Google and the “Link Wars”

In September 2002, Google launched the beta version of a new service, Google News, developed by the Indian engineer Krishna Bharat after the September 11, 2001 attacks. Google News is an efficient way to pool together news published by different sources and was the result of Google’s policy of allowing engineers to devote 20 percent of their time to whatever project they thought would be Google’s best interests.5 The new service was a free news aggregator. An algorithm, with no human intervention, selects the news that are of relevance for a specific viewer, and then both the headline and a snippet (that is, a short introduction of around 200 characters) are proposed to the viewer. Viewers can then link to the news in the digital version of the newspaper.

The service was subject to various legal actions, particularly in Europe: the so-called “link wars.” The conflict between Google and newspapers is a good example of the dilemmas faced by traditional companies when confronted with a digital platform.

As the internet went mainstream during the mid-1990s, newspapers and magazines decided to digitalize their content and to provide it free on the web. As a reference, The New York Times’ web version started in January 1996. Registration was required, but readers had access to news at no cost. Digital editions had lower production costs than the paper editions, as there was no need to print and distribute the newspaper. At the same time, the strong brand recognition and reputation of traditional newspapers gave them a competitive advantage in relation to spreading digital-only news ventures. Newspapers were actually among the most popular websites in the early internet.

Newspapers did not suffer the innovator’s dilemma. They reacted at the right point in time to the disruption created by digitalization. They did not ignore the internet, but embraced it from the early days, even though, from a publisher’s perspective, the internet provided a second-best solution at that time. Remember that the internet had only 16 million users worldwide at the end of 1995, so the potential customer base was small, mechanisms for charging readers were not yet developed, and digital advertising was in its infancy. However, it was widely recognized that the internet was the future, as digital editions had the potential to substitute the printed versions.

Digital newspapers were not really a disruption from the supply side. News production was the bread and butter of the industry and migrating from printed to digital editions was perceived as a challenge, but not as a fundamental threat; particularly for a business that had been built as a non-transactional platform and financed to a large extent via advertising. The situation was quite different from the recorded music industry, which did not have a platform business model and mostly relied on selling physical recordings.

However, migration proved more challenging than expected. As readers migrated to the digital version, advertising revenue from the digital edition would not match the revenue loss from the printed edition (both sales and advertising). Advertising in the digital version did not grow as expected. The gap was getting larger and larger. What was happening?

The answer is that newspaper platforms were being substituted by larger platforms. As internet players such as Google and Facebook were reaching larger and larger audiences and displaying more and more targeted ads, the value of digital ads decreased. Newspapers could not compete with the much larger audiences of Google and Facebook, which were built mostly over searches and user-generated content. Such “attention traps” were cheaper to produce and were attracting more advertising dollars.

The situation became increasingly clear as Google started to ramp-up its advertising revenue. Remember that Google only introduced AdWords in 2001. While advertising revenue in that year only amounted to $70 million, it reached $410 million in 2002, $1.42 billion in 2003, and $3.14 billion in 2004. By 2004, newspapers had finally understood why digital advertising was not working for them: platforms were taking the ad dollars.

The non-transactional platform business model is not profitable for newspapers in the long term, as they cannot compete with larger and more sophisticated non-transactional platforms such as Google or Facebook. It turned out that the only viable long-term strategy is to rely mostly on direct payments from subscribers. However, only newspapers with the most attractive content, such as The New York Times, can effectively rely on this model.

There is indeed a paradox in the relationship between newspapers and the leading digital platforms. Google and Facebook have their own attention traps (mostly searches and usergenerated content), but they also provide access to content generated by newspapers. This is the case of the Newsfeed in Facebook (introduced in 2006) and Google News.

The first injunction against Google News was received by Google in Belgium on September 5,2006, from the Court of First Instance. Following a claim by Copiepress, the national French-language newspaper association, the Court ordered Google to withdraw all articles, photographs, and graphics produced by Belgian newspapers from all of its sites (Google News and “cache” Google or any other name) for copyright infringement. Google executed the order and ten days later it eliminated the content not only from Google News, but also from Google.be (the Google search web for Belgium). The injunction was confirmed by the Brussels Court of Appeals in 2007.

Belgian newspapers were not happy with the injunction. While they wanted Google to stop displaying headlines and snippets in Google News, the injunction was so broadly defined that it also affected regular Google searches. When Google stopped displaying links to Belgium newspapers in the search portal, traffic heading towards the newspapers dropped and ad revenue suffered.

When in 2011 the Brussels Court of Appeals finally adjudicated in favor of Copiepress and forced Google to pay a daily fine of €25,000 plus damages to the newspapers, Google decided again to exclude Belgian newspapers from the search engine. The exclusion lasted only a few days, but the reaction in the leading newspapers was immediate. La Libre Belgique described this action as an “attitude brutale de Google” (July 11, 2011) and Le Soir, in a front-page illustration, labeled it as censorship (July 16, 2011).

A final agreement was reached in Belgium in 2012. Headlines and snippets would be displayed both in the search engine and in Google News without Google making any payment to newspapers. However, Google agreed to work with the newspapers in research and actions to help newspapers to adapt to the new digital environment, as well as to insert some advertising in the newspaper for an undisclosed value.

Legal actions in France, Germany, and Spain were different as they took the form of bills imposing on Google and digital players the legal obligation to pay a fee to newspaper for the display of headlines and snippets in Google News. The French bill was not formally adopted. The German bill was adopted, but it granted freedom to German newspapers to opt out of the scheme, as most did. Legislation was particularly restrictive in Spain, as the fee was declared compulsory and newspapers could not opt-out from it. On December 16,2014, Google News decided to suspend the services in Spain. As a result, it has been estimated that traffic to Spanish newspapers decreased by 11 percent, with the strongest effect on sports and regional newspapers, but no significant effect on larger national newspapers.6

European publishers insisted on their strategy of making platforms pay for the use of snippets. They convinced the EU authorities to adopt a new directive on copyright in 2019/ requiring Member States to adopt legislation at a national level to ensure “that authors of works incorporated in a press publication receive an appropriate share of the revenues that press publishers receive for the use of their press publications by information society service providers.” The link war is not over.

The situation of newspapers has only worsened over the years. Advertising revenue has migrated from legacy media to digital platforms. For example, the New York Times lost 75 percent of its advertising revenue between 2006 and 2017.8 Furthermore, an increasing number of readers have access to newspapers through the platforms themselves. Readers see headlines in Facebook’s Newsfeed and then click to have access to the newspaper’s site. Newspapers are losing their role as intermediaries that bundle different pieces of news to build their newspaper.9 Increasingly, readers are only having access to unbundled news pieces created by newspapers, in competition with news pieces created by new digital media and even user-generated content.

Newspapers are trapped in a paradoxical situation as they increasingly rely on their competition - the digital platforms - to produce their advertising revenue. The UK antitrust authority has calculated that only 43 percent of readers had direct access to the webs/apps of the large newspapers in the country, while most of the traffic to their websites was indirectly routed from Google (25 percent) and Facebook (13 percent).10 Furthermore, newspapers rely on digital intermediaries, mostly Google, to distribute their advertising space, with such intermediaries taking a 35 percent cut on the revenue (see Chapter 9).

Newspapers face a dilemma. They are fully aware that their participation in the digital platforms reinforces the platforms in the long term, as this is how they obtain quality content and even advertising revenue in their search sites and newsfeed features. Furthermore, their main asset and competitive advantage, the content, is commoditized for the benefit of the platforms, for which news are simply another way to attract eyeballs and advertising. As described in 2009 Ken Auletta’s book, they have been “Googled.”11

However, digital platforms also rely on newspapers as content producers. Digital platforms do not have the ambition of generating their own content in the form of news pieces. On the contrary, they merely intermediate between the content producers and the eyeballs. Digital platforms do not intend to substitute newspapers as content producers; they will continue to rely on third parties to produce content that attracts the attention of the public so that advertising can be displayed.

The question is whether the existing trend is sustainable. Platforms are capturing such a large part of the value created by content generated by newspapers that newspapers are being forced out of business (that is, the number of newspapers has been severely reduced all over the world). The alternative is to reduce the volume and quality of the content, or simply to abandon the advertising model and to charge readers for content, keeping it beyond the platforms’ reach.

 
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