Tuesday, March 24, 2009

Do No Evil: GOOGLE and the Death of Newspapers - Part 2

An Era of Print Newspapers in the US is increasingly coming to a crashing close. A 150 year old paper, the Rocky Mountain News, has been extinguished. The Christian Science Monitor is deceased. The Seattle Post-Intelligencer published its last edition on Friday, March 20, 2009. Newspapers are falling like ninepins and local sources are being extinguished like the proverbial candle in the wind.

Who is responsible for the demise? Thus ended part-1 of the previous blog.

This essay is going to be a highly controversial perspective for many ardent fans of a certain Search Engine with an arguably monopoly position. Given its legion of fans and users (count me as one about half of the time), we can expect a huge backlash to this note. There is now an increasing question about the prominent role of the GOOGLE “the search engine” (as distinct from its other parts) in this phenomenon.

Does Google indeed have much to answer for in this insidious role? Who are the other actors? What are their roles? First, let us briefly name the other cast of characters in this ghastly play. We shall have touch on the roles played by these actors in other essays. Among these players in this win-lose game would be certainly the newspapers themselves; the advertising industry (hmmm!); and even us dear citizens, both readers and increasingly non-readers.

Clearly, the newspapers had their own major part to play in this Greek tragedy of epic proportions. They were seduced in the early days by the new technology of the internet. They were told, perhaps indoctrinated, that “content must be free”. The widely held belief was that the price of distribution should come down to the marginal cost – essentially zero. The publishers bought this theory hook, line and sinker.

Stu Bykofsky: Philadelphia Daily News 02/05/2009: "Publishers sowed the seeds of their own destruction …. - by stampeding to the Internet and giving away their content for free, overturning a business model that had sustained them for centuries.

However, the focus of this piece is on that one major player, i.e., a certain virtuous technology firm that had been likened to God, by none other than Tom Friedman. A firm that was ostensibly incubated to serve the public good – its role limited to be merely a channel of distribution. The content distributor in this phenomenon, as some argue vehemently, becomes brazenly a content appropriator, and more critically the expropriator of economic rent.

This transition that went unnoticed for a while by most citizens, who then finally woke up to learn (as per Peter Osnos in The Daily Beast), “While newspapers are dying, Google is consolidating its power.”

In other words, could it be that the originator of Google and of the bathos of its “Do No Evil” motto has become the new 21st century Mephistopheles?

The power in the news channel has clearly evolved. Imagine if you will the traditional model of a city newspaper and your local newspaper delivery “boy”. The delivery person got paid a pittance; the local newspaper publisher enjoyed the bulk of the revenues. The content creator and provider of yore had copyright and enjoyed the economic power that flowed from it to appropriate the economic rents to sustain their business (“invest for the future”).

Today, life in the newspaper business is a far cry from the old with classic sources of revenues drying up. Classified advertising has already migrated to the freer pastures of the internet.

So, now the backlash is focused on the argument of expropriation without consent, i.e., employing the content created by others for another’s economic gain, seems to be gaining strength.

Stu Bykofsky: Newspapers must end the free online lunch Philadelphia Daily News 02/05/2009:

"We must stop the insanity - now! It's time for some brave publisher …- to stand up and howl: 'No more free content!' …- which is copyrighted, then sue the pants off anyone stealing it.
Should Google 'pick up' (steal) our stuff, if we successfully sued them for $1 billion, two good things happen: 1) Our money problems are solved; 2) everyone else will stop stealing our content."

The development on this litigation front has already started. Consider the following: Belgian newspapers want $77M from Google -

"Belgian French-language newspapers said Tuesday they want search engine Google to pay up to euro49 million ($77 million) in damages for publishing and storing their content without permission.
The newspaper copyright group Copiepresse said it had summoned Google to appear again before a Brussels court in September that will decide on their claim that they suffered damages of between euro32.8 million ($51.7 million) and euro49.2 million ($77.5 million)."

The economics of content distribution is truly astonishing. Thomas C. Rubin, who in his role as Chief Counsel for Intellectual Property Strategy at Microsoft Corp, notes in his remarks that Google News generates $100 million in revenue for very small cost input. His comments titled “The Change We Need” at the UK Association of Online Publishers, London, England, Nov. 20, 2008 are interesting:

Put aside, for a moment, the concerns that many have expressed that Google is profiting by using others’ content without permission. Consider just the economics. Google’s vice president of search revealed this summer that Google News, a product that was put together in a weekend and that is run by automated search algorithms, generates $100 million in revenue for its business. That's no small sum, especially when one considers the negligible investment and extremely high margins. What it demonstrates is that quality content does have great value.

The point made in general and by Tom Rubin, clearly not an uninterested or uninformed party, here is that:

the $100 million is a bonanza enjoyed by Google, not the creators.

There are other aspects to this revenue generation scheme. One of which pertains to the distribution of revenues from click throughs. Who gets paid and who doesn’t get paid are relevant in computing the division of the expanding pie of revenues from the marriage of high quality content creation and targeted delivery of the content to the appropriate content consumer.

Peter Osnos summarizes succinctly in his column in The Daily Beast:

"With the print newspaper and magazine business model irreversibly in decline, these enterprises have to start demanding payment for use of their material, or they will disappear. And no one delivers more of that content online than Google does, through its search functions supported by advertising, the revenue from which goes to its bottom line. The notion that “information wants to be free” is absurd when the delivery mechanism is making a fortune and the creators are getting what amounts to zilch."

The concern for the literati is that the derided but much beloved “dead tree” newspaper may suffer a complete and untimely demise. The impact of the demise of news from primary sources, as opposed to opinion pieces, on having a civilized democracy and an informed public can be catastrophic. The smaller issue is one for Google itself. If this rate of demise of content generation declines would Google have killed the Goose that lays the Golden Egg? An interesting postscript to this battle is the following story:

Belgian newspapers want $77M from Google - "Last year Google lost a lawsuit filed by the newspapers that forced it to remove headlines and links to news stories posted on its Google News service and stored in its search engine's cache without the copyright owners' permission."

Clearly, as with most modern day myopic managers, Google’s founders have perhaps chosen to bet that the current rate of decline will still result in enough primary sources reporting to result a vast torrent of follow-ups: sarcastic commentary, hot air, and mindless op-eds to continue with the successful revenue generation scheme.

From a business strategy perspective, whether the Rules of the game have to be structured in such a way so as to be a win-lose proposition for the Players in this game, as they seem to be now, is both an important and a moot one. Who is has the power in this game to restructure the game, the rules, the roles, the scope and even the players? Who should take on the mantle of leadership? Why should they? What is in it for the Industry leader? Who or what gets them to think of alternative strategies that include societal well-being?

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