Murdoch Considering A Free Internet for WSJ

Rupert Murdoch may be unscrupulous and a right wing nasty, but no one ever said he was a bad businessman. He's been a lot more effective in the media business and has made more money than most media managers of late.

So, it is highly interesting that Murdoch says he is considering dropping the reader charge for the one million Wall Street Journal readers who currently peruse the Journal's Web site.

Murdoch was quoted in the New York Times as saying that in the short range this would be expensive, but that it would be a "wonderful" innovation that would undoubtedly increase use of the Wall Street Journal's Web site.

He did not say, but probably was thinking, that as with Google and Yahoo he could afford to offer free service if he were able to sell additional ads for the Internet offering. The ads would more than cover the cost of dropping the charge, especially if use of the paper's Web site were to soar, let's say, from one million to two million.

Some other newspapers, like the New York Times, charge nonsubscribers for certain parts of their Web site, especially for commentary and other special features. Others, like the L.A. Times, are mostly free already.

But if newspapers are hoping that their Web sites will contribute substantially to their overall revenue flow, free access, higher readership and the ensuing sale of more Internet ads may be the way to go.

It would certainly not be the first time that Murdoch was proven right with a financial innovation, although so far he hasn't made this one yet.

As innovations spread in communications, meanwhile, the New York Times had an article by Carl Hulse yesterday suggesting that left wing bloggers are putting pressure on Democratic leaders to move further to the left on such issues as the Iraq war. This article was headlined,"The Blogs Are Alive With the Sound of Angry Democrats."

The implication of the article was that this was a bad thing. But it is well known that activists, both within a political party structure, and presumably among those who choose to speak out in blogs, tend to be more extremely liberal or conservative than most of their fellow-Democrats or Republicans. Officeholders frequently learn that despite this, they must move to the center to win votes from the preponderance of the electorate that is less extreme.

So I am not too concerned about blogger pressures. Most politicians will learn quickly enough to ignore pressure that doesn't serve their long range interests.

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Financial experts have for many months now been saying the housing downturn due to the sub-prime mortgage crisis would not prove too serious and would not impact the general economy. Among the optimists has been the Federal Reserve Board chairman, Ben S. Bernanke.

Now, however, it appears that Bernanke and the others have been wrong. The stock market is diving, the general economy is threatened, even retail sales are down. Tom Petruno, the L.A. Times Business reporter, was more perceptive than Bernanke when he wrote recently that we were on the brink of a securities meltdown, due to uncertainties spreading out of the mortgage crisis.

Today, Petruno and Peter G. Gosselin write in the lead story on Page 1 of the L.A. Times, "As growing numbers of homeowners have found, they can't make their payments, (and) sub-prime bonds have plunged in value. And because the (mortgage) securiies were so popular with investors around the globe, every day seems to bring fresh reports of heavy losses."

In the wake of the latest shock, a move by a prominent French bank to halt withdrawals from investment funds that have lost money on U.S. mortgage securities, Petruno and Gosselin quote Paul Kasriel, an economist at Northern Trust, as saying, "We see these dead fish float to the surface every now and then, and it's happening more frequently. That creates concern about where some of the other dead fish may be stored. No one knows."

Time magazine, on its Web site this morning, writes, "Anyone who clinged to the notion that the risks lurking in America's mortgage pool were a local concern has now been proven wrong. The U.S. sub-prime mortgage market -- turned sour by borrowers with poor credit struggling to meet payments as interest rates rise -- is fast becoming a global worry. With huge chunks of this debt packaged up and sold to financial companies across the world, bad loans are roughing up banks and markets just about everywhere."

The Federal Reserve Board, under Bernanke, has been too slow and hesitant in its attempts to deal with the mortgage crisis. Petruno and Gosselin quote Mark Zandt, chief economist of Moody's Economy.com this morning as saying that banks and investors are increasingly fearful about the dimensions of the troubles. "We're very close to needing a much more aggressive response to the problem from the Fed," Zandt said.

But there is a serious question here whether Bernanke is as able as Alan Greenspan proved at the Fed to make necessary adjustments (although Greenspan too has come under fire for not foreseeing the problem caused by making loans to home buyers who later can't afford to pay them off). I hope Bernanke, with his persistent optimism in the face of bad economic tidings, is not another Herbert Hoover, smiling all the way to political oblivion.

How far is the mortgage crisis spreading? There was a report this week that so many homes have fallen into foreclosure that many swimming pools are going untended. They are serving as breeding grounds for mosquitoes, increasing the danger in California and other states of West Nile fever.

Countrywide Financial , the nation's largest mortgage lender, said that "unprecedented disruptions" were occurring and the full impact on that company is not known. Its stock price was down nearly $7 for the day, and is off one-third this year. A few months ago, when I passed on a tip to the L.A. Times Business section that Countrywide was experiencing difficulties, I was assured by Scott Reckard that the report was erroneous. He is not the only one to be too optimistic. In another report, Washington Mutual admitted to problems with sub-prime mortgages, and said it was down $12 billion in total deposits this year.