Page 138 - Critical Political Economy of the Media

Political economy of the Internet 117

website consisting of 140 newspapers run by nine newspaper chains closed in 1998.
Time Warner’sPathfinder Website launched in 1994 incurred huge losses that
contributed to AOL’s acquisition of Time Warner in 2000. Bertelsmann’s online
businesses, including music retailers BOL.com in Europe and CDNow.com in
the US, sustained losses of $248 million over four quarters in 2001–2, and the
company sold its ailing 50 per cent stake in AOL Europe (Küng et al. 2008:
128–29). Disney launched successful consumer websites such as ESPN.com and
Disney.com but its move into portals, purchasing a majority stake in Infoseek.
com and then consolidating this into a new portal Go.com, ended with closure
and losses of $862 million in 2001. The failure of the AOL Time Warner merger
strategy led to the then largest recorded corporate loss, $98.7 billion in 2002.
News Corporation’s notorious ‘iblunders’ are summarised by Shields (2010).
Delphi Internet Services, an early ISP launched in 1993, lost subscribers and was
sold in 1996. News Corporation’s acquisition of MySpace in 2005 for $580
million was part of a wider effort to remedy weaknesses in the online portfolio,
but failed to retain users when Facebook and other services flourished. MySpace
reached 100 million users in 2006, two years before Facebook launched, but
then declined, notably after the site shifted focus from social networking to
entertainment in 2010. MySpace’s traffic of 50.1 million visitors in December
2010 was down 27 per cent on the year before. The workforce of 1,000 was cut
in half at the start of 2011 and was down to 200 when the company was sold in
June 2011 to Specific Media and Justin Timberlake for approximately $35 million.
Media firms were motivated by a mixture of opportunity, fear and not a little
confusion when trying to predict trends and lead technologies in rapidly changing
markets. Firms feared being left behind by new systems of distribution and
competition from new suppliers outside their established markets. Facing the
prospect of fewer users accessing traditional media content by traditional means,
firms adopted various strategies, including joint ventures and acquisitions, in
efforts to occupy new gateways (such as portals) and content sites. For instance, in
1996 Microsoft and NBC launched MSNBC, an online and cable news service.
The drives to corporate consolidation have been described already; another
pressure was market investors’ enthusiasm for the Internet sector. Firms that
failed to develop expected Internet strategies were punished by financial markets
with depressed share prices. Pressure to expand was fuelled by the belief that
the Internet was characterised by significant order of entry advantages (‘first
mover’ advantages). Yet firms were understandably reluctant to cannibalise their
cash-flow-generating businesses, on top of debt-laden investments, by offering
their media products free via the Internet, in the absence of effective strategies to
monetise (Küng et al. 2008: 126–27).
The diffusion of higher capacity connectivity, broadband, fibre optic and
mobile, is also critical in explaining how traditional media industries have been
differentially affected. The low-bandwidth capacity of most dial-up modems in
the 1990s meant that the music industry and text and graphical publishing were
affected earlier than audiovisual content. The process of ‘Internetization’