Should Google pay a tax to media corporations?

Returning from a mostly-offline spring break vacation, I find that the future-of-news debate has been going round in circles. In the most interesting turn of the wheel, Nick Carr weighed in with an elaboration of his argument that Google is a vampirical middleman, sucking the lifeblood from the media industry. His take on this trope is more sophisticated than the usual “Google took our ads, make them pay!” line from the newsroom diehards, and worth a look.

Carr quotes the point I made recently — that participation in Google’s search engine is voluntary, and any news outlet that wishes to opt out can do so easily — but suggests that this is an oversimplification:

When a middleman controls a market, the supplier has no real choice but to work with the middleman — even if the middleman makes it impossible for the supplier to make money. Given the choice, most people will choose to die of a slow wasting disease rather than to have their head blown off with a bazooka. But that doesn’t mean that dying of a slow wasting disease is pleasant.

The problem with Carr’s middleman theory is that it, too, is an oversimplification. It presupposes that the problem news organizations have with Google is that it “gets between them and their readers.” This assumes that the readers were already visiting the media company websites, and Google is interposing itself. But anyone who’s ever looked at a media website traffic report knows that most often Google traffic actually represents something precious for media businesses — new blood, first-time visitors, what the direct-marketing business calls “qualified leads.” In other industries, the media companies would be paying Google for that traffic, but Google gives it away for free.

In fact, media companies are not end-parties to transactions that Google is interfering with: they are middlemen, too, and in more than one kind of transaction. They sit in the middle between readers and the information readers seek; they also sit in the middle between advertisers and the customers those advertisers seek to reach.

Carr, standing in the shoes of the aggrieved media executive, sees Google as stepping in between the media outfit and its readers, grabbing a cut of the revenue. But put on the reader’s shoes and things look different: Google isn’t introducing an additional middleman layer but simply substituting its own, newfangled method of connecting readers with information and advertisers with readers. And if that version happens to suit the medium of the web and win the allegiance of readers, what right do media executives have to our sympathy, or to a “fair share” of Google’s revenue? They had decades to become Google themselves if they chose to.

Carr paints Google as a conventional middleman — an extractor of existing value. But Google, with its efficient, targeted text-link advertising, has actually added value to pages that previously could not be valued at all. Sure, media companies wish they’d done that themselves — I wish I’d done it, too. Now that Google has done so, they have a right to their chagrin; but they don’t have a right to a cut.

So yes, Google is a middleman of sorts, but not in the way your car dealer is a middleman. It doesn’t buy cheap goods from a supplier to mark up for a consumer. Its role in the economic system of the Web has been fundamentally additive: it has (at least in terms of its primary product, the search engine) contributed new value rather than skimming existing value.

This is when the Google Tax crowd cries, “But Google News is stealing our headlines!” Let’s put aside the fair-use argument for a minute and also defer the “incoming links have their own value” point. Even if the “Google News is theft” people were right, they are fighting over (relative)crumbs. News people who focus their ire on Google often choose to eye the company’s vast profits, mostly earned from its enormous search traffic, and then — in a rhetorical dodge that is either ignorant or disingenuous — pretend that most of those profits are earned from Google News.

In truth, Google News is an interesting but relatively small experiment to assemble a news page via algorithm rather than editor. As Google CEO Eric Schmidt seemed to admit to Maureen Dowd last week, that experiment has to date been a failure:

When I ask if human editorial judgment still matters, he tries to reassure me: “We learned in working with newspapers that this balance between the newspaper writers and their editors is more subtle than we thought. It’s not reproducible by computers very easily.”

The relevant point about Google News is that it represents a tiny sliver of Google’s business — it’s a pimple, at best a big pimple, on the balance sheet. I’m sorry to break this news to all the editors and publishers who are clamoring for a share of Google News’s revenue, but they should know that money is not going to save their businesses. And if what they’re really demanding is that Google give them a share of its total search-based revenue for the right to use headlines and snippets of news articles in Google News, then they’re batty. And they have no leverage, because Google can rightly say, “You can walk any time you wish.”

Many newspaper people seem to be under the impression that if Google, and Craigslist, and (fill in your favorite Web shibboleth here) had never been invented, then everything would be OK, and they would be free to transplant their old business model into the new medium. This is delusional. If Larry Page and Sergey Brin hadn’t invented a search engine that really works, and wedded it to a targeted advertising system, somebody else would have. If Craig Newmark hadn’t built a community of free classified advertising, somebody else would have. These functions are made possible by the nature of the Web, and they were both visible and inevitable by 1997 or so. It is the Web itself that unbundles the media industry’s products and undermines its old business model, not the actions of the handful of innovators who saw the Web’s potential and built on it.

Carr takes a long cynical view, arguing that everything will calm down and the media business will recover once the news industry’s present overproduction crisis ebbs and scarcity returns to the information marketplace. This is, for instance, what my old boss Steve Brill is trying to do with his latest venture. I wish him luck, but I think it will be a total failure. It is only the latest genie-stuffing exercise in a world where the bottle itself is busted.

Scarcity will never return to the information marketplace, at least not in its old familiar broadcast-era form. It is too cheap to distribute news today. Producing certain kinds of news remains a costly undertaking, and we’re still figuring out new models to support it, in a rocky transition that is rightfully causing a lot of nailbiting. But those new models are unlikely to resemble the ones that worked in an era when distribution could be controlled by the producers themselves — when the media executive could control both production and distribution and dictate terms to both readers and advertisers. And whatever new models emerge, they are unlikely to provide last century’s monopoly profits.

The Web of Google, Craigslist and you and me is certainly a less hospitable place for the New York Times and CBS and Rupert Murdoch. But in the long run it will be a more interesting, more diverse and healthier environment for the rest of us. In some ways it already is.

See also Mathew Ingram’s response to Carr, in which he offers a parallel argument that Google’s middleman “power” doesn’t reduce the power of content producers but instead amplifies it.

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Comments

  1. Carlos

    One indicator for the future might be how the newly-minted Seattle PI will fare. The PI always generated a lot of hits on Google News, for whatever reason, but now that they’re exclusively on the web, will Google News be a curse or a boon? I would tend towards the latter, since Google News is one of the main avenues through which a random consumer might find a PI article. Of course, there are a lot of other considerations that will play into the success or failure of the PI, so it will always be difficult to say one way or the other.

  2. Thanks for writing such a well-considered article on this issue. It has consistently left me flabbergasted reading the opinions that newspapers are somehow deserving of a “cut” of Google.

    Someone made a point recently that what seems to be happening is that the newspapers are making an effort to move the “Overton Window” in such a way that what they are saying changes from being the hissy fit of a child demanding attention to public belief to actual fact.

    It’s important that this is not allowed to happen, and hence it is crucial that articles like this get attention.

  3. JC

    Great article! For decades the media industry has indeed played the role of middle-men as you so aptly point out. Blaming their woes on Google and the Internet in general is a clear sign that the traditional media industry doesn’t get it; they never did get it and in most cases it’s too late for them to ever get it.

    The current media industry shake up is a good thing. It’s a pruning of the obsolete, over bloated and weak so that the relevant and strong can move forward. This is critical to the future of the media industry and to the evolution of information/media consumption. Isn’t this part and parcel in the evolution of business? Whoever can do it faster, cheaper, and better wins.

    We must demand that the evolution be allowed to run its natural course, otherwise progress is impeded. End of story!

  4. What would happen if Google decided to only use AP stories on news.google.com? That way Google isn’t using anything that they don’t have a license to use. Then, not only would the world forget that other newspapers exist, but they’d get the same experience across all the news stories that are a part of the AP. If they think things are bad now, they should see what happens to traffic when the linking stops. Of course the new enemy would be the AP, who uses the stories that it’s given by it’s member papers and profits from it with Google. Newspapers are flailing their swords around as much as they can before falling on them.

  5. Wow- this was a great read. What I find interesting is that the news people think snippets are a bad thing for the engine to aggregate. Scott, I was wondering if you have any information on the intellectual property rights to snippets- like is there a limit Google can display to remain safe? I think that would be interesting to cover or add to this story. If you know, please email me the update.

  6. ed

    Your old boss, for being an expert in the journalism space, seems to be lacking some simple facts about the economics of the business.

    The mentions that publications must have advertising and circulation revenue. Then he also indicates that the circulation revenue should be 15-20 a month.

    I kind of had the idea that since there isn’t any “Circulation” costs in online publishing, there would be less of a need for revenue in that area.

    I could get my major metro daily delivered to my house for less than $5.00 per week. Now that they don’t need a printing press, a forest of trees, an endless amount of vehicles to move dead trees and a bunch of underpaid youths it would seem that they should be able to circulate to me for substancially less.

  7. What would happen if Google decided to only use AP stories on news.google.com? That way Google isn’t using anything that they don’t have a license to use. Then, not only would the world forget that other newspapers exist, but they’d get the same experience across all the news stories that are a part of the AP. If they think things are bad now, they should see what happens to traffic when the linking stops. Of course the new enemy would be the AP, who uses the stories that it’s given by it’s member papers and profits from it with Google. Newspapers are flailing their swords around as much as they can before falling on them.

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