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June 18, 2015, 10:44 a.m.
Business Models

Newsonomics: Could a small Google tech change mean tens of millions to news publishers?

Whether they’d do it out of benevolence, fear of regulators, or the quest for a competitive advantage, Google could be of real service to the news industry and the broader cause of journalism. Here’s how.

The late April news was impressive and divisive: Google would spend €150 million on a new Digital News Initiative (DNI) partnership with European news publishers (“Google to launch $150 million partnership with publishers”). The amount of money caught the eye, even if it was a tiny fraction of Google’s $14.4 billion profit in 2014. Still, to newspaper publishers now counting every dime, it appeared to be a significant pot of funds. What kind of initiatives might be included in such a “partnership”? Given all the damage, most of it collateral, done to the news industry by digital disruption over many years, was there anything that could be done now to reverse the seemingly permanent spiral downward?

We now have a sense of what’s on the horizon — and how significant an impact may be possible. Next week, the eight founding DNI publishers — the Financial Times, The Guardian, Italy’s La Stampa, France’s Les Echoes, Germany’s Frankfurter Allgemeine and Zeit, Spain’s El País and the Netherlands’ NRC — will meet for a couple of days with top Googlers on its Mountain View campus to form the agenda of partnership.

The Guardian led the development of DNI, and departing Guardian CEO Andrew Miller made it clear what’s atop his wish list when we talked about a month ago: bettering advertising monetization. “Newsonomics: The Guardian is trying to swing Google’s pendulum back to publishers”). That prospect should probably be Job No. 1 for the initiative; all else pales beyond the money question for publishers worldwide.

“What could I do to affect this number?” says David Gehring, pointing to newspapers’ ad revenues. “There is lots of press on advertisers complaining about being able to target quality audience at scale. What we need is demand-side targeting that does that.” Gehring finds himself uniquely situated in this partnership. A veteran of almost four years with Google in international partnerships, he has been advising The Guardian on partnerships since last fall. Consequently, he carries an almost unique portfolio — someone working in the interests of publishers, but with deep and wide knowledge of how Google actually works.

Gehring recognizes the organizational complexity of Google. Like any big company, its parts often align uneasily; people understandably want to get their own work done. So, with that knowledge, he believes that tinkering with Google’s plumbing could make a big difference in publishers’ moneymaking.

How might it work?

The proposition is simple: News publishers want to match their higher-quality news origination with higher advertising rates. That’s the “premium” term you hear slung around the industry — “premium” meaning original and trustworthy, as opposed to aggregated, lightly “curated,” or pirated. When publishers sell direct to advertisers, they sell “premium” and get rates from $8 to $50 per one thousand ad impressions (or CPM), with national/global news companies at the highest end. When they sell “programmatic” advertising, though, there’s no such thing as “premium.” Programmatic — the huge, overarching shift in ad buying — algorithmically matches available ad inventory with audiences (by age, gender, geography, and more). But it doesn’t distinguish between original content producers and the legions of repurposers out there. Top publishers may get a buck or two CPM for programmatic advertising — the same as anyone else.

Programmatic, along with digital video, is the fastest growing digital ad format today. Fully 63 percent of digital display ads will be purchased programmatically this year, according to one estimate. That’s almost $15 billion worth in the U.S., with retail, consumer packaged goods, financial, and telecom leading the way. Another way to think about programmatic: It’s hard to think of much advertising buying that won’t be soon influenced by it. Any buyer of advertising will want the best data available to improve its targeting of audience and to measure the efficiency of its performance.

So, to Dave Gehring’s point: What could Google do to allow advertisers to distinguish the audiences they can buy, to differentiate between premium and non-premium brands?

One answer looks deceptively simple at this point.

How Google could advantage real news — fairly

Google maintains a news index of more than 60,000 news publishers worldwide. Google essentially acts as certifier, vetting news sources as legitimate ones, and then including them in the index. Among the attributes required, from its directions to those who want to apply: “1) Sites included in Google News should offer timely reporting on matters that are important or interesting to our audience. 2) Original reporting and honest attribution are longstanding journalistic values. If your site publishes aggregated content, you will need to separate it from your original work, or restrict our access to those aggregated articles via your robots.txt file.” (Good Frédéric Filloux Monday Note explainer here.)

What if Google provided a persistent tag to be associated with any article originating with one of those 60,000 publishers? Those include thousands of legacy newspaper and magazine brands, but also the digital news startups that emphasize original content creation as well. As programmatic trading systems matched targetable content with advertisers, that apparatus could differentiate “premium” from “non-premium” audiences. Further, such premium content could still be found by category, like tech, sports, or health, increasing its value. Importantly, such tags wouldn’t only accompany articles in Google News itself, but on all news found throughout Google, including web search.

No new technology would be needed to make the addition; its cost of implementation miniscule.

What might it yield?

The arithmetic could be compelling. Gehring estimates that publishers worldwide now take in about $480 million a year in programmatic advertising. It’s hard to estimate how much the ad tag change could boost ad rates. We can put some arithmetic to them, though. As Gehring notes, a 25 percent increase in rate could have a big impact. That would amount to $120 million. The stakes, of course, would grow markedly if the theory proves out. If ad buyers really do want the “signal” of premium content via tagging, it’s foreseeable that programmatic could grow from $1 CPM to $2.

Gehring is reluctant to forecast, but my own numbers would show an additional $500 million in global programmatic income — again, if the program is successful.

How much of a difference might that make? At the beginning of the year, I calculated that the U.S. newspaper industry alone would need an additional $1.4 billion in revenue per year to escape its eight-year stretch of non-growth (“Newsonomics: How deep is the newspaper industry’s money hole?”) A boost in programmatic income would go a long way in meeting that number.

Further, that’s not money Google would need to pay news companies. It’s money advertisers pay publishers so that they can better reach the audiences they want.

Numerous big publishers have built “private exchanges” over the past couple of years. These enable continued direct selling to advertisers, but add in programmatic features, allowing more efficient targeting for big advertisers at slightly reduced prices. The notion of a bigger, or collective, private exchange built on a new Google news tag system may also then make sense. Pangaea’s recent entry into the marketplace marks this kind of movement and could be expanded.

This notion, in part, is one of reclaiming the publishers’ old friend: scarcity. Yes, ad inventory may be close to infinite on the web, but the high-quality premium audience is — somewhat — limited and can be priced, and sold, accordingly.

Why is Google doing this now?

It’s true, but facile, to note the convergence of Google’s numerous problems with European publishers and legal systems and the announcement of the Digital News Initiative. The great upswell of opposition to Google’s incredible European reach indeed pushed Google to a bargaining table. That’s not the only force at work here, though.

Consider the dogfight among giants in which Google is now engaged. While it used to drive as much as a third, more or less, of many news companies’ traffic, its share is in decline. Facebook is killing it, in social referrals, as Twitter and LinkedIn pile on. While Google News has always been a so-so player in news referral, Google web search long had the biggest bark; now it’s just one of several key “partners” of news companies. It needs to reestablish its primacy. Part of that may lie in better cooperation with publishers — in the form of other plumbing, like news tools, but also in data, video, and mobile. Further, Google must continue to better its own reader experience, so it can compete better; when Facebook told the world it wanted to host news content to create a better user experience for its users, it meant it.

Just since the start of the year, Google’s news competition has grown greatly, with the announcements of Facebook Instant Articles, Snapchat Discover, and Apple News. In this new world of distribution, publishers provide full content as never before, intending to reap the ad results. Google has hosted full Associated Press content, under terms of an earlier deal — is it game to do what its competitors are doing and become more of a destination for full news reading? And if so, on what terms?

As Google execs meet with those European publishers in California, a logical question also arises: Given that the same issues affect all news publishers, why is it only one continent’s publishers at the table?

What do publishers need and want?

Some in the industry privately labeled the Digital News Initiative publishers traitors for collaborating with Google. Given the pain of disruption, that’s understandable, but also fairly useless as a response. European legal actions have raised good questions, but they won’t get the news industry reborn for the digital age. There’s a fairly unintended good cop/bad cop act taking the stage: Google nemesis Axel Springer can play the tough guy, and fellow European publishers can press Google to live up to the kind of publisher-friendly, news-loving, democracy-supporting firm many within the company say it wants to be.

So now words must turn to deeds. In addition to the big tagging idea, what else might Google do?

The list here would be a what’s-what of the biggest challenges and opportunities confronting publishers today:

  • Mobile: With mobile now at more than 50 percent of usage, publishers are struggling with ad formats on the smartphone. How can the Android champion help there?
  • Video: Publishers see ad riches in digital video, but they struggle with its costs and presentation. Further, Google’s YouTube isn’t the greatest environment for news video. The company could find ways to align interests. Take what it announced today, its new YouTube News Service, powered by Storyful. YouTube is a great service, but its sheer disorderliness has drained its full potential. YouTube have moved forward with channels in part to address the chaos. Now, the YouTube News Service takes that gangly world of user-generated news video, from Middle East actions to exploding volcanoes, and makes a little order of it. Storyful, smartly bought for $25 million by News Corp in 2013, will showcase five to 15 videos each day, each vetted for authenticity, the core of the Storyful proposition. That attention to editorial quality, as well as quantity, should be a wider Google goal.
  • Reader revenue: Whatever publishers can do to increase digital ad revenue looms large. But it’s reader revenue that’s been the star of recent years. Paywalls have worked — terrifically at the biggest publications, somewhat for the regionals. As most publishers tighten the number of free articles available to non-subscribers, what could Google do to help publishers grow this essential revenue source?

For one, Google might be able to do some integration with publishers to personalize search results for their digital subscribers. Secondly, Google might make more flexible its longstanding “First Click Free” policy. That policy, seemingly an anachronism at this point, mandates that publishers using paywalls extend five free articles per device to Google users before hitting a paywall — despite any other restrictions publishers may otherwise use. “FCF” made some elemental sense when it rolled out in 2008, aimed at bettering user experience so that they wouldn’t bump their noses on harder paywalls. Now, though, Google could look at simply labeling paywalled content, as it already does for “mobile-optimized” sites. Here, the world has gotten more complicated as social traffic has mounted in importance compared to search. Publishers can exercise great (and increasingly nuanced) control over social access. It makes sense, in 2015, for Google to figure out how to loosen its reins, allowing publishers to run their own business strategies without interference.

How much value does Google get from news? How much value do newspaper companies get from Google, mostly in the form of traffic? We could use many calculations to get there, based on an array of assumptions, but let’s not go there now.

As intriguing as those value assumptions might be, I think they shouldn’t be the focus of the negotiation. It’s 2015, and there’s so much digital disruption water under the bridge, with more floodwaters on the way. Reparations aren’t the point. The point — for all those who value the role of a free and vibrant press in democracy — is how the increasingly digital world can fairly aid those creating original news content. I don’t really care whether Google might step up to the plate here — with the ad tagging idea, or something else — out of benevolence, or out of fear of further European legal action, or in order to to better compete with Facebook and Apple. What counts is to get beyond all the babble of the last decade — and to find ways forward.

Photo of an illuminated Google logo at the industrial fair Hannover Messe in Hanover, Germany, April 17, 2007, by AP/Jens Meyer.

POSTED     June 18, 2015, 10:44 a.m.
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