Big Tech’s big blow to the news business

On 11 June, the US Congress’ House Judiciary Committee launched an investigation into the market dominance of Silicon Valley’s biggest firms, starting with the impact of digital platforms like Google on news publishers. The US justice department and the Federal Trade Commission (FTC)—which lead anti-trust enforcement in the country—are already gathering ammunition.

Interestingly, in a Senate and Congress deeply divided on party lines, the crackdown on Big Tech has bipartisan support. Prominent Republican and Democratic Party politicians—including Democratic Party presidential hopefuls—have called for strong measures to cut GAFA (Google-Amazon-Facebook-Apple) down to size—even literally breaking them up into smaller companies.

The unfolding events in the US are part of a pattern across the West. In February, the UK government-appointed Cairncross Committee, headed by Dame Frances Cairncross, former rector of Exeter College, Oxford, and senior editor at The Economist, submitted its report on “a sustainable future for journalism” that called for the government to step in to, among other things, regulate digital platforms. In March, in a move that could transform the digital delivery of news across European Union (EU) countries, the European Parliament passed a law that will require platforms to get authorization from and possibly pay publishers to use their content.

In the US, the House Judiciary Committee, in its first hearing, focused on tech platforms sucking away advertising revenue from news and media outlets to generate massive profits. The figures are horrifying. With revenues falling sharply, newsroom employees have declined by nearly half since 2008. This year alone, over 2,900 reporters have lost their jobs. Local newspapers, which have always had pride of place in the American democratic process, have been the hardest hit. “We cannot have a democracy without a free and diverse press,” said representative David Cicilline, a Rhode Island Democrat who led the hearing.

The day before, the News Media Alliance (NMA), an advocacy group representing 2,000 US newspapers, had published a study that claimed that Google made at least $4.7 billion from the work of news publishers in 2018 via search and Google News, just slightly less than the $5.1 billion earned by the entire US news industry from digital advertising last year. The NMA demanded that publishers deserve a cut of that $4.7 billion.

The mechanics

How does Google make this money? The company’s principal source of income is advertising, whether on its platforms or by serving up ads on its clients’ sites. When you do a Google search, the result page very often carries ads. When you click on an ad, Google makes money. Suppose you click on a news item, you move to a news site, but chances are that you will encounter ads placed there by Google. You click on any such ad, Google makes money. Even if you don’t click on any ad, Google is collecting data on you, which is fed to its algorithms, which are working to make money for google.

What the NMA study found was that around 39% of results and 40% of clicks on trending queries on Google are news related, as are about 16% of results on the “most-searched” queries. And between January 2017 and January 2018, traffic from Google Search to news sites rose by more than 25%. Google has been leveraging this trend by adding and tweaking features and adapting its algorithms to increase user engagement. Google News, which does not pay news publishers or consult them on how the news content is treated or displayed, already has more unique monthly visitors in the US than any news publisher site.

The methodology the NMA used to reach the $4.7 billion figure has been disputed (Google has called it a “back-of-the-envelope” calculation), but it is undeniable that Google makes a lot of money using content that others are paying to produce. The question is whether Google is also bankrupting those others in the process.

A Google spokeswoman has said: “The study ignores the value Google provides. Every month, Google News and Google Search drive over 10 billion clicks to publishers’ websites, which drive subscriptions and significant ad revenue.” Some media experts have also criticized the NMA on a more basic issue—that newspapers have not been able to crack the internet economy, while Google and Facebook have, and asking them for a cut of their revenue is no solution.

Cairncross panel’s solution

The NMA’s immediate objective is the passage of the Journalism Conservation and Preservation Act, which aims to give publishers the ability to collectively bargain with platforms like Google and Facebook. This law would exempt publishers from anti-trust rules for four years, protecting them from charges of price collusion. The Bill has bipartisan support, and is co-authored by Cicilline, who is heading the current hearings.

There is, of course, much irony here—anti-trust legislators are pushing an anti-antitrust law. But, say the supporters of the Bill, the very future of democracy is at stake; the survival of journalism cannot depend on a few tech platforms (Google and Facebook drive 80% of external traffic to news sites) and their algorithms, whose workings they refuse to reveal.

Permitting cartelization of publishers is one of the options that the UK’s Cairncross Committee has considered, but feels this approach is problematic. For instance, cartelization could lead to higher prices (which, in this case, the committee admits, may be justifiable), and could unduly benefit incumbent publishers at the expense of smaller ones and startups, which are likely to want quite different things from the platforms.

Instead, the committee prefers that the platforms be required to set out a code of conduct: sharing some information with a publisher on its readers’ behaviour; giving notice for significant changes to algorithms that may impact the display of a publisher’s content on the platform; indexing only a certain amount of a publisher’s content or snippets, unless the parties agree otherwise, and so on. A government regulator will approve this code of conduct, which will form the basis of negotiation of commercial arrangements between platforms and individual publishers. The regulator will ensure the platforms’ compliance. But the committee does not seem to realize that the power relationship is humongously skewed in favour of Google in any individual negotiation. It can afford to walk out of any such talks and refuse to index any number of newspapers, while an individual newspaper will suffer significant loss of traffic and ad revenue.

The committee also recommends that the UK government treat small local newspapers which focus on “public interest journalism” rather than commercial interests, as tax-free charities rather than businesses, or at least extend heavy tax benefits. Now who decides which newspapers qualify for these handouts? Well, almost all the Cairncross recommendations see a greater role of the bureaucracy and government committees in managing “public interest”, “media literacy”, “news quality”, and so on. Both Google and Sir Humphrey would be happy.

The EU solution

The EU has been much more on the ball. It led the way on digital privacy rights with the General Data Protection Regulation, which came into effect in May 2018, giving EU citizens greater control over their personal data. On 26 March this year, the European Parliament passed an update to copyright law which significantly affects the use of news by Google and Facebook. This is a directive that EU states will have to turn into national laws within 24 months.

The EU has introduced a concept called “ancillary copyright” that directly impacts Google News. Almost 60% of EU internet users access news through social media, news aggregators or search engines. About half these users only read extracts or summaries of articles provided by these platforms with no click-through to the website that created the content. Ancillary copyright lets publishers charge the likes of Google for reproducing snippets of article text in search results.

This seems to be a big setback for Google, which appears, at first sight, to have only two choices: pay up, or shut down Google News in Europe. But matters are not so simple. One, unlike the GDPR, which applied uniformly to all EU nations, this is a directive, which every EU member can tweak a bit—that is, it has some flexibility with the length of the news snippet allowed, without infringing copyright. And Google has indicated that it may lobby every EU government individually.

Two, newspapers depend a great deal on Google for their traffic. While campaigning against the passage of the new rule, the company ran a test showing what Google News would look like with only very short fragments of headlines and no preview images. Google global affairs chief Kent Walker wrote: “Even a moderate version of the experiment (where we showed the publication title, URL, and video thumbnails) led to a 45% reduction in traffic to news publishers.”

Three, German and Spanish publishers have tried to make Google pay and accepted defeat. In 2013, Germany granted news publishers the right to charge search engines and other online aggregators for reproducing their content. A consortium of publishers led by Axel Springer told Google News that it could no longer publish snippets of text and images from their publications. Google complied and ran only headlines of articles. Over the next two weeks, Axel Springer saw a 40% reduction in website traffic from Google and an 80% drop from Google News—and agreed to be indexed once again by Google News.

In 2014, Spain made it compulsory for publishers to charge platforms for carrying their content. Google responded by cutting off Spanish news publishers from Google News. Traffic to news websites dropped, especially to smaller publishers. Publishers finally caved in and licensed their content for free to Google. Thus, publishers’ revenues, especially those of smaller ones, will definitely suffer, at least in the short term, if Google shuts down Google News in Europe. But the question is, sure, Google can arm-twist an industry in one country at a time, but can it dare do so in a 27-country bloc, which is a huge market? Especially when the EU sees this as part of the larger war it is waging against Big Tech. It has fined Google a total of $9.3 billion in three cases over the last three years for abusing its market dominance (Google is appealing all three verdicts). On the day the new law was passed, European Commission spokesman Margaritis Schinas tweeted: “With today’s historic copyright vote, clear EU rules now in place for online platforms…Europe takes back control.”

In conclusion

In the US, the House Committee plans hearings, depositions and interviews over the next 18 months. Then there are the upcoming investigations by the justice department and the FTC. Big Tech could be looking at years of trouble. However, tech giants are also lobbying harder than ever. For two straight years, Google has been the top US corporate spender on lobbying, splurging $21.7 million in 2018. Amazon spent $14.4 million, and Facebook $12.6 million, both ranking among the top 20 spenders. The battle has just begun.

Where do we stand on this in India? Unlike in the West, print advertising is still growing. Digital advertising is growing at more than 20% a year, but there are no figures available on how much of this goes to Google and Facebook and how much to media sites. However, one can say with some certainty that the Indian news industry is still far from the existential crisis that its western counterpart has been facing. But in the internet age, things can change at warp speed. After all, Google is not yet 21 years old, and Facebook is just 15.