Murdoch: Increase in inventory undermines online ad rates

The infinite increase in inventory for websites and for display is a problem for Rupert Murdoch's online empire.

News Corp., which owns MySpace, the Wall Street Journal, and the Fox TV network, reported disappointing quarterly results on Thursday. One problem, chairman Rupert Murdoch said, is that online ads have a different supply-and-demand equation than a printed newspaper or magazine. On MySpace, there aren't a finite number of printed pages for which advertisers can be forced to compete.

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Instead, the Internet's continued growth means an "almost infinite" number of available pages on which ads can -- and must -- be served to make money. That means site owners, rather than ad buyers, are the ones forced to compete on price. The result: Lower ad rates.

During the earnings call with analysts and reporters, Murdoch responded to an analyst's observation that Murdoch had spurned Internet advertising in the late 1990's, but then had bought into MySpace, WSJ.com, and other sites with ad-based business models. Does Murdoch now have misgivings about the long-term viability of Internet advertising?

Murdoch's response:

"In the social networking area we just sort of -- we are getting 80 or 90% of the total revenue, but not that that is a particularly relevant number. Clearly, people in the search business are onto a very good thing.

"The general display advertising, if it can be very specific such as it is with the Wall Street Journal where we have a very healthy increase and I think our group there are going to do about a US$120 million this year in advertising. That is fine, but overall, you have a problem in that there is an almost infinite increase in inventory for websites and for display. So, there is constant downward pressure on the rates you could get. I think we have to find new ways to monetize our huge audiences."

Murdoch added that "being more and more data driven is good." He claimed News Corp. is focusing on studying its online audiences' behavior, in order to better target them and thus wring more money from advertisers.

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