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July 19, 2017

Newsonomics: For The Newspaper Industry’s Next Feat, Can It Get Donald Trump To Give It Antitrust Protection?

Sounds like a John Oliver segment, doesn’t it? As we all know from checking our favorite news apps, the line between satire and news has all but vanished anyhow.

Last week, in the friendly confines of the Wall Street Journal op-ed page, the News Media Alliance initiative to gain an antitrust exemption lit many fuses. Media Alliance CEO David Chavern (see my Q&A with him here) made a singular point: The news(paper) needs legal protection so it can collectively negotiate with Google and Facebook, the dominant duopoly of this digital age. In his op-ed, “How antitrust undermines press freedom,” Chavern called on Congress to provide a safe haven — essentially an exemption — from antitrust law so that the Department of Justice wouldn’t charge the daily newspaper group with illegal activity.

 

First published at Harvard’s Nieman Journalism Lab on July 17, 2017

Follow Newsonomics on Twitter @kdoctor

 

The proposal has reignited a panoply of pleas, broadsides, two-decade-old arguments, and even a reasoned analysis or two. In that Alliance proposal, we see elements of truth, seeming political chutzpah, and an announcement that made it easy to categorize the daily newspaper owners as brothers from another (analog) age. The Alliance’s campaign for “safe harbor” fails to match the existential urgency of The Washington Post’s “Democracy Dies in Darkness,” but the two express a similar fear.

The headlines based on the proposal were confusing. They inflate the real, audience-driving business that Google and Facebook actually produce. At the same time, they conflate that “distribution” power with the biggest money issue of our time: their dominating and growing share of digital advertising.

The underlying issue here is one that’s hovered in the background of the jaw-dropping decline of the American (and North American and European) newspaper industries. The daily newspaper industry is pulling in $30 billion a year less than it did a decade ago. The profits of Google and Facebook now ring in at more than $30 billion a year. It’s a breathtaking turnaround.

That’s why this topic — the three-part relationship among The Platforms, news companies, and us — bears a deeper dive. Consider it a roadside guide to the latest Google/Facebook/publisher wars.

 

1) “The future of news gathering and, yes, democracy depends on the outcome of this fight.”

Let’s hope not. It would be pure folly to expect this Congress and this president to save the newspaper industry.

Sacramento Bee executive editor Joyce Terhaar wrote the stirring sentence above and column Thursday, and her spirit is encouraging, especially as her parent company McClatchy again tries to retool itself for digital success.

But daily newspapers can little afford to place their futures in the hands of others — especially a group of politicians who have done so little to defend the role of a free press as the president attacks it.

The News Media Alliance — made up of 2000 members, but largely a restyled, renamed-in-2016 daily newspaper trade association — would indeed love an antitrust exemption. But its main goal is a greater public hearing of the roles of the press and the platforms in a free society. If the Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights and the House Subcommittee on Regulatory Reform, Commercial and Antitrust Law both hold hearings on the proposal this fall, that would be a big win.

The idea: shine a light on the dominating business power of Google and Facebook (and maybe Apple and Amazon?) on the news industry and more widely. That would be a big win. And it would supply the bigger stick news publishers could use as they nibble on the various carrots of partnership already underway and in discussion with all the big platform players.

 

2) Pick your percentage of pain.

The numbers flying in this debate each tell bits of the story. The Alliance cites the stat that “71 percent of the $19.6 billion spent [on digital advertising] in the first quarter of this year” went to Google and Facebook. And, yes, in fact, their share of overall digital advertising — which is now the largest category of advertising in the country, surpassing TV — is growing.

Last year, Jason Kint of Digital Content Next (a trade association for premium digital news publishers) made pointed out that in the third quarter of 2016, only one percent of the dollar growth in digital advertising went to companies other than Facebook and Google. That number totaled 10 percent for all of 2016. Even then, though, it meant that everyone else selling advertising could divvy up $1.4 billion, while Google and Facebook together got $11.4 billion of the ad growth.

As one observer of the landscape suggested to me this week, “Just wait until Google and Facebook hit 101 percent of the growth.” Given the trend lines, that seems like a real possibility — and would only reaffirm the Duopoly labeling.

 

3) I don’t like those percentages. Give me smaller ones.

In a survey of its members, Kint’s Digital Content Next found that, on average, top publishers attributed 14 percent of their digital revenue to money earned through the platforms.

“My takeaway on it was that it meant that there wasn’t enough economic influence coming from these companies to be driving [publishers’] decisions,” Kint said. “They need to get more money, especially if their content is going to live on those platforms.”

 

4) How serious is platformitis?

Remember the epidemic? It seemed to begin sometime in 2015 and spread aggressively into 2016. Platforms — the reader-sucking black holes of the time — seemed unstoppable.

The fear at the time was that everyone would spend their time on platforms, and news websites might as well give up and just post their content where the eyeballs seemed stuck.

It was a silly idea then, and it’s sillier now. One big reason is reader revenue. It’s dawned on almost everyone in the legacy newspaper industry that their hope of getting to worthwhile digital future must be focused on digital and all-access (digital + print) reader subscription. That’s the bedrock on which the national/global (New York Times, Financial Times, Wall Street Journal, and, over the longer term, Washington Post) business strategies find footing. But it’s also where the smarter regional dailies, from Boston to Minneapolis to Dallas to Seattle, now base their new business models.

That thinking, then, has led each of them, to value, extend, and protect their own direct relationships with their customers, for whom we have revived the old-fashioned name (after demoting “users”) “subscribers.” You can’t cede a paying relationship to a platform. Job One in audience and subscriber development: build and nurture on-site, in-app relationships with paying customers, who provide (or soon will) more than half the revenue for your news business.

Consequently, all those companies — and many more (Hearst, among others, have more recently got the religion) — have all aimed to turn platformitis into a manageable, chronic condition, rather than an acute malady.

The tremendous audience reach of Facebook and Google is something to be managed adroitly, but not something that will drive the success of their fundamental revenue strategies. Each company has done its own arithmetic, but most have come up with something not too far away from Digital Content Next’s 14 percent.

The takeaway, which we now see in a wider application among many media companies: move resources from serving platform distribution — which can be labor-heavy — to more worthy revenue-generating work like newsletter creation or podcast development.

As publishers have self-treated themselves for platformitis, we’ve seen a spectrum of approaches. The Washington Post — due to its ubiquity-seeking strategy — still makes itself all-in on Facebook and more deeply involved with Apple News, for instance. The Wall Street Journal and Financial Times, with harder paywalls, parse their platform involvements ever more carefully. The New York Times balances subscriber conversion and with growing overall reach.

Those are the best practices strategies drawn from the best-resourced companies. Many of the regional publishers — those represented by the Media Alliance — look up and seem bewildered at the platform landscape and at how to work it. The big papers won’t argue with the notion that the Google and Facebook have effectively formed a digital ad duopoly, but they are more focused on their own businesses. And, privately, they would urge their fellow members of the (regional) press to do the same.

 

5) Is this about the news consumer — or the newspaper industry?

When I interviewed the Alliance’s Chavern last week, I was surprised to learn that the trade association didn’t include other big news providers like BuzzFeed or Vox or broadcasters in its complaint. It narrowly equated “news” — and the threat to news-creating businesses posed by Google and Facebook’s market domination — with newspapers.

On the face of it, of course, that opened up the move to ridicule and cluelessness — Mathew Ingram took good advantage — but the issue is deeper. Whatever damage the duopoly’s domination does, it does to consumers of news — and to all the producers of news. That includes the broadcasters and the digital natives.

By pitching this initiative as a newspaper industry–supporting plan, the Alliance considerably reduces its real argument that the American news consumer and citizen is being hurt.

Within the collection of 1,350 or so daily newspapers, 90 percent of them are owned by chains. Three chains own a quarter of all the dailies, and two of three are owned or managed by profit-maximizing private equity companies. A significant minority possess the combination of reinvestment capital, will, and the strategic smarts to make a way forward.

 

6) Is the glass half-full or 15/16ths empty?

Oddly, the daily newspaper industry appeared to be at odds with itself within a day or so of the Media Alliance announcement.

Rusty Coats, executive director of the Local Media Consortium (LMC), decried the move as clueless protectionism, arguing that David Chavern didn’t really speak for the industry and that the Media Alliance board members seemed not to understand that their own companies were already partnering with Google and Facebook.

For those lost in the initials, LMC is made up of lots of local media companies, including many of the same daily newspaper companies that are in the Media Alliance. It’s a digital ad optimization company, using tech (including partnerships with Google) to maximize rate on the often unsold non-premium inventory local media sites have.

In 2016, LMC drove total revenue of “more than $110 million” in revenue to its 1,600 individual publications, Coats told me this week.

Divide $110 million up among the hundreds of titles LMC represents, and it’s a drop in the bucket of the $20 billion-or-so daily newspaper industry. Coats and his comrades have worked their territory hard, and smartly, but their NMA elders probably look at the big picture of decline and see the LMC return as a large rounding error in the scheme of things.

 

7) Is Google really “annoyed” with the Media Alliance move?

Boo-hoo.

Annoyed” is an interesting choice of words, here, as reported by CNN’s Dylan Byers. But what adjectives could we better apply to the feelings about the wholesale destruction of the American local newspaper landscape — even if it is collateral, rather than intentional, damage? Horrible, heartsick, nauseous, scared.

Anyhow, while it may seem possible to personify a Google or Facebook, that’s not reality. One news exec told me this week: “We deal with 11 different parts of Google, and they’re just starting to get their act together in terms of coordination.”

Within these many platform/news company relationships, plenty of earnest people from platforms do their best at finding some common ground. But overall, it’s the failure of the companies as companies to come to grips with the major collateral damage they’ve done. Just as they take on their moonshot initiatives, they also need to be strong partners in a local transformational news reboot.

 

8) What do they want?

David Chavern can tick off the four or five things newspaper companies would want if they could together negotiate with (against?) Google and Facebook.  It’s a familiar list: Better data. Better newspaper branding on platform-based content. Help with getting more digital subscribers. And then there’s “revenue share” — two simple words that cover 20 years of pain.

I asked Chavern to further define what he means by revenue share.

“Any ad revenue attached to the expression of our content. We’re always going to talk about how that is split, right?” he said. “If it is valuable to be them, we have every right to ask that it be valued.” Though Chavern is new to the industry, having come to his job from the U.S. Chamber of Commerce about two years ago, he picks up on the perpetually inchoate thoughts extant in the newspaper industry for two decades.

Certainly, Google, in snippetizing news articles, derives value from them. Certainly, Facebook, in linking to endless news, has benefited greatly.

For their part, the platforms say they are just doing what the law allows — making “fair use” of the content — and they note, when pushed on the topic, that “news” just doesn’t monetize that well. Google would say news represents only 5 to 7 percent of queries and that the relative value of those queries is low compared to shoppable searches.

For almost two decades, the biggest newspaper companies have talked about contesting platforms’ “fair use.” They’ve never litigated the point — though we’ve seen aggressive action on that topic and others, episodically, from the European Union.

Yet that question of content value really serves as the core of the Media Alliance’s argument here. It’s not wrong: Clearly, Google, Facebook, and others derive huge value from news content. Its currency drives usage; the usage drives habit. The habit is monetized in manifold ways. But can we put a number on it? I’ve asked various Googlers that question over the years and always gotten the answer “No, too many variables.”

We could take a moment to savor the irony that the company that invented the hyper-monetization of the algorithm says it can’t figure out how to assess news content value. The larger point is: There’s a value, and it’s a big one.

Publishers know they can’t effectively negotiate individually. It’s by no means certain that they have enough weight to negotiate even collectively, should Trump and Congress somehow grant their wish.

Though Jason Kint doesn’t see much likelihood that the News Alliance initiative will work, he agrees that it surfaces the basic issue of dominance.

“If you’re not getting the fair value for those snippets or whatever it is, then you should be able to walk away from that deal. You shouldn’t have to do business with Google and Facebook or any company in order to survive, and it’s been proven that there’s no way to run a digital news business without allowing Google search to crawl your site. And it’s very difficult to even run a subscription business under ‘first click free,'” he said.

“And I would argue that it’s hard to drive a future news business without participating and working closely with Facebook…You can’t not have a good relationship with those two companies from a business relationship perspective.” That’s why we hear so little public criticism of platforms by publishers. “You end up with guys like me that are conveniently the only ones that can actually be the squeaky wheel,” Kint said.

Fear, indeed, is one good marker of market domination.

 

9) Do Facebook and Google have a corporate or moral obligation to do the right thing?

With initiatives like the Europe-centric Digital News Initiative, Google has opened its wallet a bit, and as importantly actually listened to publishers. But nothing it’s done is particularly transformational, or necessarily help assure the survival of an industry going down the tubes.

 

10) Could Facebook sell subscriptions for publishers?

The News Media Alliance says it wants platform help in selling subscriptions. This is an area that Facebook has said it’s working on.

Here’s Stratechery’s Ben Thompson, who dissected the Alliance push on that question:

In fact, this is the single most ridiculous part of this proposal: one of the issues Chavern wishes to collectively bargain with Facebook and Google about is ‘better support for subscription models.’ In other words, Chavern wishes to bring in Facebook and Google as an aggregator in the one market — subscriptions — where newspapers actually have a viable business model.

It’s easy to envision how this could play out: Google and Facebook set up subscription offerings for publishers, eventually create the bundle of the future, and, by virtue of owning the consumer, skim off most of the profits, leaving publishers desperately pursuing page views to get their minuscule share of revenue. Sound familiar?

Reader revenue offers the only plausible major route out of the current doldrums. It makes some sense that local publishers want to do anything they can to emulate the digital subscription success of the New York Times, FT, Washington Post, and Wall Street Journal.

These local publishers salivate at the millions of eyeballs Facebook can turn their way, with the hope that even a tiny percentage of the people behind those eyeballs will morph into paying subscribers. But, as Thompson underlines, the last thing publishers should want to do is insert Facebook or any other platform into a paying relationship with a reader.

Everything we know about the successful digital reader pay models is based on relationships. A news brand’s trusted relationship with readers has spurred the remarkable subscription surge we’ve seen in the last year.

Can Facebook, or other platforms, figure out a way to help publishers cement paying subscribing relationships with readers? They can provide more data, but at this point, it’s at best piecemeal. Any solution that insert Facebook or another platform into the relationship between publisher and reader is one to approach with great wariness.

 

11) It’s just subscriptions. It’s the essence of Facebook that’s the problem.

Digital Content Next’s Kint laid it out succinctly.

“In terms of what’s really important to media properties, it’s the ownership of the data and the relationship, the economics of the deal, and the brand presence. All three of those things are the antithesis of how Facebook has maximized its business to date,” he said.

“They squeeze out the brand and distribute it as the article at the content level, so that they can kind of commoditize value. They own all the data; they don’t give any of that data. And they want as little friction as possible to maximize the audience in advertising, inventory, and data. They hate subscription relationships. So the things that are being asked [by publishers] are completely at odds with [Facebook’s] current strategy.”

The relationship alignment with Google and Apple offers more nuance.

As Google rightly perceived Facebook as the largest threat to its advertising business, it innovated AMP, a way to greatly speed up delivery of mobile pages on the open web. That’s been a boon for news publishers, some of whom report more than double-digit traffic increases given faster page loading. On the other hand, Google’s “first click free” policy, in which it mandates that even hard-walled subscription sites offer one or more free pageview to Google search visitors, has been a sticking point. The Wall Street Journal pulled out of First Click Free earlier this year.

Apple annoys publishers with its generous-to-Apple revenue split on subscriptions sold through iTunes, and by sharing little reader data. But publishers like the fact that Apple doesn’t compete with them in ad sales.

 

12) There’s antitrust…and then there’s antitrust.

While the newspaper industry seeks an “antitrust exemption” so it can take on Google and Facebook, antitrust itself continues to bedevil media owners.

Current law generally forbids one company from owning two dailies in the same market. Just this month in Chicago, Tronc was prevented from offering a winning bid for the Sun-Times because it already owns the Chicago Tribune. That action followed a similar Tronc DOJ shut-out last year, as the department’s antitrust division blocked it from buying the Orange County Register.

The newspaper and broadcast industries joined forces quickly last fall, in the wake of Donald Trump’s victory, to call for the Federal Communications Commission to end its stringent cross-ownership rules. Those FCC rules largely prohibit joint ownership of a major TV station and a major daily in the same market.

What does “market domination” mean in the age of Trump and digital replacements for analog news companies?

“On both [the two dailies in one market antitrust rule and cross-ownership], we think they are illogical and antiquated at this point,” Mike Klingensmith, the chair of the Alliance board and publisher of the Star Tribune, told me this week. “This initiative on the duopoly helps bring this conversation forward.”

“What’s the connection?” I asked.

“If you can let two companies control 70 percent of the digital advertising [in the country as a whole], how can you not allow two newspapers to control 15 percent of the ad spend in a metro?”

For two decades, we’ve seen the remnants of 20th-century analog regulation look silly when they’re applied to digitally disrupted 21st-century media. The resulting gap has been wide enough to drive a near-infinite caravan of digital ad riches through. Those mastering one neat trick — Google with search and Facebook with social — have been able to hire up the best legal talent and largely flick away legal challenge.

Lost in the swirl of antitrust talk is a recognition of the societal value of a robust local and national news business. That’s what really is at stake here, but it’s an issue that, at this point, the politicians, regulators, and marketplace have not begun to solve.

 

13) If they call it “Google News” and a “Facebook News Feed,” does that mean it’s news?

Facebook’s complicity in a debacle of election ignorance and misinformation shouldn’t be forgotten. Mark Zuckerberg, and Facebook, wanted it both ways: To become the center of their users’ lives — and to pretend that the hours per month being exposed to questionable “news” really made no difference to anyone. Even as one of Google’s Digital News Initiative grants goes to AI-created “journalism,” Google and Facebook haven’t come to grips with the basic truth that neither is a news company.

They are distributors of news who could do a world of good by no longer pretending to be news suppliers. They’re both in a position to draw a sharp line for their users. They can remind those users that real news is created by real journalists — and urge their support, without getting in the way and the revenue stream.

 

14) Can a one-time monopoly call out a duopoly?

Monopolistic dailies once ruled the American cities, setting high ad rates for everyone from department stores to grocers to those placing (paid!) classifieds ads for houses, cars and apartments.

These now down-on-their-heels dailies now yell “duopoly!” to Congress.

Is that fair? Probably not, but it’s just one of the many accidents of history we see piled up alongside the road. How we got to the pile-up may be compelling to historians, but the job before us all now is cleaning it up.

 

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