Employees at Tribune are now the main owners of Tribune, thanks to Sam Zell’s innovative ways with ESOPs. Their problem is that although they own the company, they don’t control it: Zell does. And so they have to simply cross their fingers and hope that he knows what he’s doing.
Judging by comments reported by the Washington Post on Saturday, however, he doesn’t.
It’s time for newspapers to stop giving away their stories to popular search engines such as Google, according to Samuel Zell, the real estate magnate whose bid for Tribune Co. was accepted this week.
In conversations before and after a speech Zell delivered Thursday night at Stanford Law School in Palo Alto, Calif., the billionaire said newspapers could not economically sustain the practice of allowing their articles, photos and other content to be used free by other Internet news aggregators.
“If all of the newspapers in America did not allow Google to steal their content, how profitable would Google be?” Zell said during the question period after his speech. “Not very.”
Newspapers have allowed Google to use their articles in exchange for a small cut of advertising revenue, but search engines also help to distribute their content to wider online audiences.
This is all pretty much garbage, as Jason Calacanis, among others, has done a very good job in pointing out. For one thing, the Washington Post is simply wrong when it talks about Google giving newspapers “a small cut of advertising revenue” — that’s not possible, since Google News doesn’t have any advertising.
Which also helps to answer Zell’s question. If all of the newspapers in America did not allow Google to steal their content, how profitable would Google be? It would be just as profitable as it is today. And Google doesn’t steal their content any more than it steals anybody else’s content: Google indexes their content, which is something else entirely.
I have a rule of thumb for judging any kind of regularly-updated website which is being run on a for-profit basis. If your business plan looks like this, then it’s doomed:
People who want information will come to my site, where they will search for that information and find it, or otherwise be directed to it.
That’s simply not how people use the internet. There are maybe one or two websites which fit that bill: Wikipedia and IMDB spring to mind. But I suspect that even they get an enormous amount of their traffic from Google, because they have such a high Page Rank. Wikipedia’s traffic really started skyrocketing when Wikipedia started becoming the top search result for hundreds of thousands of Google searches.
If Zell wants to make money online, he has to embrace Google, not fight it.
Re: Embracing Google will help newspapers
Maybe so, but I think the relationship between old and new media is more complicated than you’ve let on.
As a few of the comments on Calacanis’ site pointed out, newspapers can be thought of as low-tech aggregators. Even for a major publication, much of the content is not originated by the newspaper’s staff. This unoriginal content is either explicitly borrowed (AP/wire stories, sports scores, stock data), user-submitted (letters, op-eds), or “infomercial” (that is, desirable or informative forms of advertising; e.g. movie listings, classifieds, and arguably all other forms of advertising). This analogy points out the ways in which newspapers are in direct competition with the various on-line providers. Some have even suggested that this renders the newspaper business obsolete.
While I don’t disagree with this characterization, I think it’s missing something. Namely, it presupposes that people know what they’re looking for. “Automated Aggregation” (e.g. yahoo pipes, google.com/ig) is a very different service than “Editorial Aggregation” (e.g. NYT, drudgereport.com) insofar as the latter provides the added service of deciding for the user what is newsworthy and organizing the information accordingly. Hence the Grey Lady’s 110-year-old slogan, “All the News That’s Fit to Print.” To some, this “filtering” service has value, and it is in providing this service that many of the old media (and, increasingly, some in the new media) possess comparative advantage.
It’s worth acknowledging that the editorial function is corruptible—by which I mean subject to biases. But it’s also worth pointing out that, in spite of this perceived shortcoming, editorial services (like any service) need only provide value to some, not all, in order to extract value for their owners. In fact, a known bias can be seen as adding value to some users. Consider Matt Drudge, whose ideological views are secret to no one who has visited his site more than a handful of times. The Drudge Report’s popularity exists, I believe, because of (not in spite of) the unabashed biases of its editor. But that’s another topic altogether I suppose, though a very interesting one.
The newspaper-as-aggregator view also unduly discounts two other value streams old media provide: original reporting and original analysis. Not all news comes off of the wires, and insightful analysis (objective or otherwise) is generally either nonexistent or difficult to find in its various incarnations on the web (blogs, comments, etc.).
The question you pose (and answer) is whether Zell, as the Tribune’s new “decider,” should embrace a relationship with Google and, presumably, other search engines (he should, and he’s an idiot for suggesting otherwise, you’ve concluded). I suppose I can’t wholly disagree with you. But I think Zell’s main tenant (though I’ll be the first to admit it’s very poorly stated in the WaPo article) is not that the Tribune should shun Google per se, but that it should stop giving away its content to anyone with an internet connection.
To me, the more interesting question, and the one of most interest to Zell, is whether the Tribune’s three value streams are enough to support it as a business while providing a return to its owners and creditors, and if so, how. The answer to this question—in particular, the “how”—speaks to Zell’s point about giving away their product. Surely there’s no reason the Tribune can’t provide its services via the web, and indeed it does. But can it extract as much (or more) value from web-based services as it did when physical print newspapers were the only game in town (and when competition from web-only providers was nonexistent)? A difficult question indeed.
By my read, Zell’s comments on Google obscure a more interesting thesis. He seems to be suggesting that the best way to extract value from the online version of his publication is to charge for it. In other words, that an advertising-only revenue model is untenable. I for one can sympathize with him. It stands to reason that folks who pay for a print subscription to the Tribune should be willing to pay for an online edition of the same. After all, they’re paying for the words, not the paper it’s printed on, right? Maybe. And then again, maybe not. Those same folks who pay for print editions of the Tribune are likely well aware of the costs to print and deliver the physical newspaper to their doorsteps each morning. And they’re likely to imagine (correctly) that an online version simply isn’t as costly to deliver. If a consumer’s perception of value is tied to his perception of cost, he won’t place as much value on the “cheap” online version. And perhaps more important to consumers’ perceptions of value is the general consumer consensus that anything that can be delivered over the internet should be free.
Working in tandem with consumers’ perceptions of online vs. real world value, and also against Zell’s favor, are advertisers’ perceptions of the same. For a variety of reasons, advertisers don’t place as much value on a pair of internet eyeballs as they do a pair of print eyeballs. And perhaps they have a point. Is an internet page-view of equal value as a single newspaper delivery? The content on a computer monitor is seldom seen by more the single person using the computer. Contrast that with a metropolitan newspaper read on a crowded commuter train. And what exactly is a page-view, anyway? How long were they on the page? How did they get there? Did they even see my ad? For good reason or not, advertisers also seem to distrust (and discount) the number of eyeballs they are told an internet ad will reach.
I’m not saying an online subscription service the right way to go, but I can understand Zell’s frustration with his new acquisition’s free internet content. Finding the right price point to strike the balance between advertising revenue and subscription revenue will be the key to the success or failure of an online newspaper strategy. Obvious inputs to that formula will be his ability to convince customers to subscribe and to convince advertisers that their eyeballs are worthy of their spending. And like you, I think Google can probably help Zell with one or both of these challenges.
Of course, there is also a developing “third way” for aggregation that I neglected to mention until now. “Algorithmic Aggregation” collects user input and passes it through an algorithm (typically a black box) in order to sort and organize stories. Digg is the archetype of the moment, but other systems have been around for a while. Think CNN.com’s “most popular” section, or even Fark (though I think that site’s edited, the content generally bubbles-up via user submissions). This method of allowing the user-base to collectively make editorial decisions is an innovative response to the old media’s means of providing editorial value. That said, I’m not convinced it will (or can, or should) work for anything but a small niche of like-minded users. Trust seems to be the main issue: How can I trust my fellow users to make wise decisions (or at least similar decisions to those I would make) about what’s worthy of my time? How can I trust that they won’t spam the system with bogus stories? But even if they solve these problems, you’ll still need someone, somewhere to generate original reporting and analysis. Which are two value drivers the Tribune and other papers are going to have to hang on to, and to figure out how to leverage.
Note: I made up many of the terms in this post, so please don’t assume they have any meaning outside the context of my ramblings.