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The web doesn’t hold much attraction for Rupert Murdoch who is now enamored with e-readers and tablets. Tablets, according to those in the know, are being view

by philk 17y ago

The web doesn’t hold much attraction for Rupert Murdoch who is now enamored with e-readers and tablets. Tablets, according to those in the know, are being viewed as saviors for News Corp.’s core business: news and information. He thinks that since devices are not that useful without his content; he eventually wins because he will get people to win. “Content is not just king, it is the emperor of all things electronic!” he recently said. I think he's missing the point here. a) Newscorp has flourished as a business because up until recently media has been an industry with a high barrier to entry. To paraphrase Warren Buffett, if you own the only newspaper in town it's a bit like owning a local monopoly. The same applies for television channels, etc. which have high upfront costs. b) The problem facing Newscorp now is that the internet has lowered the barrier to entry dramatically, so that its size and financial clout is no longer a major advantage. For instance, would you rather read an article in a Newscorp paper or one of PGs essays? In the past it'd be hard for PG to get his essays out there, now it's much easier. This means a much higher level of competition, and competition destroys margins. c) e-Readers/Tablets don't make the barrier to entry much higher. (You can publish stuff on the Kindle for free, for instance: https://dtp.amazon.com/mn/signin https://dtp.amazon.com/mn/signin). Hence it's hard to see how he can compete in the tablet/e-Reader space any better than he could compete online.

hacknews 17y ago
"This means a much higher level of competition, and competition destroys margins." This has wider implications on the ability to profit over the long run in a capitalist society. In open markets margins should tend to zero. It seems the only way to profit would be to have some edge in terms protected market (monopoly) or slight protected technical advantage for a short period. But once the protected advantages are gone margins should tend to zero. Therefore, this isn't just a problem of old media but of all markets.
- crc32 17y ago
  I am not sure that "margins tending to zero" applies at all to any market where the marginal cost of producing is non-zero.
  - pbhjpbhj 17y ago
    Jinx!
  - mseebach 17y ago
    Yeah it does. The margin that tends to zero is the profit margin, not the marginal cost of production. That's why the commodities business is so tough: If you make $10 profit pr. ton of CommodityFoo, someone's gonna come along and underbid you $5, unless you bring some value to the game that the new guy can't. And that's exactly what's happened to the news business: The internet ate the newspapers USP, classifieds, and effectively turned them into commodities. Take away the classifieds and the agency-dispatches, and the rest barely fills an interesting blog.
    - crc32 17y ago
      "unless you bring some value to the game that the new guy can't." yes, like the supply of a scarce resource. This little get out clause renders your argument meaningless. If there are only 100 tons of gold available per week, (the marginal cost of producing the 101st item is infinite, i.e. non-zero) it does not matter how many competitors there are in the market. If demand is for more than 100 tons, profit margins will not "tend to zero". This scenario illustrates that even in a commodities market a situation may arise where a large number of competitors will not cause margins to tend to zero. Let alone situations where branding is involved etc. - all factors that we can assume are permissable under the stated condition of an "open market", and all in the category of "some value to the game that the new guy can't". So in other words your comment amounts to "yes it does, except where it doesn't"
      - mseebach 17y ago
        You're confusing profit from speculation and profit from value added sales. Especially in the gold-market, profits come from speculation, not value added sales.
        crc32 17y ago
        No, I contend that it is you who is confused. There is only one type of profit, and I am correct that profit may be derived from demand exceeding supply irrespective of the number of suppliers. This has nothing to do with speculation, it is a basic concept of market economics that holds true in an "open market" as defined by the original commenter.
- pbhjpbhj 17y ago
  Surely you need there to be no restriction on resources as well as an free market in order for the profits to tend to zero. A free market doesn't help if one person/group owns all the resources (though I gather Adam Smith's free market definition excluded monopolies this doesn't appear to be within the modern definition).
  - mseebach 17y ago
    They tend to zero, they don't actually go there. No-one does anything for a $0 profit margin. Scarcity of resources doesn't do anything to the profit margin, since the cost of the resource is an expense to the seller. What you can make money on is refining, and there the same rules apply (drilling and pumping oil out of the ground is a form of refining). Also, obviously, speculating. Adam Smith was in no way a free market fundamentalist (Burke, ironically, was much more fundamentalist, even though he's considered the father of Conservatism). His legacy is the idea that "by pursuing his own interest, [the individual] frequently promotes that of the society more effectually than when he intends to promote it."
    - crc32 17y ago
      "Scarcity of resources doesn't do anything to the profit margin," This is patently false. For example during a drought, most people would pay well above the cost of production for a glass of water.
      - mseebach 17y ago
        No it's not. An increase in scarcity increases the value of the good. If you have a small store on an island with 100 $1 bottles of water, your stock is worth maybe $60. Now, the ferry breaks down, and people start paying you $5 pr. bottle. You now have to report the value of your stock at ~$460, and at every sale book a cost of ~$4.60 against your stock. Thus your profit is (pretty much) the same. You made a healthy profit on your accidental speculation in the bottled water market, but that's not your profit margin.
        17y ago
- mseebach 17y ago
  > This has wider implications on the ability to profit over the long run in a capitalist society. In open markets margins should tend to zero. ... unless you constantly innovate faster than the competition. Politico.com is profitable because the read the situation correctly and innovated in terms of hiring and retaining the best political reporters in DC, even though what they're doing is what "old media" tries to make us believe they're doing: reporting the news. Anyone can try to compete with politico.com, but building a comparable network of well-connected reporters is hard = a new barrier to entry. > Therefore, this isn't just a problem of old media but of all markets. First, it's not a problem, it's a good thing. Second, no, this is specifically a problem for old media (and postal services): The internet completely removed the single barrier to entry that protected that business - the local monopolies on dissemination of information.
sree_nair 17y ago
c) e-Readers/Tablets don't make the barrier to entry much higher. (You can publish stuff on the Kindle for free, for instance: https://dtp.amazon.com/mn/signin https://dtp.amazon.com/mn/signin). Hence it's hard to see how he can compete in the tablet/e-Reader space any better than he could compete online. -- e-readers and Tablets may not make the barrier to entry tougher. But it might get them more subscriptions if apple implements subscription through itunes.

by philk 17y ago

hacknews 17y ago

"This means a much higher level of competition, and competition destroys margins." This has wider implications on the ability to profit over the long run in a capitalist society. In open markets margins should tend to zero. It seems the only way to profit would be to have some edge in terms protected market (monopoly) or slight protected technical advantage for a short period. But once the protected advantages are gone margins should tend to zero. Therefore, this isn't just a problem of old media but of all markets.

crc32 17y ago
I am not sure that "margins tending to zero" applies at all to any market where the marginal cost of producing is non-zero.
- pbhjpbhj 17y ago
  Jinx!
- mseebach 17y ago
  Yeah it does. The margin that tends to zero is the profit margin, not the marginal cost of production. That's why the commodities business is so tough: If you make $10 profit pr. ton of CommodityFoo, someone's gonna come along and underbid you $5, unless you bring some value to the game that the new guy can't. And that's exactly what's happened to the news business: The internet ate the newspapers USP, classifieds, and effectively turned them into commodities. Take away the classifieds and the agency-dispatches, and the rest barely fills an interesting blog.
  - crc32 17y ago
    "unless you bring some value to the game that the new guy can't." yes, like the supply of a scarce resource. This little get out clause renders your argument meaningless. If there are only 100 tons of gold available per week, (the marginal cost of producing the 101st item is infinite, i.e. non-zero) it does not matter how many competitors there are in the market. If demand is for more than 100 tons, profit margins will not "tend to zero". This scenario illustrates that even in a commodities market a situation may arise where a large number of competitors will not cause margins to tend to zero. Let alone situations where branding is involved etc. - all factors that we can assume are permissable under the stated condition of an "open market", and all in the category of "some value to the game that the new guy can't". So in other words your comment amounts to "yes it does, except where it doesn't"
    - mseebach 17y ago
      You're confusing profit from speculation and profit from value added sales. Especially in the gold-market, profits come from speculation, not value added sales.
      - crc32 17y ago
        No, I contend that it is you who is confused. There is only one type of profit, and I am correct that profit may be derived from demand exceeding supply irrespective of the number of suppliers. This has nothing to do with speculation, it is a basic concept of market economics that holds true in an "open market" as defined by the original commenter.
pbhjpbhj 17y ago
Surely you need there to be no restriction on resources as well as an free market in order for the profits to tend to zero. A free market doesn't help if one person/group owns all the resources (though I gather Adam Smith's free market definition excluded monopolies this doesn't appear to be within the modern definition).
- mseebach 17y ago
  They tend to zero, they don't actually go there. No-one does anything for a $0 profit margin. Scarcity of resources doesn't do anything to the profit margin, since the cost of the resource is an expense to the seller. What you can make money on is refining, and there the same rules apply (drilling and pumping oil out of the ground is a form of refining). Also, obviously, speculating. Adam Smith was in no way a free market fundamentalist (Burke, ironically, was much more fundamentalist, even though he's considered the father of Conservatism). His legacy is the idea that "by pursuing his own interest, [the individual] frequently promotes that of the society more effectually than when he intends to promote it."
  - crc32 17y ago
    "Scarcity of resources doesn't do anything to the profit margin," This is patently false. For example during a drought, most people would pay well above the cost of production for a glass of water.
    - mseebach 17y ago
      No it's not. An increase in scarcity increases the value of the good. If you have a small store on an island with 100 $1 bottles of water, your stock is worth maybe $60. Now, the ferry breaks down, and people start paying you $5 pr. bottle. You now have to report the value of your stock at ~$460, and at every sale book a cost of ~$4.60 against your stock. Thus your profit is (pretty much) the same. You made a healthy profit on your accidental speculation in the bottled water market, but that's not your profit margin.
      - 17y ago
mseebach 17y ago
> This has wider implications on the ability to profit over the long run in a capitalist society. In open markets margins should tend to zero. ... unless you constantly innovate faster than the competition. Politico.com is profitable because the read the situation correctly and innovated in terms of hiring and retaining the best political reporters in DC, even though what they're doing is what "old media" tries to make us believe they're doing: reporting the news. Anyone can try to compete with politico.com, but building a comparable network of well-connected reporters is hard = a new barrier to entry. > Therefore, this isn't just a problem of old media but of all markets. First, it's not a problem, it's a good thing. Second, no, this is specifically a problem for old media (and postal services): The internet completely removed the single barrier to entry that protected that business - the local monopolies on dissemination of information.

sree_nair 17y ago

c) e-Readers/Tablets don't make the barrier to entry much higher. (You can publish stuff on the Kindle for free, for instance: https://dtp.amazon.com/mn/signin https://dtp.amazon.com/mn/signin). Hence it's hard to see how he can compete in the tablet/e-Reader space any better than he could compete online. -- e-readers and Tablets may not make the barrier to entry tougher. But it might get them more subscriptions if apple implements subscription through itunes.