This is a Stick-Up

Back when I was a kid running around New York pretending to know a whole lot more than I did, I consulted to News Corporation. Well, okay, to Rupert Murdoch himself. Often over a beer on a Friday night, I found myself listening with rapt attention as people who had worked with him for years exchanged stories about his misadventures. To us, he walked on water. 

My favorite story concerned the time he somehow secured authorization to buy a television station in Adelaide while also owning the largest newspaper in town. There was some objection to the idea based on the apparently antiquated notion that media consolidation of this kind was not in the public interest. So, Murdoch decided to enlist the support of the state premier. Having done so, he was asked by a lieutenant how he had managed it. “Oh,” said Murdoch, “It was easy. I offered him a straightforward deal. I told him he could have one good headline a week or a bucket of shit a day.”

Not much has changed it seems, except for the target of his uniquely direct negotiating style. Google and Facebook are in his sights now. And not just in Australia. From every market important to him they extract too much advertising money. So, he’s up to his old tricks again.

Just the other day I read this in Murdoch’s The Sun newspaper in the United Kingdom:

GREAT NEWS. Facebook and Google may be forced to PAY for British news with landmark laws

Tech giants such as Google and Facebook will be required to pay newspapers and other media outlets for using their stories, under new laws being drawn up by the Government.

Under the plans, which are modelled on a system that has been introduced in Australia, the platforms will be encouraged to negotiate payment deals with news organisations. If the negotiations fail, an independent arbitrator would set a fair price. The move, being driven by Culture Secretary Nadine Dorries, comes amid growing concerns that the tech companies are dominating online advertising to the detriment of consumers and businesses.

I checked to see if the same piece had appeared in The London Times. He owns that, too. Sure enough, there it was. The Times, though, is more dignified. It dispensed with the “GREAT NEWS” headline.

Note that phrase “using their stories” in the article. Let me ask you a question. Ready? How does Google “use” news stories? Well, it dumps them into its giant search index, alongside everything else on the web, so that when someone types “who is Rupert Murdoch” into the Google search box, they get a link to the articles they wanted.

How does Facebook “use” news stories? It lets people share links to them. If their algorithm thinks people will like reading it, they show those links to more people. If they don’t, they don’t.

This is how the internet works at the most fundamental level. Through links.

I’m no shill for Google or Facebook. It’s just that I get irritated when media companies and their journalists talk about extracting a price “for news content published on the companies’ platforms.” They know better, or at least, they should. None of this content is being published on Google and Facebook at all. It’s being linked to, in the same way everything else in the world is being linked to.

That’s what makes the Australian legislation look like something composed by people who don’t understand the internet much at all. Or, maybe they do but they’re simply bowing to Murdoch’s bidding. I know, you’re incredulous at the very thought. But here’s what the Australian legislation, the News Media and Digital Platforms Mandatory Bargaining Code, actually says:

“…a service makes content available if:

(a) the content is reproduced on the service, or is otherwise placed on the service; or

(b) a link to the content is provided on the service; or

(c) an extract of the content is placed on the service

Clause (a) of course means nothing. If “content is reproduced on the service,” standard licenses and fees come into effect in the usual way. Google uses a standard rate card around the world to govern payments to publishers who choose to participate in products like News Showcase, for example.

But pay close attention to (b). No-one has ever paid to link, regardless of their market power. No-one has ever asked me to pay a fee to link to them, and if asked I would refuse, and I have zero market power.

I was explaining this to a friend of mine the other day and he said “so, what you’re saying is that if I owned an ice cream shop on a side street and a guy with a billboard on Main Street is directing customers my way, he’d have to pay me, not the other way around. That’s idiotic. Really?”

Yes, really.

If you do accept the novel theory that links being free for 25 years is some kind of epic shortcoming in the underlying design of the internet, then there’s a further breach of basic logic: If all links have value, why should only newspapers be paid? Hold on, you say, newspapers are worth more to society! They deserve it! Well, perhaps they do, but that’s not an argument for letting them charge a fee for linking to them, it’s an argument for a subsidy of some kind or another. Let’s debate such an arrangement honestly instead of basing the argument on Murdoch’s cynical defiance of internet reality to secure compensation for the declining advertising revenues of his dying newspapers. 

Now look at (c). Murdoch has often argued that Google makes money from news and analysis provided by his papers. But you know those little news snippets you see on a Google search results page when you search for coverage of a news event? Google does not usually sell advertising against them. I just searched “Ukraine fighting” and got not one ad on the results page. I got a dozen links to various news outlets. This is, then, actually free promotion to news outlets. Think about that for a second. It’s free advertising.

He must think we’re all suckers.

Imagine asking for a meeting with Murdoch to tell him you wanted him to run a free ad linking to your website on the home page of the London Times. I’ve been thrown out of a lot of boardrooms, but that would trigger my fastest exit yet.  Don’t let the door hit your ass on your way out.  

In fact, most of the value in the BigTech – publisher relationship is provided by…Big Tech. According to Pars.ly the research company which tracks internet use, out of every 100 clicks that send internet users to publishers’ websites, Google currently sends about 64 of them. Facebook sends another 23. (Twitter, by the way, sends 1) This is no small promotional contribution. Each month, Google drives 24 billion visits to news sites around the world. Google is like a news stand in the old days — except the newspapers are free. Google makes no money from this. It chooses to do it simply because it wants to be the most complete search engine it can be.  

So, the Australian legislation is pretty brazen, even for the brazen Mr. Murdoch. He has “persuaded” the Australian government to endorse his scheme to extract cash payments from Google and Facebook while the two companies are providing his new outlets with free promotion to the tune of tens of thousands of users a month, an audience that he is free to sell to his advertisers or convert into subscribers. Not a bad deal. Maybe, despite his advancing years, he still walks on water.

We’re a year in, downunder. According to Rod Simms, Australia’s competition czar, who has overseen the legislation, Google and Facebook have been forced to pay more than $200 million AUD which is about $150 million of the real green stuff we use here. He may just have been trying to impress us with the “success” of his remarkably idiotic scheme, since after someone inquired about the number and how it was derived, he turned around and said it was just a guess. Let’s just say it’s a ballpark number. What we do know for sure is that the bulk of the money, naturally, has gone to big media properties owned by…Murdoch.

Remember: Every buck that lines Murdoch’s silk pocket is a buck less for an earnest little news start-up that hardly ever shows up in your newsfeed. If there is to be any state-funded support of some kind —and I’m not so sure there should be — that little news start-up is where it should go. That’s where innovation is found, and where the new business models for news in the digital age will be uncovered.

But wait, it gets better. Sims is retiring. The new head of the competition commission is expected to be Gina Cass-Gottlieb, an attorney. She once worked for Lachlan Murdoch, Rupert’s son and heir, and as a director of the Murdoch family trust. She’s also worked for Nine Network, another Australian media giant. Is it just me, or is the fix well and truly in?  

Maybe it’s not just me. Maybe there are others who think the idea of giving handouts to the politically connected as reimbursement for market failure is a really bad idea. Enter, the good people of Switzerland. Chaos begets change, which is why Italy gave birth to the Renaissance and the singular Swiss contribution to human progress is the cuckoo clock. But they’re solid, sensible people the Swiss, and in February they voted to reject a government plan to prop up print and broadcast media through annual contributions of 150 million francs (about $163 million).

Foes of the plan said the cash injection would waste taxpayer money, benefit big newspaper chains and the media moguls who run them and hurt journalistic independence by making media outlets more dependent on state handouts and thus less likely to criticize public officials. Sounds about right.

The myth of stolen ad revenue

Nonetheless there is this myth abroad, a simplistic, pernicious myth to which Murdoch and his acolytes subscribe, that traditional media advertising revenues were “stolen” by companies such as Google and Facebook. You can see it in the language of that article in The Sun and The London Times:

The move, being driven by Culture Secretary Nadine Dorries, comes amid growing concerns that the tech companies are dominating online advertising, to the detriment of consumers and businesses…

Somehow that movement of money to digital outlets was unfair, somehow it has bequeathed digital competitors with unwarranted market leverage and somehow, by weakening newspapers, it has undermined the free press and therefore democracies around the world. I know, I know, this is coming from Murdoch. The multi-layered chutzpah does not escape me, either.

But they’re considering similar legislation not just in the U.K. but in Canada too, and Germany. France, as well. And, to my embarrassment, New Zealand. Down there, they’ve already pumped 55 million NZD into the traditional news market. One local newspaper in the South Island now has a newsroom of journalists whose salaries are paid in their entirety by government funds.

Here in the United States, Senator Amy Klobuchar, unwittingly we trust, is taking Murdoch’s lead by spearheading the Journalism Competition and Preservation Act (JCPA). It’s that word “preservation” that’s important here. Ask yourself as you read this what, exactly, is Klobuchar intent on preserving?

Like the Australian law, the JCPA exempts news publishers from competition laws so they can collectively negotiate cash-for-content deals with platforms. “U.S. newspapers plummeted from over 37 billion in 2008 to less than 9 billion in 2020” she told WDAY Radio of North Dakota recently. She said the lack of revenue “does not come from a lack of interest in news, but went directly to Google and Facebook. The former increased their advertising profits by 32.5% in the last quarter alone.” There’s that implication again. It’s “their” fault. Just look at the increase in advertising profits.

Look, search is the most potent advertising channel in history. It’s the bottom of the funnel for trillions in consumer purchases, the point of maximum leverage for marketers. Google made $149 billion in revenue from advertising against search results last year — greater than the total for global TV and radio businesses, and soon print, combined. But, just because Google is so successful does not make the company’s actions automatically illegal or monopolistic, unless of course it has deliberately abused its market position or committed some other trust violation. Category dominance has proven impermanent in the wide-open, super-competitive digital era. Look at what happened to the newspaper monopoly itself. And AOL. And remember when Yahoo! was the leading search engine? And Excite was hard on their heels? When Monster was where you went to find a job?

Besides, if you talk to people at Google and Facebook, and to agency people, you’ll hear that something like two-thirds of money spent on Google and Facebook is money that was never spent on traditional advertising. It’s coming from SMEs and small local businesses that might have spent money on classified advertising but maybe would not even have done that. Newspaper advertising was simply too expensive for them.

The original monopoly

A little history may be instructive. Google went public in 2004, Facebook in 2012. But, for the sake of the argument, let’s say the internet age was kicked off by the Netscape IPO in 1995. Forty years before that, in the 1950s, newspapers began to suffer from stagnant-to-falling circulation, on a per capita basis. Television had entered the local marketplace and the newspaper product was stuck, not evolving to meet the changing needs of the market. Instead of rising to meet the product and market challenge, the stewards in charge decided on a less risky and less costly approach. They opted to milk the franchise. Profit margins would be protected by lifting page count — and hence, ad inventory — and lifting ad rates. The uniform path forward became increasing the ad load by increasing the ad pages – and charging more for them. Ah, how I miss the glorious days of monopoly.

Think about that. Despite the fact that audience share was declining, newspapers generated higher and higher revenues, year after year. In the end, newspaper advertising rates were set not according to competitive positioning nor market demand, but according to the need to protect the habitual dividend paid to shareholders, private as well as public. Newsprint going up 7% next year? Okay. We’ll hike the ad rates 7%, too. I’ve sat in newspaper budget meetings and watched this actually happen. Every single cycle.

Dan Kennedy at his publication Media Nation posted this in February:

I love this passage from David Sachsman and Warren Sloat’s “The Press and the Suburbs: The Daily Newspapers of New Jersey” (1985). They’re writing about The Record of Bergen County, but it could have pertained to any number of papers:

It is the happiest of newspaper cycles. The advertisers supply the money, lots of it (49 pages of ads a day). The newspaper spends the money freely to produce a solid product, employing 198 full-time news staffers and 81 part-timers to fill a 24-page news hole. The high-income audience centered in towns like Ho-Ho-Kus, Wyckoff, Franklin Lakes, and Rivervale buys the newspaper and goes shopping, pleasing the advertisers, who buy more ads.

The typical ad page to news page ratio was 65:35. Achieve that and you earned the highest praise in the industry. You were “a good operator.” Good operators are useful when you’re chasing cash extraction. If you’re chasing the future, they’ll put you under.  Wait. They did put newspapers under.   

In other words, newspapers decided to milk the same large local advertiser, over and over again. There’s only one way that could end. You could say that greed lies behind newspapers’ downfall. Not so much “Big Tech.”  Greed. And you would be right.

Because of newspapers’ monopoly budgeting and their decision to go for short term cash extraction, smaller retailers were priced out of newspapers. Things are very different now. And traditional media monopolists hate it that they can’t screw over their advertisers anymore.

It’s not just that digital advertising is more efficient — you can target an ad message and measure the response — it’s also much less expensive. Facebook in particular has been deflationary to digital advertising: it offers vast quantities of relevant advertising inventory at much lower prices that you would have needed in print, let alone television. The price of a 30-second Super Bowl spot this year was $6.5 million. A Facebook ad currently costs media buyers around $10 on average. (With $6.5 million, buyers could get up to 650 million impressions!)

But there’s something else going on here. Just as the internet let everyone into the news business and thus changed the definition of what “news” actually is, so it changed the nature of the  advertising business as well.

What counts as advertising anyway?

As my colleague Mark Henderson of The016.com in Worcester pointed out in a comment on a previous BoW post, news is no longer information you found exclusively in the local newspaper. The definition has stretched. News is everywhere. NextDoor, for example, is in one-third of U.S. households now — that makes it by far the largest publisher of “news” in the country. “Nextdoor’s vision is to inspire active neighbors and organizations to continuously exchange value, utility, and community for all,” Head of Product Kiran Prasad told Axios recently. Sounds to me a lot like the original function of a local newspaper. News of the new pizza store coming to town, the hardware store going maskless, the 50% promotion underway for a tune-up at Joe’s garage, that’s all on NextDoor now. It delivers news like newspapers once did. Not journalism, journalism is about judgment, interpretation and opinion. Just the news.    

Just as the nature of news and its distribution has undergone transformation, so too has the nature of “advertising” itself. If a real estate agency shifts their budget from an ad in Saturday’s paper to their own website and to fees for Zillow, is that even captured in charts of ad spend in local markets? 1.75 million U.S. merchants currently use the Shopify platform. It supports a tidal wave of retails brands going direct. How many of them would have bought an ad in a local paper? Shopify is 45% of the size of Amazon, the most successful new entrant to the digital advertising marketplace. (Someone better tell Murdoch, and Klobuchar) Last year merchants paid Amazon $31.6 billion for placement in search results — is that a marketing or an advertising expense? Is it new spend by new, digital merchants, or reallocated spend from traditional newspaper advertisers? Trip Advisor spends about $600 million on Search Engine Marketing a year — does that “come from” newspapers? 

There’s more.

Instead of putting together a multi-faceted ad campaign designed to move consumers over time down the marketing funnel to a purchase decision, advertisers today map their best customers onto a targeting profile and develop ad content to convert customers immediately. So…

• Facebook finds the customers
• Shopify builds the storefront
• Stripe handles payment
• Rakuten packages and ships the goods
• UPS delivers them

Is every participant in this e-commerce stack in cahoots to siphon money from newspapers, or is just Facebook responsible?

Seeking redress from “Big Tech” for their success in advertising is rather like seeking redress from Walmart for wiping out Main Street. Why? Because in doing so they wiped out the small retailer base of newspapers in towns across America.

Ah yes, Walmart. Once, a group of newspapers had me fly on a rickety prop plane to Bentonville, Arkansas to pitch a print advertising campaign to the Walmart executive marketing group. I was ushered into a waiting room. There on the wall hung a gigantic, framed statement. It read:

“If you’ve come here to talk about newspaper advertising, you’re wasting your time. And ours.“

I’ve never forgotten that meeting. I was representing over 250 newspapers. It meant nothing. By the time they were done, I felt rather like a hairy bagpiper in a kilt posing like Marilyn Monroe over a grate. Embarrassed and exposed. That meeting spelled the collapse of the newspaper retail advertising category, typically 40-45% of a daily newspaper’s advertising revenue. What happened to the rest?

I’ll tell you where the rest of the money went. It moved to a different kind of competitor. A digital classified advertising competitor. In Living in Lala Land I wrote this:  

If Google didn’t put newspapers under, who did? Well, they were done in by Autotrader and Cars.com, by LinkedIn and Indeed, by Zillow and Trulio, by eBay and Craigslist, by digital natives that together ripped out the automotive, employment, real estate and general merchandise categories of the classified advertising franchise — and with it 40% of a typical newspaper’s advertising revenue and 60% of its profit.

It is undeniable that the internet has radically changed the structure of the advertising marketplace. Newspapers no longer provide the indispensable connective tissue between buyer and seller. They lost that job the day Netscape went public. Before politicians begin to enact polices based on what passes for market understanding downunder, it would probably be a good idea to try to understand the forces driving those changes and form an informed point of view on how that marketplace is evolving. Applying the perspective of the analog world to the digital world is a recipe for policy disaster. Do that, and you will surely underestimate the enormity of the transition through which we are moving.

As it happens, the influence of Google and Facebook in the advertising marketplace is beginning to wane. Apple’s crackdown on how apps can collect data from users, along with growing global regulatory pressure, is already slowing them down. Have you looked at Facebook’s stock price lately? We are now entering the era of the connected television. Even as television is getting a smaller share of the advertising market, the most sought-after digital advertising outlets are the new “connected TV” platforms — places like Roku, Hulu and Viacom’s Pluto TV. Those platforms put old-fashioned television ads next to old-fashioned television shows, but also provide advertisers detailed data on who is watching. The advertising marketplace is evolving radically, quickly and as usual, legislators are a long way behind in their understanding of it…

Punishing those who create demand

What’s key here is understanding that contrary to what we all believed at the advent of the consumer internet, it does not disperse economic power. Quite the opposite. It centralizes it. At first blush, that sounds like a bad thing. It’s not. When services compete without the constraints of geography or marginal costs, dominance is achieved by controlling demand, not supply. The more users you aggregate, the more data you gather, the more you refine your product, the more demand you foster, the more users you aggregate, the more data you gather, onwards and onwards. The writer Ben Thompson calls this “Aggregation Theory.” In this context, winners take all, not because they control the supply, but because they stimulate demand. This is the very opposite of what Murdoch’s media empire sits upon. He’s all about controlling supply. (That’s where that “bucket of shit” negotiating strategy came from) He owns the presses and locks up cable and satellite spectrum as the basis for exercising pricing control over the advertising he sells. Regulating the market so as to punish a company for its success in creating consumer demand and reward those who have not seems, to me at least, antithetical to the basic market principles of free competition based on risk-taking and innovation.

Trying to pump up the supply of a product that is demonstrably not in demand is nothing but a short-term sugar hit, and a surefire strategy for wasting taxpayer money to boot. None of the tiny, innovative news start-ups that are springing up everywhere around the country now are asking for federal handouts. They know it would be a waste of time. They don’t have Murdoch’s clout. Nor anything to offer Klobuchar.

Anyway, they’re too damn busy trying to figure it out.

Look, you can fulminate against the zeitgeist all you want, but trying to stop it is rather like putting your finger in the Dutch dyke. It doesn’t matter how loudly you speak or how self-serving your argument or what support you buy from unknowing politicians scared of your influence, it will do you in no matter what. It’s just a matter of time. The irony is that people like Murdoch — and many of the people who work for him — get that. To use his terminology, they don’t give a shit. They’re going to get whatever they can get for as long as they can get it.

The lesson here for traditional media businesses should be to spend less time trying to leverage what remains of their political and, yes, their social capital to seek financial compensation for competitive failure and more time on the seriously hard graft of building successful digital news products that people actually want. Not digital versions of your newspapers, which simply transfers the same market failings from print to digital, but genuinely new, digital news products.

Not. Gonna. Happen.

I planned to end this essay with a swipe at the journalists who have covered this issue so poorly. Some, blinded by self-interest, have even joined the chorus advocating for what Murdoch has conspired to do. But, I’ve blasted that crowd so often here I’m in danger of becoming a truculent caricature of myself. So let me instead conclude by saying that if you ever needed proof that newspaper company chieftains are simply “managing down” their properties until the expense lines finally cross the revenue lines and they close the doors for good, look no further than their attempts to pocket taxpayer money under guise of protecting democracy. That, together with their refusal to invest in the mission of reconstruction, reveals all you need to know.

They’ve opted for controlled euthanasia. It’s cynical as hell. And it’s nauseating to stand by the bed and watch it.

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And now, the Update:

If you’re new to BlastofWinter, let me explain that usually I finish each post with a summary of what I’ve found interesting in the media business lately. Most have already been featured on BlastofWinter’s FB page — you may want to follow that.

But, given current events in the world, talking about the media business feels pretty damn trivial. So, instead of the regular Update, here are some links relevant to the Ukraine crisis you might find useful — and interesting.

First, you should be checking out Twitter, which is made for just this kind of news event. You could start with this list from Noah Smith: https://twitter.com/i/lists/1492242776825552896

And here is a list of places to contribute, courtesy of NotBoring:

• Revived Soldiers Ukraine
• Ukrainian Red Cross
• Voices of Children

Airbnb’s non-profit arm, Airbnb.org, is offering free, short-term housing to refugees fleeing Ukraine. These stays will be funded by Airbnb, donors to the Airbnb.org Refugee Fund, and the generosity of Hosts on Airbnb.org. You can volunteer to host or donate to cover costs of housing and relocation here

The New York Times has good coverage of course and so does the Financial Times in the U.K. Both are using liveuamap.com as a source, I highly recommend it: https://liveuamap.com/

Another valuable resource is this news aggregator run by a group of veterans : https://www.oafnation.com/news

And you have to love what my alma mater, the BBC, is doing here to help Russians and Ukrainians get access to news. You know it’s serious when the BBC is promoting access to TOR! Last time I looked, the BBC World Service was broadcasting into 200 countries, often in their own language. Remarkable. https://www.bbc.com/mediacentre/articles/2022/advice-on-accessing-bbc-news

You may not have heard of “Lord Haw-Haw,” the American-born, Ireland-raised radio announcer who broadcast Nazi propaganda from Berlin during World War 2. When it was over, he was hung. Here’s a story about today’s Lord Haw-Haw: Russian State Media and Tucker Carlson Not saying he should share the same fate, of course

I’m no fan of the identity righteousness that plagues us these days, but I’m also someone who has traveled widely through Africa and the Middle East. So, when I see the coverage of the Ukraine refugee crisis, I see in it the reflexive bias of the western journalist. There’s a big lesson here: Statement by the Arab and Middle Eastern Journalists Association {PDF}

That’s it for this one. Thanks for all your emails, keep them coming at peter@pwinter.com, especially the complimentary ones!

And, as always and especially at this time, go in peace.