Wednesday, August 01, 2007
Research Note: Economies of Simulation
Part of the problem with media is that industry analysts and observers alike have a very crude understanding of the true economics of media.
Take Murdoch + the WSJ. Murdoch has ripped apart the journalistic integrity of every newspaper he's ever bought.
Yet, the NYT focuses today on business models.
Honestly - who cares. The business model is the least important facet of this deal.
Free, paid, whatever - the real point is the lame, sweatshop DNA of mass schlock production, that Murdoch is going to bring to the Journal.
In other words - it's not the benefits to Murdoch we should be concerned about; rather, it's the losses to readers we should be concerned about.
As Clear Channel, Disney, AOLTimeWarner etc have so amply demonstrated - one imploding value proposition affects all media businesses. Consumers lose trust in, respect for, relationships with, media as a whole.
That's the point - the evisceration - rather than strategic reinvention - of one the last great American media businesses.
It's a deadweight loss for everyone. Despite Lauren Fine's ersatz argument that "shareholder value" will be unlocked.
Is this an economic joke? It won't - that's just an accounting figment, because that shareholder value is (more than) counterbalanced by the very real social loss of great financial reporting. We are all worse in the long run with a Murdochian Journal than, perhaps, even with no Journal at all.
True value creation happens when everyone who has an economic interest in media is made better off.
More simply: Value is not created when when value is simply transferred from readers/consumers to shareholders - as has happened here.
These are what I call economies of simulation - they are fauxconomies, ersatz economies, accounting fictions.
It's nothing short of a travesty that almost not a single media industry figure has had the insight (or the courage) to discuss this deal, and an increasing number of media deals, in these stark yet very real economic terms.
This lack of deeper economic understanding about where and how value is really created is perhaps the single biggest reason why media has become the sad, lumbering, Frankestein monster of an industry it is today.
I agree, value is not created simply by transferring it from readers to shareholders. It does seem to me, though, that the transfer is a kind of necessary bloodletting in order for real value to be unlocked. What the acquisition does is break the deathgrip of WSJ's entrenched management, who prevented value realization (except in their own compensation).
Of course, shareholder value is merely a proxy for value to society; it's the proxy capitalism uses in the hope of a better world. Still, it's the least bad proxy we've found.
My hope is that Murdochian ownership will "unlock" the value of the WSJ by driving its audience to say what they really value (independence, seasoned observation, clarity and concision). Murdoch probably can't deliver those benefits but the "franchise" of the WSJ could survive in some altered, web-based form.
So a deadweight loss is a distinct possibility, but I have some (maybe blindly optimistic) hope that new-generation media will rescue the franchise itself, leaving Murdoch and the husk of the WSJ brand behind.