A song to read by: “Asc. Scorpio” by Oracle Sisters
Greeting, Lytelings, and welcome to the only newsletter your mother would scold you for not reading. Today we’re diving into one of the most important issues in the media industry: the debate over licensing fees. (Please don’t stop reading!)
Earlier this year, on Valentine’s Day of all days, the Wall Street Journal broke news that had every publisher in America feeling pretty amorous. According to journalist Benjamin Mullin, Google had begun talks with publishers about paying a licensing fee for content in a news product.
For years, publishers have pointed out that their product (news articles) adds significant value to Google’s product (search results). If this seems abstract, just imagine googling something and not having a single news article appear. Were that to happen, you might find Google less helpful and reconsider using it. For this reason and a few others, publishers have proposed that they receive some sort of revenue share for the work they do to make Google more valuable to its users.
I understand that this argument can seem counterintuitive. “Google is helping the publishers by showing readers their articles,” you might be thinking, imagining yourself to have discovered a flaw in the argument that the rest of the news industry overlooked. And in many ways, you’re not wrong. That is, albeit in a simplified form, the argument that Google has presented in its defense for years.
However, there a number of pertinent considerations. First, and very importantly, remember that Google makes money every time you use it. The Ur search engine has diversified its income stream in recent years, yes, but it still makes the lion’s share of its revenue from selling advertisements against its search results. Its value, to you, is sending you to the work produced by others, and this is how it makes a lot of money. According to a study, Google made $4.7 billion from the news industry in 2018.
This dynamic alone sets a strong precedent for companies like Google, and Facebook, importantly, to pay licensing fees, because that is the arrangement that exists in the world of television, where cable companies pay TV programmers for shows. These “platforms” don’t make the content, but they’re the ones who put the content in front of your face. In the world of TV, the platforms pay the programmers for their content; on the internet, the platforms do not pay the programmers for their content.
Second, consider the costs that a publisher incurs in producing these articles. For every story that finds its way onto Google or Facebook, a publisher has footed the bill for employee salaries, health care, rent, travel expenses, technical support, site hosting and countless other expenses. Google, of course, does not shoulder any of these costs, but it benefits immensely from their end product: the news.
Finally, there is the financial elephant in the room: Facebook and Google, sometimes derisively referred to as “the Duopoly,” control about 61% of the digital advertising market. Because 2019 marked the first year that total spend on digital advertising surpassed total spend on print advertising, the two companies effectively rake in 60 cents of every dollar spent on internet ads, the largest advertising market in the country. This has been a huge factor in the crumbling of the American news media: advertising money has headed to the Duopoly.
These three factors have fueled the argument that the platforms should pay a licensing fee to the publishers. That’s why Mullin’s article was such a bombshell: It meant that the dream might become a reality. Mullin himself even indulged in the Wall Street Journal-version of excitement, calling the announcement “a watershed moment.”
Which brings us to recent developments.
As Covid continues to wedgie the bottom line of publishers across the country, these calls for licensing fees have grown more insistent. And on April 20, another one of the most amorous days of the year, the first domino may have fallen in turning these calls into action. An Australian domino!
The New York Times’ Livia Albeck-Ripka reported that the Australian government announced that Google and Facebook would have to pay media outlets for news content in the country. Led by Rod Sims, the chairman of the Australian Competition and Consumer Commission, the Aussie government has officially begun the process that will result in Facebook and Google paying to host publishers’ content.
The effort is aided by a parallel push in France, led by regulator Isabelle de Silva, and follows in the footsteps of a similar push made by Spain in 2014. Leaders across the world, from Ireland to Malaysia, are watching the developments unfold, as whatever happens now could rewrite some of our most fundamental understandings of how the internet works. For the full picture, I would recommend you read this article from The Times’ media reporter Ben Smith.
As you might imagine, Google and Facebook have not taken kindly to these recent developments. The two companies have been stymying calls for revenue-sharing for years, though the tech giants have taken different approaches to reach the same end.
Facebook, having born much of the blame for the misinformation debacle of 2016, has played its response in much more conciliatory tones. Mark Zuckerberg has repeatedly underscored the importance of the news media, and his company has opened its checkbook to back his claims.
Google, on the other hand, has largely stuck to its “competition is just a click away” mentality, praising the virtues of an open internet and generally trying to snuff out the issue by painting an idyllic, if inaccurate, vision of the internet in 2020.
Their approaches have shared a key denominator: money. Both Facebook and Google have funded a number of initiatives aimed at repairing relationships between the themselves and the publishers they profit off of. I’ve written about the Google News Initiative before, as well as the Facebook Journalism Project. Those are just two of the programs launched by Facebook and Google designed to put money back in the pockets of publishers, as well as extend them technical training that follows in the “teach a man to fish” school of thought.
In fact, journalist Max Willens put it quite bluntly in a recent Digiday article, titled "Like it or not, Google and Facebook are becoming the leading patrons of the news industry.”
Here is a quick breakdown of some of the companies’ recent spending on local journalism, taken from Willens’ article:
“Over the next few months, Google and Facebook will, combined, spend close to a quarter billion dollars supporting local news, through a combination of emergency relief grants, extra marketing dollars earmarked for ads on publishers’ sites, and the waiving of fees Google normally collects from its ad server. Google said it expects its relief funds will reach at least 4,000 different publishers. Facebook has already dispersed $16 million across 200 different newsrooms.”
These efforts have financed a number of worthwhile projects, and I applaud the tech monoliths for extending the solid-gold olive branch. But The Times’ Ben Smith has it right when he puts it succinctly, talking here about Google: “ … grant-giving to news organizations appears to follow a pattern: The company is most generous when it feels most threatened by regulation.”
The coming weeks and months will be pivotal in the political, financial and ideological battle between the Duopoly and the news media. Whatever happens, one thing is clear: In all the ways Covid is irrevocably changing the world, this might be its single biggest impact on news media.
If we emerge from this pandemic with an agreement that tech firms need to pay publishers a licensing fee to host their content, it will stand as one of the most historic shifts in thought of the internet era. Plus, it would extend a much-needed lifeline to an industry on the brink of financial collapse. In many ways, the debate is more life-or-death scenario than fun hypothetical.
For what it’s worth, I think publishers should receive a portion of the revenue they generate by having ads sold against their content, though I think that such an arrangement could present its own set of challenges. Fingers crossed: I’m going to try and write a bonus newsletter in the next few days where I lay those out.