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July 30, 2014

Amid New Paid Content Schemes, It’s Time for Google Reckoning

Important Details:  The 149-year-old Rocky Mountain News printed its final edition last Friday. The Seattle Post-Intelligencer looks poised to become a much smaller, online-only news company. The San Francisco Chronicle threatens closure unless substantial and immediate cost savings are achieved, raising the possibility of San Francisco being left without a true metro daily. Canadian giant CanWest teeters on the line of default. The American Society for News Editors cancels its annual conference for the first time since World War II. Across North America and western Europe, more newspapers, seeing no end to declining ad revenues, are laying off and furloughing staff. Against this backdrop of woe, we have heard an increasing cry of “make the readers pay!”.

In the last week, CablevisionNewsday‘s new owner — said it wanted to “end distribution of free web content and make our news-gathering capabilities a service for our customers”. Publisher Tim Knight said that Newsday’s web site is being transformed into “an enhanced, locally focused cable service that we believe will become an important benefit for Newsday and Cablevision customers”.

New Hearst News Division President Steve Swartz said the company will look at how the charge for some of its online content, while keeping some of it free. Hearst also said it had developed a new e-reader, with a large enough screen (bigger than the Kindle) to match newspaper formats, and support paid access.

Numerous schemes to gain “micropayments” have been floated and debated in the press and blogosphere.

Ironically, against this backdrop of news, Google announced that it was adding contextual paid search ads to its Google News product, first launched in 2002 and which came out of beta in 2006.

Implications: One could not have scripted a better irony than to have Google News launch paid search ads the same week chaos seemed to afflict the North American news industry. Who supplies a great portion of the news on Google News? Newspapers. Who gets the revenue from the paid search ads?  Google, for its act of aggregation through digital prestidigitation.

The ironies here are indeed rich. Google has combined news with advertising — on a single page. That, of course, was the formula that worked so well for so long for newspapers, until the internet blew up that news-and-ad paper aggregation model. In the process, Google, and other search aggregtors, are becoming the new mass media, while newspapers — now steeply increasing circulation pricing — are becoming niche.

It’s a fast-moving transfer of wealth, as Google has reached $21.7 billion in annual revenue, while the US newspaper industry has suffered at least $5 billion in ad revenue losses over the last year alone. With more than half of Google’s revenues coming from outside the US, its toll on publishers’ ad revenues is a worldwide phenomenon.

So far, few newspaper publishers have responded publicly. Privately, they’ll tell you two things:

1) Could they stop Google from “indexing” their news and monetizing? Well, maybe, but their general counsel have always been afraid of taking the issue to final court adjudication, given the haziness of the pre-web “fair use” law;

2) They are too dependent on Google to cut off its supply pipeline. Talk with site managers, and they’ll you that Google is the #1 source of traffic for most, generating 20%-plus and often upwards of 30%-plus of their traffic. Cut off Google News, and you see newspaper sites’ already challenged traffic severely hampered.

It’s worth pausing for a moment and considering how we got here. As Google News launched, it made a point of saying there would be no ads on the news pages “for now.” That lulled publishers into complacency. Some now liken their dependence on Google as a traffic driver to a drug addiction, with Google News links being “the gateway drug.”

It’s also worth remembering that the “fair use” banner has been raised in the past — and setttlements reached between Google and the Associated Press, Agence France Press, UK’s Press Association and the Canadian Press.  Those settlements allowed use of wire content — now in part hosted by Google — in return for licensing revenues.

Though those deals are now several years old, they haven’t been extended to individual publishers. News publishers have made a point of pressing Google for better relationships, in part asking the company to accept the ACAP content tagging protocol, which would grant publishers more control over their content, so far, to no avail. They haven’t yet shown enough collective muscle to gain the settlements the wires have gained.

What makes sense here is a new reckoning. It is a new age, and one in which readers’ first source of news will clearly be aggregator sites. That relationship needs to be recognized and rationalized.

The simple, sensible workout: a (ramping) revenue share pool, filled with news-related advertising revenue gained and divided by formula. The parties will have to take into account how much traffic is driven specifically from news aggregation and how much from web search, finance and other verticals, and then decide which traffic gets included.

Of course, it would have to be a reckoning that includes not only Google — currently the eighth-largest “news” site in the US — but also other big aggregators of news.

The pieces are in place. We have news production. We have aggregation. We have increasingly better metadata. We even have enough of the infrastructure to charge for certain kinds of content, should that business model prove out.

We can even make the case that the model for such reckoning already is in place: AdSense, the Google sharing-of-revenue program that currently covers news content on non-Google sites. Make the simple step from applying it only to content appearing on non-Google sites to professional content appearing on Google sites as well, and we can see that the solution may be right in front of us.

Such a resolution makes business sense. While three years ago, news publishers laughed about what Google would do when the non-news-producing company found that its news sources (4500 and counting, currently) had dried up and gone away, that sobering reality now provides a real punchline. News production — notably regional and local news creation — is going away, dramatically and quickly.

A reckoning would also go towards solving a problem that’s been with us since the internet’s ascendance. Too much value goes to the “last click,” (with brand and product value along the way getting short shrift, goes a “conversion attribution” argument). It’s a time for more nuance now — in giving business credit where business credit is due.

The reckoning thus makes legal sense, business sense, and evidently societal sense.

There is no “news czar” to bring the parties to the table, and all the others czars seem to be busy attempting to save the world itself from economic collapse.

Still, the idea of a search aggregator/newspaper company reckoning is one whose time is upon us. The ramping revenues from such an agreement won’t save newspapers, but they will amount to a great deal more revenue than the new paid content plans we’re hearing about could provide.

The revenues would, though, give newspaper companies a bit of breathing room as they make their transition to mainly digital companies.

Yes, the reckoning is overdue, but it’s clearly time again to wrestle with this huge issue and get it resolved.