -- stage, is always a gamble. And yet even in the thick of the Great Recession, we're still mostly suspended in this fog of artificial euphoria as VC dollars continue to prop up tons of silly startups that have little hope of ever becoming self-sustaining, let alone earning out their VC backing. (The media rarely questions even the most obviously idiotic Valley startup because, hey, they got funded, so somebody thinks it's a good idea, right?)

A lot of these startups are clustered around the Facebook and Twitter ecosystems, but what's increasingly becoming clear is that Facebook and Twitter will happily let barnacle-like startups cling to their hulls ... for a while. These startups, flush with VC cash, busy themselves figuring out clever hacks and complementary services that satisfy unmet consumer demand. Facebook and Twitter watch and learn, and then, if it serves their purposes, they stoically move to scrape the barnacles off while absorbing their ideas and business models, while cheerfully saying, "Hey, barnacles, we're still friends, right?!" (See: Facebook taking on Foursquare with Facebook Places.) Increasingly, this is not a happy time for a lot of startups and the VCs who are backing them.

Arrington practically recoiled at the heady scent of Corleone-esque power emanating from that San Francisco restaurant's back room. But maybe what he was really picking up on was the stench of desperation.

Simon Dumenco is the "Media Guy" media columnist for Advertising Age. You can follow him on Twitter @simondumenco.

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