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Responsible Reporting Section 1 ‘News in Context’: Chapters III and IV

One thing has changed in the 13 months since the following book excerpt was written: Google loosened some of its services and software cross-integration, presumably in response to antitrust problems in Europe. The company is in the process of divesting some Google+ assets, for example. But in other respects, integration is tight as ever, particularly around mobile, which in 2015 dominates U.S. Google search—and nine other countries, including Japan.

That introduction is important context for reading today’s serialization of my ebook Responsible Reporting: Field Guide for Bloggers, Journalists, and Other Online News Gatherers. The third and fourth chapters carry forward an incredibly important, but often misunderstood, theme: The Google economy’s devastating impact on news gathering, and eroding ethical standards around it. I am not anti-Google, being myself a huge consumer of the company’s services. Nevertheless, criticism stands.

Much of the supporting data is from early 2014, at the time Responsible Reporting published. Either the trends still apply or they have accelerated in 2015. If you haven’t already, I strongly suggest reading the previous two excerpts—Foreward and “News in Context” Chapters 1 and 2. Reminder: Responsible Reporting releases into the public domain, after the serialization ends.

With that introduction…


 

III. Desperate Panhandlers

SEO makes sense for, say, local businesses. It’s the wrong priority for the Fourth Estate. News should be optimized for readers, not Google. Aggregation and SEO-chasing tactics degrade the quality of reporting even as content volumes increase. Traffic trumps truth. “The effect of the current changes in the news ecosystem has already been a reduction in the quality of news in the United States”, Tow Center’s report observes. “We are convinced that journalism in this country will get worse before it gets better”.

News consumers aren’t oblivious and develop negative perceptions applied to all news gatherers. This comment, to one of my news analyses from 2010, captures the sentiment: “The ‘media’ is a freakin’ train wreck these days. You’re all a bunch of desperate panhandlers willing to sensationalize crack lint if you thought it would advance your readership”.

New journalist-driven enterprises seek to right perceived reporting wrongs. Among them: PandoDaily (January 2012); re/code, Inside, and Yahoo Tech (January 2014); Vice News (February 2014); First Look Media (in process, February 2014); and FiveThirtyEight (March 2014), among others.

This second wave of new media—third if counting as first Gawker (March 2002); Daring Fireball (August 2002); Engadget (March 2004); and others pre-2005, which I do—is sincerely motivated but quite likely misguided.

“As journalists appear to be building great enthusiasm for their own prospects in digital media, there is a countertrend among advertisers: The value of digital media continues to decline”, Wolff observes in February 2014 analysis “Putting journalism cart before advertising horse”. “So why are journalists smiling? In part, because they have no idea what they’re talking about. Why would they? They don’t sell advertising”.

Many of the journalists tapped for these new ventures come from the pool of senior staff members laid off from mainstream publications following the September 2008 stock market crash. They were victims of advertising and search engine obsessions before, and the newsonomics are no better—by most measures worse—a half-decade later.

Other journalists command strong personal brands, which new media companies seek to capitalize on. However, analyst John Blossom faults the industry for putting too much “capital investment” into “empowering centralized publishing organizations”. He says of the new ventures:

So will every one of these superstars gone indie or nu-skool succeed? Of course not. But that’s not the point. The point is that a publishing system that does not enable them to follow their dreams more effectively is one that’s likely to continue to lose brand value and capital resources. Until then, as long as these folks can park their dreams on WordPress and Google AdSense, the slow dismemberment of major news media companies will continue.

IV. The Leech That Feeds

These new ventures won’t easily restore the kind of journalism they seek. Media, whether established or new, is bound to the Google “free economy”, from which search dependence is inescapable. The company’s business model is insidious and fundamentally undermines the quality of news reporting everywhere. Let’s italicize. Google is a leech that feeds off the intellectual property of legitimate content producers. The search giant profits from your good work, reducing its value in the process.

Stated differently, “You create it, we sell it, and you must give it away for free”. How convenient that Google assigns such value, free, to someone else’s good work, while producing little content of its own.

“The big G doesn’t contribute anything to the work of creatives”, Sons of Anarchy creator Kurt Sutter complains. “Yet Google wants to take our content, devalue it, and make it available for criminals to pirate for profit”.

Overture, which Yahoo acquired in 2003, invented the core business model Google perfected—selling keywords and ads around search. During fourth quarter 2013, the company generated $15.62 billion revenue, excluding Motorola, which Lenovo acquires. Search and related advertising revenue is right at 90 percent, which is persistent over time. Google’s dependence on search-related revenue, derived from content someone else produces, cannot be understated.

Mighty Monopoly
Google Search arguably provides a necessary utility, from which media organizations benefit. I single out the service from competing ones, for obvious reasons: reach and influence. Google’s U.S. search share was 67.6 percent during January 2014, according to comScore. Global share is nearly identical, although Google’s dominance is considerably higher in some regions. For February 2014, NetMarketShare puts Google global search share at 71.81 percent on PCs and stunning 90.92 percent on phones and tablets.

With search comes enormous advertising influence. Google accounted for 32 percent of global net digital ad revenues in 2013—40 percent in the United States, according to eMarketer. Mobile is considerably greater: 48.8 percent globally and 41.5 percent in the United States.

“Digital advertising in the U.S. is a $43 billion market. Most of those ad dollars, though, go to a handful of large technology firms, such as Facebook and Google. Pew Research estimates that news properties lay claim to, at minimum, roughly $5 billion—or 12 percent—of the total digital ad market”. Stated differently: A large number advertisers prefer spending on search, banner, and related digital ad products provided by big techs rather than direct deals with media companies.

Advertising accounts for 69 percent—that’s $43 billion—of U.S. news revenues. What Pew calls “audience revenue”, where someone actually pays, amounts to 24 percent of the total.  According to Pew:

Audience revenue is the next largest source of income for the industry, accounting for about a quarter of the total news pie through subscriptions, cable fees, and individual giving. It is growing—both as a dollar figure and as a share of the whole. But audience-driven revenue growth does not necessarily signify that more people are paying for news. Rather, the data suggest that, in aggregate, more revenue is being squeezed out of a shrinking—or at least flat—base of paying consumers.

Meanwhile, as stated previously, voluminous content—whether news or other—generates more space for advertising than can be filled. Even Google can’t make that kind of magic. So there isn’t enough to go around or for high-enough page rates. Meanwhile, paid search, banner, and other ads assault consumers, who can become blind even to prominent paid placements.

Chink, Chink
Google is by no means immune to online advertising’s declining value, even as overall spending rises. The search giant’s cost-per-click—what advertisers are paid—fell for every quarter, year over year, in 2013, even while the number of clicks increased. CPC declines: Q1 (4 percent); Q2 (6 percent); Q3 (8 percent); Q4 (11 percent). The escalating numbers reveal an increasing and ongoing trend, particularly when set against CPC 2012 declines: Q1 (12 percent); Q2 (16 percent); Q3 (15 percent); Q4 (6 percent).

Google dismisses declining CPC as little more than increasing demand for mobile devices, where ad rates are lower than they are for PCs. The defense is not meritless, with mobile accounting for 15.2 percent of global digital ad spending in 2013, up from 8.5 percent a year earlier, according to eMarketer. But Google’s spending share, as previously stated, is considerably higher—nearly 50 percent—on mobile, which compensates for lower ad rates.

How CPC relates to other changes reveals something else. In Q4 2011, for example, Google reported $3.51 billion operating income, or 33 percent of $10.58 billion in revenue. A year later: $3.39 billion operating income, or 24 percent of $14.42 billion in revenue. Fourth quarter 2013: $3.92 billion, or 23 percent of $16.86 billion revenue. The data includes Motorola. Operating margins are down over two years despite overall revenue increasing by 59 percent.

Meanwhile, during Q4 2013, Google’s traffic-acquisition costs—what the search giant spends related to ads—reached $3.31 billion, or 24 percent of revenue. That compares to $3.08 billion a year earlier and $2.44 billion in Q4 2011. So in two years, TAC is up by 35.6 percent. Set against CPC and operating income, the data reveals declining ad value, while increasing costs to Google.

Analyst data adds greater context. For example, while U.S. search advertising revenue rose 7 percent to $8.7 billion year over year during first half 2013, according to the Interactive Advertising Bureau, search fell to 43 percent of digital ad spending from 48 percent a year earlier. eMarketer predicts that spending on display advertising will snatch the top spot from search in 2015.

Tightening Grip
The recent CPC trend, foreshadowing others, began in fourth quarter 2011. The same year, when co-founder Larry Page returned as chief executive, Google started to aggressively consolidate and cross-integrate products and services, leveraged off search. As a reporter covering Google for more than a decade, I see several motivations. Two, interrelated, matter more to news organizations: The company seeks through reach to increase advertising value (more people use more products related to search and Google knows more about their behavior) and dependence (to lock in consumers and content creators and to hook advertisers).

Google+, one of the newcomers, is essential to the increased cross-integration strategy. Google Now is another anchor. A few examples of increased product interdependence, and I limit because there are so many:

I cherry-pick these examples, but I could write another book just on the cumulative changes and what they mean coming from a leveraged monopoly affecting most of the world’s online population.

Google’s ambitions could make advertising more valuable, particularly as services like Now—tied to Gmail, Plus, Search, and other products—provide actionable, demographic profiles based on users’ identities and activities. Traditional keyword search is contextual, based on what someone looks for. The cross-integration strategy extends context to location (where you are) and behavior (what you do online), which value increases as mobile advertising rises.

But what’s good for Google’s goose isn’t necessarily gravy for the struggling news industry. There still is too much content and not enough advertising to fill it. Meanwhile the company exerts influence. Consider that Google+ users see search recommendations from people in their Circles and recall the number of Cable TV viewers who get news from the social network. Meanwhile, schemes like Google Authorship promise better search visibility to writers who link websites to their Plus Profiles. Think of all these things as Google glue—one service, search, to bind them together and to stick them to content creators and consumers.

Stated differently: The monopoly seeks to make content creators dependent on search and related integrated services. To be visible, you must “go Google”.


Editor’s Note: As part of the integration divestiture noted in this post’s introduction, Google+ authorship no longer snugly ties to search. Instead, Google advocates other mechanisms, such as Structured Data Markup.


Photo Credit: Trey Ratcliff

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