Rupert Murdoch's Internet Retreat - Company Operations

Long criticized for its low online profile, News Corp. is trimming its Net news staff. Fox is now looking beyond the Web.

NOT VERY LONG AGO, RUPERT MURdoch was ridiculed for his largely invisible Web strategy. He had failed to launch a major Web initiative, and traffic on Fox's Web sites was anemic.

So why, when he talked about the Web recently, was Murdoch gloating? Because these days, when content and entertainment sites are regularly disintegrating, hesitation suddenly looks like strategy.

"We have not spent a fraction of what all our competitors have lost in this area," he bragged to reporters in Adelaide, Australia, a few weeks ago at the annual meeting for his global media empire, News Corp. "We have slowed down and are slowing down," he said. "We have been very tentative and careful. In retrospect, we would have liked to have been even more so." Two days after Murdoch spoke, FoxNews.com laid off 13 people, or 13 percent of its staff.

It looks like Fox is retreating from the Web -- a move that may seem prudent right now, but could prove risky in the long run. Fox says it's focusing its efforts on broadband and will soon begin charging for video on the Web. But Fox has already let competitors get ahead in the race to establish their brands online - and that may leave Fox too far behind to ever catch up.

Fox's go-slow approach has landed it in the back of the news-site pack. FoxNews.com had just under 2 million unique visitors in September, according to Media Metrix -- less than a quarter of MSNBC.com's 8.9 million visitors. CNN.com bad 7.5 million unique visitors; CBS.com's sites and ABCNews.com each had more than 3 million. And CNN, which already gets an average of about 15 million visitors to its news channel, will gain ground after its parent company merges with America Online.

Jon Richmond, who runs News Corp.'s digital-media division, insists the retrenchments are not a sign that Fox is withdrawing from the Web. The company is committed to spending prudently, but Richmond says the layoffs at FoxNews.com are a result of the site repositioning itself to concentrate on politics and breaking news (and also are unrelated to Murdoch's comments). "What we're trying to do is align ourselves more closely with the [Fox] News Channel. It creates synergies, and it's better for advertisers," he notes. "In terms of original content creation, we do not want to be everything for everybody. That is not our goal."

A few months ago, FoxNews.com eliminated its book section and the Spanish-language version because of low traffic. In contrast, CNN and MSNBC both have sizable book sections and Spanish-language sites. FoxNews is considering stocking areas of the site that cover science and technology with content from partners. And it may turn over its health section to WebMD, in which News Corp. owns a 7.5 percent stake.

Meanwhile, Fox competitor MSNBC is expanding its relationship with existing partners such as Newsweek. It's also adding to its business offerings with more original content and more content from partners like Red Herring, Inside.com and the Motley Fool. Moreover, it is increasing its staff by 5 to 10 percent in the next six months.

FoxNews.com's shallower offerings have caused traffic to lag: Visitors spend an average of 8.2 minutes on the site, far less than at CNN.com (28.2 minutes) or ABCNews.com (18.9 minutes).

Fox also trails on the sports side. In theory, FoxSports.com should benefit from Fox's strength in sports on TV, where it has scooped up the rights to broadcast some NFL games and most Major League Baseball games. But ESPN and CBS SportsLine each pull in more than 6 million unique visitors a month, and CNNSI.com has around 3.3 million. FoxSports.com lags with 1.8 million unique visitors in September.

In mid-October, FoxSports.com informed 18 Web producers in New York that their jobs were moving to Los Angeles. Employees were given less than a week to tell the company whether they wanted to relocate; if they would not relocate, they would be unemployed. As of the end of October, only four employees had decided to move. "It is not really a veiled layoff at all," Richmond says, adding that the positions would be filled in L.A.

Fox is less concerned about the short-term strategy of its Web site than it is about broadband, according to Richmond. "We don't have an Internet strategy. We have a digital strategy," he says. "Our work on the Web is building the foundation for these other mediums, particularly interactive television, and also broadband and wireless applications."

In the near term, when less than 5 percent of the population has a broadband connection, Fox thinks it can get people to pay for video on the Internet. "We believe fundamentally that the true upside in digital media is going to be based on some transaction-based experience," adds Richmond.

Paying for content? Didn't that idea go the way of the Edsel? No, according to Fox. By year's end, TooHotForFox.com will debut on the Web with reality programming too risque for TV. Web viewers will be able to watch video snippets of the scariest police chases and the most outrageous pet antics. Fox will begin charging for some videos next year, and while the site will carry advertising, "we certainly hope that we get to a point relatively quickly where more than half of our revenue comes from [fees]," Richmond says.

On FoxSports.com, the company believes it can charge for niche programming such as college football games that are not available on television. Its first experiment -- a broadcast of Nebraska battling San Jose State -- drew 200,000 video streams, twice what the company expected (though it didn't charge). In the next several months, Fox hopes to launch a sports broadband service with a monthly subscription or a pay-per-view model. Watching a single event would probably cost viewers $3 to $10, says Danny Greenberg, senior VP for sports at News Digital Media.

Some analysts see great potential in Webcasts aimed at niche audiences. "They're not going to attract huge amounts of people," says Jeff Dearth, a partner at DeSilva & Phillips. "But imagine if you got all the Harvard and Yale alumni around the world who want to watch the Yale-Harvard game and who can't be there? That's a pretty good demographic."

One of the most successful entertainment companies around, the World Wrestling Federation, spent 18 months experimenting with pay-per-view on the Internet and came away disappointed. WWF.com has stopped offering streaming video of events that were on cable as pay-per-view shows. "It's not ready for prime time," says Lee Barstow, WWF vice president of marketing and sales for new media.

Fox's pay-per-view plans don't account for the news site. Richmond acknowledges that so far there isn't any video news content that he believes people would be willing to pay for on the Web.

That seems to leave FoxNews.com relegated to the role of promotional tool for the Fox News Channel. But succeeding in that role will be a struggle. So far, the channel hasn't done a good job of driving viewers to the Web. On a recent edition of the morning show Fox & Friends, viewers were urged to call a toll-free number with questions for the show's guest -- no e-mail address was offered. Even when e-mail info was provided, as on a recent segment of The O'Reilly Factor, the address was never flashed on the screen.

When Fox recently announced a TV special in which viewers could participate through the Internet, it seemed as though the company was finally ramping up its cross-promotional efforts. The show, called the Ultimate Auction, will advertise items for sale -- including a diamond necklace owned by Princess Diana and a deserted island -- on the Web and yet prospective bidders there as well.

While bidders will be able to participate in an online auction, Fox.com's actual involvement is minimal. The site carries some information about the auction, but prospective bidders are sent to an auction site run by Amazon.com. The live bidding, planned for Dec. 1, won't happen on Fox.com, either: Internet bids will be placed through Amazon.com's site.

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