How Google earns billions distributing news while newspapers starve, explained

While journalists create the content, big tech companies profit off it, a study finds; it has put Google’s net revenue from its Search and News features at $4.7 billion in 2018.

Shockingly, this is nearly as much as US media groups earned from digital advertising, combined. The New York Times report claimed that the news industry in the US made an estimated $5.1 billion last year, based on data from the News Media Alliance.

NMA is a publishers’ advocacy group that represents more than 2,000 American news publications.

Its findings have set off demands for a cut of Google’s share of revenue from its distribution service, which journalists argue are fruits of their labour. Nearly 40% of the clicks on Google’s trending queries are for news, which the tech giant does not produce itself.

Over the last decade, small and medium newspapers have been compelled to shut shop or downsize; even big media houses have been handing over pink slips to journalists worldwide.

Media rights advocates have thus called for tighter laws to end this culture where big tech companies like Google and Facebook are allowed to get away without paying publishers, who have decided to approach Congress over the existential threats this poses to media.

Drawing a line with law

According to David Chavern, president and CEO of NMA, an outcome of any conversation generated by the study would be the passage of the Journalism Competition and Preservation Act.

First introduced by Democrat David Cicilline in 2018, the bill would enable online publishers to “collectively negotiate with dominant online platforms regarding the terms on which their content may be distributed”.

Cicilline said Monday night that Congress would “hear about what the impact has been on the news industry as a result of this huge market dominance”.

He said this kind of monopoly is “particularly pernicious in the area of access that citizens have to trustworthy, reliable local news”, noting the need for a democratic flow of information in a post-truth world.

Cicilline also cited “the danger of inaction in terms of just looking at the declining presence of local news and newspapers closing and people getting laid off”.

Existential threat

The California-based internet giant has been taking a huge cut from the online ad revenue of media houses, which have lost a crucial source of income and recorded a steady decline in revenue over the last two decades.

That is a far cry from the analog days, when media barons controlled how their publications reached the public and collected all the ad income they generated.

“The study blatantly illustrates what we all know so clearly and so painfully,” said Terrance CZ Egger, chief executive of Philadelphia Inquirer PBC, which publishes The Philadelphia Inquirer and The Philadelphia Daily News.

“The current dynamics in the relationships between the platforms and our industry are devastating.”

According to the New York Magazine, one in five local papers in the US has closed since 2004, and from 2008 to 2017, newsroom employment declined by 23%, affecting nearly 27,000 jobs. Verizon Media, which owns Yahoo and the HuffPost, slashed 800-odd jobs, or 7%, of its global workforce in January. BuzzFeed also announced a move to cut 15% of its workforce, including jobs in journalism.

Digital outlets on the local, national, and global level are now struggling to keep up in an environment where information is shared for free across a slew of social media platforms, chiefly Facebook.

Google and Facebook not only enjoy a monopoly over news distribution—accounting for 80% of external traffic routed to various news websites—but also profit off the “value of personal data” that they collect every time a user clicks on a new article.

The study clarifies that its estimate is a conservative one, meaning it hasn’t taken the latter into account while tabulating the revenues. Another glaring omission from the report is the ad revenue newspapers generate from the page views they get via Google News and Google Search. 

Is big tech crushing news?

Despite a lot of criticism, the fact remains that “the [Journalism Competition and Preservation] bill now before lawmakers would give news publishers a four-year antitrust exemption, allowing them to collectively bargain with the owners of online platforms over revenue splitting,” the NMA report said espousing the legislation. 

It will allow Google to relinquish some control over what Jason Kint, CEO of Digital Content Next, calls the “monetisation scheme of news media”.

According to Bloomberg, a congressional panel conducting a broad antitrust investigation into US big tech companies has begun to scrutinise how companies like Alphabet’s Google and Facebook have devastated the news industry and if existing anti-trust laws are adequate to address its “anti-competitive harm”.

The NMA study released Monday provides maximum publicity for the bill it has been promoting to Congress. It is expected to further the argument in favour of US newsrooms ahead of the House subcommittee hearing on protecting the future of journalism, currently underway.

That has led a lot of media industry experts to question the timing of the report, which some claim has been put together by a “lobby group” without any critical assessment or rational economic argument. According to Columbia Journalism Review, the NMA study is “based almost entirely on questionable mathematical extrapolation from a comment made by a former Google executive more than a decade ago”.

Why it matters

In response to the criticism, Chavern tweeted that Google should share more information for the NMA to be able to arrive at more accurate numbers.

In summation, tech companies should be more transparent about how they set digital advertising rates, how their algorithms determine what kind of news readers find, and exchange data on their customers with publications that create the content in the first place. [Google keeps much of its data about search and revenues in a black box alongside its algorithm, the study says.]

More detrimentally, their role as middlemen gives them enormous power over what kind of information has the greatest reach. Social media companies like Facebook have to pull up their socks to curb the spread of hate speech, misinformation, and fake news on their platforms. And if the slew of controversies over its business model has shown anything, things at Menlo Park are not likely to change. Even their algorithms are culpable.

But news, says Chavern, is an important form of content that sustains civic society. And it influences political outcomes, a role that has been increasingly overshadowed by social media. And Chavern agrees.

“I think everybody from readers to writers to politicians understands that if journalism goes away, that’s a horrible outcome for whether we’re able to sustain the republic,” he says. That’s why it is important to return the power to those who make the news.

Prarthana Mitra is a Staff Writer at Qrius