Googled (47 page)
Authors: Ken Auletta
Tags: #Industries, #Computer Industry, #Business & Economics
Today, more than one billion people go online and view these bits. They are accustomed to reading news for free. To suddenly try to get them to pay for it would be an imposing task. To prevent leakage, presumably newspapers would need to act in concert. To do so would require discussions, and such collusion might invite antitrust lawsuits. On the other hand, when the survival of newspapers has been at stake in the past, government has allowed joint operating agreements (JOAs) so that two papers can pool printing facilities or other resources to save money. As there’s little question that newspapers are endangered, our foremost papers—the
Times, Journal,
and
Washington Post
—might get together and agree to erect a firewall around their content. Responding to a March 2009 request from House Speaker Nancy Pelosi, Attorney General Eric Holder said he would consider relaxing antitrust regulations to allow newspapers to share costs and merge. In 2009, three longtime media executives—Steven Brill, the founder of Court TV and
The American Lawyer;
L. Gordon Crovitz, the former publisher of the
Wall Street Journal;
and business investor Leo Hindery, Jr.—announced that they had formed a company, Journalism Online LLC, in hopes of creating a single automated payment system so that print publications would be paid when their content was viewed.
Times, Journal,
and
Washington Post
—might get together and agree to erect a firewall around their content. Responding to a March 2009 request from House Speaker Nancy Pelosi, Attorney General Eric Holder said he would consider relaxing antitrust regulations to allow newspapers to share costs and merge. In 2009, three longtime media executives—Steven Brill, the founder of Court TV and
The American Lawyer;
L. Gordon Crovitz, the former publisher of the
Wall Street Journal;
and business investor Leo Hindery, Jr.—announced that they had formed a company, Journalism Online LLC, in hopes of creating a single automated payment system so that print publications would be paid when their content was viewed.
The rub, of course, is that even if most newspapers agreed to erect a firewall, some would choose not to, probably including wire services like the AP that are now paid by Google for their news. Maybe the Christian
Science Monitor,
which now relies mostly on an online edition, or the Se
attle Post-Intelligencer,
which relies solely on its online edition, will achieve success with these and be unwilling to give them up. There would be leakage, as users shared stories. Or as Jack Shafer of
Slate
observed, an online publication like the
Huffington Post
or
Gawker
could subscribe to newspapers and rewrite their stories, as “Henry R. Luce and Britton Hadden started doing in 1923 as they rewrote newspapers on a weekly basis for
Time
magazine.” On the upside, perhaps online citizens would be better able to distinguish between good reporting and bad. If the online newspaper offers content not readily available elsewhere, along with interactive and video and other features, perhaps customers will pay for it.
Science Monitor,
which now relies mostly on an online edition, or the Se
attle Post-Intelligencer,
which relies solely on its online edition, will achieve success with these and be unwilling to give them up. There would be leakage, as users shared stories. Or as Jack Shafer of
Slate
observed, an online publication like the
Huffington Post
or
Gawker
could subscribe to newspapers and rewrite their stories, as “Henry R. Luce and Britton Hadden started doing in 1923 as they rewrote newspapers on a weekly basis for
Time
magazine.” On the upside, perhaps online citizens would be better able to distinguish between good reporting and bad. If the online newspaper offers content not readily available elsewhere, along with interactive and video and other features, perhaps customers will pay for it.
In March of 2008, I asked Larry Page how he would save newspapers, and he grew uncharacteristically passionate. “I don’t know how to do it, or I would,” he said. “Or at least try to help.” He said he was spending time thinking about it. This was no abstract puzzle; he knew the question was linked to Google. “I do think that our mission at Google ends up being pretty close to this. We try to produce the best information we can. The success of a Google search is based on the quality of the information—is there a good article about this?” He went on to say, “I’ve been trying to learn more about journalism and trying to understand the issues better. I do think that there is a problem that if you’re primarily doing it for profit, it’s hard to do a really good job. The kinds of things that generate profits and page views are not necessarily the things that generate value for the world. If you look at really good newspapers, they have dual classes of stock. That’s part of our inspiration for doing that.”
Could he imagine Google in the newspaper or journalism business? “We look for high-leveraged things,” he said. “We’re trying to figure out, how does this one employee affect ten million people? I think most content creation companies involve more work. So we naturally steer away from that.”
The next day I asked Eric Schmidt, why not pay a paper like the
Times
for its content? “We’ve been able with the
New York Times
to convince them that they make so much money from the traffic that we send them that they want their content available to Google,” he said. “They have the choice of not doing it.” In fact, the
Times
does generate some income from Google, but digital income from digital operations accounted for just 12 percent of the company’s $2.9 billion revenues in 2008, more than a third of this from
About.com
. About half of the About Group’s revenues, according to Arthur Sulzberger, Jr., comes from Google’s AdSense, as does “a significant portion” of its online revenues. Might Google try to buy the
New York Times?
“The official answer is that we have discussed buying the
New York Times
over the years—and there are many such interesting companies,” Schmidt answered, candidly “In every case, we ultimately decided we don’t want to cross that line”—to become a content provider and risk favoring Google’s own content. “The reason I say we don’t rule anything out is that our strategy is always evolving. We might come up with a different answer in a year or two.”
Times
for its content? “We’ve been able with the
New York Times
to convince them that they make so much money from the traffic that we send them that they want their content available to Google,” he said. “They have the choice of not doing it.” In fact, the
Times
does generate some income from Google, but digital income from digital operations accounted for just 12 percent of the company’s $2.9 billion revenues in 2008, more than a third of this from
About.com
. About half of the About Group’s revenues, according to Arthur Sulzberger, Jr., comes from Google’s AdSense, as does “a significant portion” of its online revenues. Might Google try to buy the
New York Times?
“The official answer is that we have discussed buying the
New York Times
over the years—and there are many such interesting companies,” Schmidt answered, candidly “In every case, we ultimately decided we don’t want to cross that line”—to become a content provider and risk favoring Google’s own content. “The reason I say we don’t rule anything out is that our strategy is always evolving. We might come up with a different answer in a year or two.”
A year later, in April of 2009, I asked Schmidt if he had come up with a different answer. “It’s the same answer,” he said, before adding that Google was working on a product that is targeted at individuals, that knows the stories that interest people and what they’ve already read and targets text and video to people based on those interests. “In order to do that model we would have to partner with news sources.” He mentioned newspapers like the
Times
and
Washington Post
as potential collaborators. Indeed, after leaving Schmidt’s office I bumped into the
Times
chairman and publisher, Arthur Sulzberger, Jr., and his senior vice president of digital operations, Martin Nisenholtz, grabbing lunch in the cafeteria of Building 43. They were startled to encounter a journalist, no doubt fearful word would spread that they were meeting that afternoon with Schmidt and the founders to discuss a partnership. How they would monetize such a partnership—share ad revenues, create a micropayment system, pay the papers a license fee for their content? Schmidt said he did not yet know the answer. He did know, however, that the new product would not be “a solution to the problems newspapers have today.” But, he added, “the fact that we don’t see a solution today doesn’t mean that it doesn’t exist. This is about invention. One criticism I would make of many industries is that they’ve lost the ability to reinvent themselves.”
Times
and
Washington Post
as potential collaborators. Indeed, after leaving Schmidt’s office I bumped into the
Times
chairman and publisher, Arthur Sulzberger, Jr., and his senior vice president of digital operations, Martin Nisenholtz, grabbing lunch in the cafeteria of Building 43. They were startled to encounter a journalist, no doubt fearful word would spread that they were meeting that afternoon with Schmidt and the founders to discuss a partnership. How they would monetize such a partnership—share ad revenues, create a micropayment system, pay the papers a license fee for their content? Schmidt said he did not yet know the answer. He did know, however, that the new product would not be “a solution to the problems newspapers have today.” But, he added, “the fact that we don’t see a solution today doesn’t mean that it doesn’t exist. This is about invention. One criticism I would make of many industries is that they’ve lost the ability to reinvent themselves.”
In an e-mail exchange afterward, Sulzberger did not portray Google as a villain: “Our industry faces many challenges but I would not lay them at the feet of Google.” A major Silicon Valley figure only blames Google for playing a public relations game by appearing sympathetic to newspapers: “Let’s suppose you’re Google and you fully realize newspapers are screwed ... and there’s not a damn thing you can do about it. Are you better off saying ‘tough noogies’ or ’we carefully considered all kinds of ways that we could possibly help?‘”
NEWSPAPERS—like the more seriously challenged music companies—have seen their decline abetted by the recession but not caused by it. By contrast, the sharp drop-off in magazine advertising that began in 2008 is probably linked to this downturn. Like newspapers, magazines require a robust online strategy And like newspapers, even in a bustling economy some will perish. But magazines are just as portable as newspapers, and their content usually doesn’t have to be read the day they’re published. In weekly and monthly magazines, stories often benefit from the luxury of time denied to most daily journalism. There is more context and opinion. There are vivid pictures and color. The paper is glossy, and clean. The ads are more inviting. As a business, magazines probably have better prospects than newspapers.
Few investors would rush to acquire magazines. Even fewer would buy a book publishing company. Their dominant source of revenue is book sales, and these have been fairly flat. The profit margins are slim, and as with newspapers or magazines, the cost of production and distribution is immense. There are long-term questions about what multitasking and the “quick snacks” available online are doing to attention spans. Is it an accident that the fastest growing book category consists of shorter romance and young adult novels? Technology now permits books to be distributed electronically, and upstart publishers have begun to produce paperless books. In turn, writers have to adjust to new pay formulas that involve less money upfront and more profit participation if their books sell. More books will be self-published. And an entirely new class of books-user-generated serial novels written online—now appear on cell phones in Japan, and will elsewhere. For readers, a digital book, like a digital newspaper or magazine, offers a multimedia dimension: video, music, games, interactivity between author and audience.
Early in 2009, Amazon CEO Jeff Bezos said that of the books that were available both in print and electronically at Amazon, 10 percent of these were downloaded and sold on its portable Kindle device. By May, Amazon said the number of electronic books it sold had soared to 35 percent. This figure had nearly quadrupled in a year. Although electronic books comprised but 1 percent to 2 percent of all books sold, it is clear that paper will continue to be replaced by bits. As with newspapers, this will reduce costs. What gives publishers pause is that Amazon, like Apple with iTunes, gets to set the price for these electronic books, and they worry, as advertisers do with Google, that if there are no potent electronic competitors, Amazon will be able to dictate price and publishing terms. This is a reason that publishers welcomed Google’s 2009 announcement that it would compete with Amazon to sell e-books.
Bezos has been smart about spotting trends, and he said he is optimistic about the future of books. At the
Wall Street Journal’s
D Conference, he told the audience, “Physical books won’t go away, just as horses won’t go away. But in the future the majority of books will be read electronically.” The reason, he later told me, is convenience: “We humans do more of what is easy for us. The more friction-free something is, the more of it we do.” Bezos was sitting on a Sun Valley patio with dark sunglasses shielding his eyes, and was more expansive. He said devices like the Kindle have the advantage of portability, have big, easy-to-read screens, provide online access to other information, and store many books. Most people, he believes, read more than one book at a time, and thus reading is more “frictionless” on devices like the Kindle or the Sony Reader. “The Kindle is an example of a device that is going to make long-form reading more convenient and less friction filled. As a result, you’re going to get more long-form reading. If you want more reading, make reading easier. That’s what we’re trying to do. If you have a book with you, you’ll read more.”
Wall Street Journal’s
D Conference, he told the audience, “Physical books won’t go away, just as horses won’t go away. But in the future the majority of books will be read electronically.” The reason, he later told me, is convenience: “We humans do more of what is easy for us. The more friction-free something is, the more of it we do.” Bezos was sitting on a Sun Valley patio with dark sunglasses shielding his eyes, and was more expansive. He said devices like the Kindle have the advantage of portability, have big, easy-to-read screens, provide online access to other information, and store many books. Most people, he believes, read more than one book at a time, and thus reading is more “frictionless” on devices like the Kindle or the Sony Reader. “The Kindle is an example of a device that is going to make long-form reading more convenient and less friction filled. As a result, you’re going to get more long-form reading. If you want more reading, make reading easier. That’s what we’re trying to do. If you have a book with you, you’ll read more.”
Broadcast television, like newspapers, suffers from too many choices. In the final two decades of the twentieth century, the new consumer options were cable and then satellite TV In this century, the Internet offers vastly more diversions, while TiVo and DVRs allow ad skipping and snatch the scheduling power away from network programmers. Although Americans still spend more time watching television than on the Internet, the proliferation of choices weakens the business model of many of these choices. This is especially true for broadcasters who, unlike cable, do not receive subscription revenue and rely solely on advertising. How, broadcast executives privately mumble, can they afford to pay three million dollars or more for each episode of a one-hour drama when ratings are falling? How continue to afford expensive nightly news broadcasts on ABC, NBC, and CBS when their nightly audience has plunged from thirty-two million in 2000 to twenty-three million in 2009? Local television stations, once known as cash cows because they generated profit margins of around 50 percent, have seen those margins collapse as viewers flock elsewhere and networks demand compensation for programming. Jack Myers projects that local broadcast station advertising revenues will drop 20 percent in 2009.
The belief embraced by too many television (and movie) executives that they are in the
content
business—and most digital companies are not—is not just smug but stupid. Content is anything that holds a consumer’s attention. If four million people in China subscribe to online games and play an average of six hours daily, as Activision CEO Bobby Kotick says they do, that audience is lost to television and most any other media. If Facebook or YouTube or Twitter is captivating audiences, the number of eyeballs watching CBS will drop. Internet video is growing twice as fast as television viewing, Nielsen reported in early 2009, and eighteen- to twenty-four-year-olds now spend the same amount of time—five hours a day—watching Internet video as American adults spend watching TV
content
business—and most digital companies are not—is not just smug but stupid. Content is anything that holds a consumer’s attention. If four million people in China subscribe to online games and play an average of six hours daily, as Activision CEO Bobby Kotick says they do, that audience is lost to television and most any other media. If Facebook or YouTube or Twitter is captivating audiences, the number of eyeballs watching CBS will drop. Internet video is growing twice as fast as television viewing, Nielsen reported in early 2009, and eighteen- to twenty-four-year-olds now spend the same amount of time—five hours a day—watching Internet video as American adults spend watching TV
“To survive,” said Quincy Smith of CBS, “media companies have to get out of a broadcast mentality. All of us—broadcasters, cable networks, Hollywood studios—have to display our content on multiple platforms, be it YouTube, TVcom, Hulu, MySpace, or iTunes. We need to use these platforms to promote our content and drive audiences, particularly younger audiences, to our primary platform.” Network television can no longer think of itself as a lean-back medium. The Internet, Smith emphasized, was more than just a distribution platform: “On the Web, you build communities. And traditional media has to change its DNA to think about that community. Our most trafficked CBS sites are the ones that create community. The Internet is not just a platform. It’s about interactive storytelling.”
By the summer of 2009, however, Quincy Smith decided that it was time to move on. He denied he was frustrated trying to turn the CBS ship around, steaming toward the digital world. He expressed admiration for CBS CEO Les Moonves. He desired to move on because he had accomplished what he set out to do. He had engineered the acquisition of CNET He now presided over CBS Digital’s three thousand employees. CBS Digital was generating one hundred million dollars in annual profits and growing 10 percent each year. The challenge now was “blocking and tackling,” he said—management. This was not his forte. If he won Moonves’s concurrence, he said he wanted to return to what he did best—deal making—and planned to hang his investment banking shingle in Silicon Valley and serve as a digital adviser to old and new media companies. If Smith left, said Moonves, he would want to retain him as a consultant.
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