Google and Newspapers: Fairplay, Fair Share and Fair Use

You can see the familiar battle lines drawn, in this week's script: At NAA, in San Diego, the semi-mad newspaper owners open the web network window to scream, "I'm mad as hell and won't take it anymore" while web denizens below merrily prepare to dance on those owners' graves, deriding how out-of-touch with Internet reality those owners are. AP fights gamely on behalf of the Old Guard as New Guard vanguard Eric Schmidt tells it like it is, even urging publishers "not to piss off their customers."

I think it's time we get beyond this tired storyline and confront the realities of the moment. Just as God didn't ordain that newspapers should drive 25%+ profits from their daily monopolies, God didn't set the pay-out rules that drives current web business models. It's time to re-boot the conversation and devise business models that represent real world needs. The two big needs: maintaining the free flow of global news and information and figuring how to pay people to create journalism and other useful content we all need. 

Meeting both those goals is the key, and it won't be done with a single bold stroke. It's time though for a reckoning. That reckoning can rejigger the the relationships between the new mass media of our day -- Google, Yahoo, MSN, AOL and increasingly the emerging Facebooks -- and news producers. 

That reckoning means moving beyond the fatigued arguments of another day. 

"Fair use," which some believe is rooted in the UK's 1709 Statute of Anne, has served a great public purpose. The simple idea: stimulate the public discourse by allowing judicious excerpting, while maintaining producer value through copyright. As web companies first started "excerpting" in the early days of the web, it set corporate attorneys atwitter. Was search engine or other excerpting "fair use"? I was involved in too many of those conversations at Knight Ridder, and with counsel of other newspaper companies. 

The short answer is we still don't know. Newspaper companies -- fearing they would lose in court -- have failed to pursue the question of fair "fair use," in the digital age. In fact, in the immortal words of Harvey Cox, "not to decide is to decide," and in their indecision, newpaper companies have lost. 

AP, Britain's PA, Canada's CP and AFP all huffed and puffed about fair use, threatening legal action and won licensing contracts with newspapers. Those are the "multi-million dollar" payouts Eric Schmidt noted as he professed surprise at all the publisher consternation that had erupted in San Diego prior to his Tuesday keynote. 

Individual publishers, though, have not won licensing deals. One reason newspaper companies haven't banded together to threaten suit and demand payment: "anti-trust." That's another legal concept that's served the country well. It, like, "fair use," though didn't anticipate the upending chaos of the Internet. 

So two good concepts, made in part obsolescent, by the way we communicate and the way journalism now operates. 

It's time, especially at this time of national re-thinking and re-jiggering, to get beyond "fair use" to "fair share." It's as American a concept as you can devise, and it's one that plays directly to our moment in history. 

Read or Eric Schmidt's remarks, and you'll find them quite reasonable. He's a smart guy who can put the digital world into context. They are, however, disconnected from the reality of our times. Here he is talking to a newspaper industry that has already seen five bankruptcies, newsroom cuts of greater than 20% and a downsizing future as far as any impartial observer can see, and he's talking to them about the transformative power of the mobile experience, how ad models will work out in the end and micropayments. We need to be talking about macropayments. 

Astounding. 

It's like offering a five-year plan to a group that's found itself afloat on a deserted island with little food. Sure, we can argue that some of those publishers are somewhat responsible for their straits, and I'd be the first to agree. The fact, though: they are still stuck on the island. And we're all held hostage by their plight, as the flow of what we know about our communities, our nation, our governmental policies and our business practices is reduced daily. We don't know what we don't know, but we do know we know less than we used to. 

How might fair share work and how can we justify it?

First, it's important to stress that this isn't about Google and isn't about newspapers. Both have their strong and weak points, but it's not about them. It's about us. 

On the first hand, it's about that excerpting that fair use, and re-interpreting it for digital times. That excerpting (indexing, snippetizing, etc.) is done most successfully by Google, but also by the other search engine and by tens of thousands of sites. That's what's behind this week's AP's anti-piracy push. There's lots of use differing taking of news content, with little to no compensation. So it applies to Google and way beyond. 

On the other hand, it's not about newspapers and providing a Legacy Media Bailout Act of 2009. It's about enabling the production of authentic, independent newsgathering by providing a going-forward way of compensating the work it takes to produce it. That work can go on in within the confines owned by multinationals like News Corp, Thomson Reuters and Gannett or rented by the recently (and deservedly) awarded Voice of San Diego or the Huffington Post or Slate or TechCrunch. It's the free flow of news production we care about, not preserving the companies.

So fair share would simply recognize that the first stage of web monetization has been, well, a bit simple. There's little nuance to it, with way too much value accruing to the search and aggregation players, and far too little to the content producers. There's nothing particularly evil about this; it's just what happened. (For context,  consider the parallel discussion of "conversion attribution" in the online ad world, a spirited argument that has fallen off the table recently.) 

Google is our proxy here for search engines and other indexers of content. Why? It's the leader, providing 25-35% of the traffic to news websites (while the combined traffic contributions of the others push that number to well over half the traffic many news sites receive). It indexes news websites, and out of more than 4000 news sources, produces Google News. Ask Google how fair this arrangement is, and it will cite two things: 1) the fair use legal argument; and 2) the amount of traffic it sends news websites. What is in fact saying is, hey that's fair, that's even.

Wait a minute, maybe legally fair. But even? How do balance value here? The way it works now is that whatever value Google can derive from snippetizing news is fair game, and even. If it produces a million in revenue related to news, that was fair. If it produces billions related to news, well, that's fair and even too. 

In fact, Google derives lots of value from the news it presents, and we have no clear accounting of that value.

Consider a few diverse data points here:

• Here's the grossest number: $21.7 billion. That's Google's 2008 annual revenue. Big number, and growing at a 24% 31% rate. How has Google weathered the recession? Well, better than most we think. We'll see first quarter results Tuesday. Compare that number to how much advertising revenue the US newspaper industry has lost. It pulled in $47 billion in 2005 and will come at maybe $36 billion in 2009. Certainly, there's not a one-to-one transfer of those dollars, but do all the forensics you want, and you'll find dollars formerly spent on newspaper ads are now spent on Google ads. Advertising makes up about 97% of Google's revenues. (More on Google, newspapers and profit here from Poynter's Rick Edmonds.)

 

• Google News, launched in 2002,  is now a big player. Number 11 in the US, with more than 11 million monthly unique visitors, according to Nielsen. A month ago, it struck a new match in what now emerged as a wildfire, when it added its ad placements, for the first time, to Google News. How much in ad revenue will Google News create? We don't know yet, but will be able to guesstimate this year. If we look at February Nielsen data, though, we see that Google News produced a little less than 10% of the Google's overall uniques (11,379M of 127,142M). That puts it seventh in the Google cosmos, behind Search, Maps, Image Search, Gmail, Account and Toolbar Features. In Time Spent, though, it's third. On average, 16 minutes, 44 seconds per person. That's behind Search (29 minutes, 16 seconds) and Gmail (predictably the highest at 2 hours, 48 minutes, 27 seconds). That's 16 minutes of engagement -- of readers' attention -- every month in Google News. You can see why Google finally got around to monetizing it. Of course, Google will note that none of that $21.7 billion in 2008 revenue came from Google News, so publishers have no reason to get out their calculators...yet.   

• The business value of Google News to Google....and that $21.7 billion. "Huh", would be one way to gauge Google's response to that point. Yet, what has Google built but an incredible multi-purpose brand, in which the separate pieces (Web Search, Finance, Video, GMail, Images, Maps and More) all connect to each other, building the experience, and somehow, throwing off $21.7 billion. So, clearly there's a value to Google when Google News users come to the site and then click on other Google links. How much? Google says it hasn't calculated that impact. That seems hard-to-believe. Let's say that 20% of the referring pages to Google Search or Maps or Video come from News. Then, by traditional web economics, the referring site should derive some economic benefit, some rev share from the ads sold on the landing pages. 

• Two-thirds of Google's revenue now derive from Google-owned sites; less than a third from its partners. Not more than several years ago, those numbers were reversed. The we're-not-a-destination portal has become a portal, driving more revenue on its "own" pages, sharing increasingly less of it with partners.     

• Google's cost of sales is remarkably low. John Battelle has pointed out, pegging it at less than 10%.  Of course, its cost of sales is low; it largely doesn't pay suppliers for the raw material enabling the business. 

Add it all up, and you can make a pretty good argument that Google is deriving a disproportionate share of the value from the content that it has so magically aggregated, searched and presented. You can see that mere snippets -- intended to advance the public discourse -- have had unintended consequences, enabling huge businesses and depriving oxygen from those who create the raw material from which snippets are harvested. You can make an argument that Fair Share wouldn't be about radically changing Google's magic or the wider web's mojo. It would be about nuance, of recognizing value along the chain, from the production of (news) content through its harvesting and presentation. 

We're not saying Google doesn't serve money for its magic. We're just saying it should fairly share the wealth. What's fair? Well, some percentage of gross revenues. As big as the web business has become, it's only in its infancy. Online advertising will continue to outpace ad spend overall, and content producers want to get on the ramp.  

Assuming some percentage of payout for supply, what's the mechanism? Royalty pools have long been used by legacy content aggregators -- think LexisNexis and Factiva here. 

Who's in the royalty pool? Certainly, media upstarts as well as 150-year-old companies. It should be a democratic pool, certainly with some kind of minimum threshold daily (weekly, monthly?) content production.

How would you allocate revenue to those in the royalty pool? 

Here's my favorite answer: Create an algorithm. How Silicon Valley can we get? 

Figure out a threshold of content supplied, kind of content, reader usage, number of links, etc. and apply Silicon Valley smarts to a long-standing business tradition. Google will tell you it gives them a headache to think about such a complicated formula, but, let's remember that's why we've educated (and Google has employed) so many computational linguists. Let's say the first algorithm isn't just right. Let's go to rev 2.0.

In subsequent posts, I'll get into how we might get there, how the status quo -- which always seems so permanent -- could be tweaked. 

In the meantime, let's move on to a new conversation, one that is gripping the Other America, the one not wholly consumed about the implosion of the news business, and that's the conversation about fairplay. From Wall Street to Main Street, it's about a re-dealing of the deck. A little outrage. A little revisionism. A little new algorithm. Let's move on to the Fair Share period of web journalism.

Comments

[Frank Strong]

I don't agree with the argument in this blog post either. Google is nothing more than a modern day newspaper delivery person. For as long as I can remember, I've always tipped the delivery person at Christmas as opposed the newspaper publisher. You're argument here strikes me as the newspaper publisher asking the delivery person for a percentage of their tip because through their own intelligence or diligence, they've discovered a way to deliver many more papers and have therefore made the tips far more profitable.

As I wrote in my own blog, newspapers need Google more than Google needs newspapers. Take for example the Boston Globe. When a headline from the Boston Globe winds up in Google News, it's projected from a finite metropolitan market to a national -- or even world-wide audience of readers. Google is actually doing the major daily city papers a favor. After all, when was the last time a reader in Washington, DC picked up the latest copy of the Boston Globe?

Newspapers do provide value: the talented, professional and experienced journalists writing fact-based and informative articles. People will in fact pay for that value and there are examples, like The Economist or The Wall Street Journal.

Change maybe hard, but newspapers need to rethink their target market. When Google serves up a page from a major daily, that publication need to it capture that reader -- and transform them into a regular patron. RSS feeds would be one way, but online versions of newspapers have been slow to adopt interactive technologies including search, polling, useful job listings and social media.

[Josh Young]

Ken, I think your post is seriously flawed.

Your first bullet point, in which you claim, "dollars formerly spent on newspaper ads are now spent on Google ads," is just misleading. Very few advertising dollars are going to Google News--and wouldn't even if Google News had always sported ads. Vanilla search, however, is just a better advertising solution and has little to do with news aggregation. Craigslist offers another example of a service that simple gets the job done more efficiently. We didn't ask that Henry Ford share profits with horse traders.

I won't rehearse your second bullet point, because it's ably covered by Scott Rosenberg's (1) above. Suffice it to say that I can easily see why Google decided to monetize Google News--but not because of the out-of-sorts numbers you provide. Also, for what it's worth, Google's advertising monetizes clicks, not uniques or time spent.

Your third point, in which you write, "20% of the referring pages to Google Search or Maps or Video come from News," is mostly just odd. Google News links only to third-party sites. The only time a user goes from Google News to another Google property is by clicking "Search the Web" via the search box at the top of the page. I've got no more hard evidence than you have (none), but my guess is that the correct percentage is very much closer to zero.

Your fourth point is just incorrect. You claim that "Two-thirds of Google's revenue now derive from Google-owned sites; less than a third from its partners. Not more than several years ago, those numbers were reversed." Now, while it's true that Google-owned sites are increasingly responsible for its revenue, they were responsible for more than half its revenue in 2004, the earliest year I found among the numbers in investor pages you link to. AdSense was only born in the summer of 2003. Also, what really do you mean by "The we're-not-a-destination portal has become a portal"? A portal has become a portal? Huh?

Your fifth point is also, at best, misleading. Basically, it's just strange and tendentious. Like many misleading points, however, it is narrowly true. Yes, "Google's cost of sales is remarkably low." And, yes, that's because it doesn't pay the makers of websites for the privilege of indexing them. You know what, though? Most websites would pay google to for more pagerank. In fact, that's that exactly what the SEO industry represents: people paying to end up in organic search returns.

I'm no google fanboy. In fact, I have serious problems with its lack of transparency around these very issues. I have serious problems with the the secrecy around pagerank. I have problems with how google drives news sites to flatten their content and overall user experience in order to earn pagerank.

I happen to be at least mildly sympathetic to your observation that "mere snippets...have had unintended consequences, enabling huge businesses and depriving oxygen from those who create the raw material from which snippets are harvested." But, no, I cannot conclude that from adding up all your points.

You do no favors to those of us with thoughtful critiques of google by putting on offer either confusing or specious arguments.

[Steve Outing]

Ken: Please see my latest blog post, "Google could come to the rescue, but won’t?" and especially the ensuing comment thread discussion.
http://steveouting.com/2009/04/07/google-could-come-to-the-rescue-but-wont/

I'd like to hear your perspective. Google could help all news producers, new and old, big and small, but it has to serve Google's shareholders. What I suggested does. What say you?

(And if Google hasn't pondered what I suggested on my blog already, I'd be astounded beyond belief. What's your take on why Schmidt claims Google doesn't know how to help the declining news business, yet it's in his and his shareholders' interest to do so?)

Steve

Steve: Steve: Great post. Let me focus on your point #1, opening up Google News to full-bore advertising. I agree on that basic principle, as long as the ad payout system is fair and fairly transparent. You're right; the ads so far on Google News are a half-step. The reluctance to further inflame publishers -- sometimes inflamed (Monday); sometimes quiescent (Tuesday after Schmidt's talk) -- results in non-solutions. As AP is trying to convince newspaper CEOs, they are becoming suppliers of content and need to think of themselves that way. Once you cross that line of thinking, that of course you want your buyer to monetize the hell out of your content...and pay you appropriately. As to why Google hasn't moved on it: one of many priority choices. Ken

[Carmen Gonzalez]

I would easily support an extra $10 in my cable bill or even on my water or electric bill because I think supporting the investigative reporting prowess of newspapers is exactly what a democracy needs to remain healthy and vibrant. I prefer having people contribute to this endeavor rather than skimming off Google so folks see how their investment reaps real info that helps them understand the society they live in.

[Tim McGuire]

This is a breath of fresh air. The concept of fair share is brilliant. Ken has removed a lot of the emotion from this debate with a reasoned, insightful analysis. Thank you.

[Danny Sullivan]

Let's be clear. Newspapers get traffic from being in Google News and the completely separate Google Web Search index. So if Google News closed entirely, a good chunk of traffic would still flow to them from Google Web Search -- which lists many, many other non-news sites, as well.

Given this, how do you propose that Google "fairly" share its wealth with all these sites? Some of these sites get 70% or more of their traffic from Google. Do they get a slice of Google's profits, too? And make no mistake, if they weren't in the Google index, it would be a less useful service just as much as if news sites weren't in it.

Newspapers cite other web sites all the time. They are notorious for never or rarely linking to them. Shouldn't newspapers be sharing their wealth with the people they report upon or the sites they draw upon for some of their core content? Why is it fair use -- meaning no compensation to those they report on -- but not fair use if others point at news sources?

I'd love to see the conversation move on into a more productive area. But as long as newspapers seem to think just being listed with a link and a short summary to their stories is somehow requiring a licensing agreement, I think the conversation remains stuck in the early 90s.

[Scott Rosenberg]

(1) I have no inside information but I'd guess that the notion that Google News is responsible for referring 20 percent of the rest of Google's traffic is off by an order of 10 or so. Google is increasingly such a functional interface for so much on the Web that the news site is just not that huge a piece of it. And the most valuable, revenue-generating searches aren't the ones related to news events.

(2) More importantly: it seems that you feel Schmidt's advice that publishers take a long, customer-oriented view is ill-timed given the straits the industry finds itself in. Yet back when the monopolies were raking in the massive profits you mention, they wouldn't take the long view, either. So it sounds like you're sort of saying this is an industry that is *never* capable of taking the long view, whether times are good or bad.

If that's the case, I think we need to build a new industry to support the public's need for good information and news coverage. Because this one -- however many fine journalists it employs -- flunked out as a business.

[JAT]

There is so many things wrong with this I do not know where to begin. But how about the fact that the American notion of fair use has been under constant attack by the content cartels since Bush I signed the DAT tax 20 yrs. ago.

Next. "Online advertising will continue to outpace ad spend overall..."

No, no it will not. Banner ads are dead. All display ads are dead. The newsy model of wrapping oh-so-bright and informative prose in ads and essentially TRAPPING end users into looking at the pictures -- just how backward and retrograde is that concept? -- is dead.

Goggle has value PRECISELY because end-users are in control via their interests. Mass market ads, such as will exist, will be in the form of opt-in relationships where there is no attachment to the content. I know it is hard to accept, but it is true.

Besides, turn the proposition around. Why shouldn't Google get paid for driving eyeballs to content sites via links? Every second Google provides scads of free links to papers and the papers do what with that free attention? Foolishly hit end-users with pop-ups and banner ads instead of trying to engage their interests on a deeper level.

It is just so sad to watch an entire industry act like it has been wronged when for decades it has been clear that you either give up control to your customers -- or perish.

[BCM]

This is one of the most clearheaded, lucidly written analyses I've encountered regarding this situation. I've been trying to express all this stuff -- in various forms and to various degrees -- for several years in conversations online and off. This puts it all together nicely.

Thanks.

[Tom Gallagher]

This discourse is tiring. The newspapers in Philadelphia hired an expert to give seminars on how to ensure their articles received good play on Google. Now this "fair play" nonsense. The bottom line, and it has always been the bottom line, is that newspapers need to charge for their content. And they need to charge everyone that uses it, including Google. Anything short of that is bad business. Period.