Phillip Pearlman, Sam Zell, Valleywag, and me

Phillip Pearlman is a hedge fund manager, stock blogger, and psychologist who I read occasionally. I am not sure if I started reading his blog first or he started reading my blog first, but in any case Phil sent me an email yesterday pointing to some comments Sam Zell made recently in regards to newspapers and Google.

If all of the newspapers in America did not allow Google to steal their content, how profitable would Google be?

Phil suggested, and I agree, that Sam's a savvy and tough businessman and might actually have the guts to take on Google. But Phil and I disagree on how that fight would likely end.

And I must point out that Google doesn't "steal" the newspapers content, but more on that below.

Then I saw that Nick Denton was taking the defense of Sam Zell. Nick's a smart guy so I read his post, In Defense of Sam Zell, a few times.

Here's one paragraph from Nick's piece.

What if a collection of newspaper groups got together, a little like NBC and News Corporation have combined in video, and negotiated terms with the more compliant internet companies such as Yahoo? Yahoo agrees a larger revenue share for hosted newspaper articles; the print groups block Google's search engine in return. Unless Mountain View agrees to the same terms. It's not that preposterous once you think about it.

The video thing is completely different. In that case, YouTube is showing the entire video, not pointing to it on NBC's website.

Maybe Nick's talking about Google News. It's a business he knows a fair bit about since its pretty similar to his previous company Moreover. But even Google News doesn't showcase the entire news story. It's a headline aggregator for the most part with a small two/three line blurb from the article.

But Google News is not Google. If you look inside of Google, there is only one and a half businesses that really matter. Search and ad networks. Search being the one that really matters. And ad networks is the one that matters more and more every day.

If Sam Zell blocked Google from crawling all the Tribune papers, I doubt Google would miss a beat. I would bet that less than a tenth of one percent of all searches and clicks on Google are related to Tribune newspaper content. If all the newspapers followed suit, I doubt Google would miss a beat. I would bet that less than one percent of all searches and clicks on Google are related to newspaper content.

Ad networks are a different story. Newspapers are probably a bit more important to Google in the ad network business. But most newspapers use Google to monetize their remnant inventory. If they had a better option for that inventory, they'd move in a nanosecond. But they don't. Viacom has decided to go with Yahoo! for this business instead of Google. They will pay a price for that as Yahoo! will not monetize their remnant inventory as well as Google. Maybe over time Yahoo! will catch up, but in the short run, a move away from Google for remnant inventory costs you money. Maybe Sam Zell will lead the newspaper industry away from Google and into the hands of Yahoo!.

But even if he did, I think it won't cost Google much. What Google realizes and Sam Zell might not is that the web is full of great content and less and less of it every day is coming from newspapers. And more and more of it is coming from people like Phillip Pearlman, Valleywag, and me.

Comments

[AlFromChicago]

Fred -
Agreed -- and there is a flaw in Nick's argument as well -- there are already very good alternatives to adsense out there, and getting better. Panama is finally out from Yahoo! and probably more relevant is Quigo -- the NY Times did a big write up on them a not too long ago -- more and more large brands like FoxNews and ESPN are moving towards them as they provide both transparency and allow the publisher to own the ad relationship. That shift while it gains steam will cost Google some -- not only the loss in large publishers but also you would think large advertisers would move as well. But given that Google is all CPC (vs the other ad networks that average in high profile sites with small ones) -- not even sure how much this shift will affect Google -- they still have so many publishers out there that it is unlikely to move the needle. In any case, point is publishers already have alternatives and will continue to have more.

The biggest problem facing Zell and the newspapers in my opinion is the flat out destruction of value. Usually companies are forced to make decisions about investing in lower margin alternatives to their product (Innovators' Dilemma, e.g.) -- in this case the alternatives are practically 0 margin thanks to Craig's List etc -- Google can only help them. For more check out http://www.buzztracker.com/category/google or http://www.buzztracker.com/category/tribune_company

--Alan

[Cem Sertoglu]

I agree, Fred. Furthermore, the moment a syndicate of newspapers start blocking Google, Google would move to create its own news bureau infrastructure, which, with the proliferation of blogging and the availability of feed infrastructures, should not be a huge hurdle. Then the newspapers will have spawned a new competitor for themselves. I like Google's position in this one.

[Phil]

i just write up some preliminary remarks on this here

www.eightfatswine.com

and for the record i start reading your blog well before i start blogging and, have been influenced by your willingness to put yourself out there and greatly appreciate it fred...

[Charles Smith]

Media owners (I am one) have to realize that as circulation of the print product drops, search engines are the only free marketing vehicle they have. Blocking Google accelerates the death spiral. You have to work within their parameters to succeed. Far more threatening is Google Base- do a search for real estate brooklyn (insert your town). that's what we should be focused on.

[Beth]

What I find most fascinating about Zell's plan is that it is exactly what got the newspapers in this predicament (slowing revenue growth, etc) in the first place, being closed. When that didn't work - the newspapers scurried to come up with a model that was relevant for this new medium.

How many more examples do we need to illustrate that closed networks don't work?

He should be spending his energy thinking about new ways to deliver relevant content in a new world of endless substitutes.

[Some Random Visitor]

very interesting!!!

[Rick]

Newspapers rarely use Adsense. (Like Al said) the big ones use Quigo. Adsense just doesn't work for local sites.

Regardless, Newspapers ARE paid by google. Newspapers allow and encourage the indexing by both Google News and the normal google search robots.

In return, Google gives them gobs of traffic. Stats from our newspaper clients show that Google gives newspapers between 25-35% of their traffic. Yahoo is only about 10%.

Most papers would hate to give up that kind of traffic, so I doubt that the newspapers will lock out google any time soon.

However, it would be interesting to see them try. Few papers have opted into google's archive project.

[Rick]

And by the way... the newspapers wouldn't be in this spot without their trade group, the Associated Press.

If the AP hadn't given Yahoo all their stories back in 1996/1997, then the newspapers would probably not be such slaves to the search engines today.

And Yahoo would be a much smaller company, maybe even a distant memory.

[EthanB]

I like how Mike at Techdirt analyzed these strategies (which, to me, are highly reminiscent of DRM in other media industries...trying to create some artificial scarcity):

"What [Google is] doing is making that content a lot more valuable by making it much easier to find...

"You don't yell at the phone book for 'making money' off of your contact information. You don't yell at tour books for 'making money' off of other people's locations. You recognize that they make money by being a guide or a directory -- just like Google.

"Either way, it doesn't bode well that the guy who's taking over the Tribune Company doesn't seem to have the slightest clue how Google works or how it's helping, not hurting, the business he's in the process of buying."

[Cyanbane]

I think everyone can agree that Zell is an extremely smart business man, thats why I don't even begin to think that he is naive enough to imagine that the Tribune cutting ties with Google would have any type of mass effect on Google's bottom line. What Does interest me though is that fact that this is another large scale statement AGAINST Google that seem to be a slowly growing wave (See last week's business week cover etc.) I think that his comment, if anything, is starting to solidify growing tide of public disenchantment with Google, which if I were Google/Google PR I would fear faaaaar worse than losing the Tribune's crawlability/spiderability.

[ben]

I think one thing that has been lost in many of the conversations is the difference between the search term ad sense advertising and the rich and less, though it is changing by the day, commoditized display and audio advertising. Search results and ad sense are drivers of revenue with out a doubt, but ask the newspapers where a majority of the online revenue is coming from and one will see that it the banners and video impressions that are generated by the pages that are being sold and generating much more revenue for the newspapers than the text links. From a remnant point of view, google competes with a number of networks that are constantly being shuffled based on effective CPMs, that are constantly changing.

[Anonymous]

"I think that his comment, if anything, is starting to solidify growing tide of public disenchantment with Google"

I think you mean business, not public. Google is one of few companies that would readily build services for its end users without first considering how to monotize it or the possibility that they are completely destroying other how other companies monetize a similar product.

And just recently, with Google 411, Google completely disrupted the aid 411 scene.

I love Google for that. And I actually kinda like their business arrogance too. Big businesses too often boss us petty consumers around, it's good to see them getting a taste of their own medicine.

Businesses have a love/hate relationship with Google but the general public still loves Google.

[Ara]

Isn't it funny that it's 2007 and most newspapers have still not come to terms with the Internet. I read the LA Times and their site still looks a half-baked digital version of a newspaper, rather than a site that capitalizes on the advantages the new medium makes possible. Yet all I ever seem to hear are excuses (one day they're blaming Google, another day Craigslist), whining and talks of downsizing.

[Dave]

Isn't wonderful how history repeats itself. We saw this same thing play out with the Music labels and MTV when they were starting out - now look at MTV.

Rick says: "And by the way... the newspapers wouldn't be in this spot without their trade group, the Associated Press.

If the AP hadn't given Yahoo all their stories back in 1996/1997, then the newspapers would probably not be such slaves to the search engines today.

And Yahoo would be a much smaller company, maybe even a distant memory."

[Michael Stone]

Quigo is quietly becoming dominant among local and premium branded sites. He'd be smart to strike an even larger deal with Quigo. This would put pressure on Google and help build a viable Adsense competitor. The market needs companies like Quigo to get big.

[Lids]

I like the way you end this post "and me". Blogging is so important to the world of online content. It's also great for personal expression.

[p-air]

will someone explain "fair use" to sam and his cronies. the "they're stealing our content" psalm is getting old now and they really need to get a clue or if they don't like the status quo then learn how to use the robot.txt file and stop whining about all of this. i kind of wish that google had made an example of the belgian publishers by removing them fm their index just so they could see what the impact on those businesses would be. by caving to the lawsuit publishers like sam are getting too big for their britches again ;)

[p-air]

it just occurred to me, is everyone with "Zell" somewhere in their name a total moron about the Internet?

[hockeydino]

Phil the Pearl is a shrink? Here all along I thought he was just a nappy headed ho.

wow.

[Zach Coelius]

As someone who just made a big bet in the content monetization business you would think Zell would at least try and get a basic understanding of the ecosystem before he jumped. Unless he is simply making a bet that he can continue to extract value from a declining property, he is in for a big surprise when it comes to the internet. Good luck to him.

Keep up the good work.