There’s an old saying that if you don’t control your medium someone else will, and they won’t have your interests at heart. That’s no more true than in the case of Alphabet’s (NASDAQ:GOOGL) Google, which has taken the media’s business model for the Internet and now faces blowback.
That blowback includes calls to break the company up. Google’s response is to reorganize its Washington lobbying shop, one of the largest in town, under new head of public policy Karan Bhatia, a former Bush Administration official.
But Bhatia will have to look hard to find friends in the media industry. Most of that industry lies in pieces at Google’s feet.
Links as Theft
The low monetary value of Internet media properties is underscored by news that TheStreet.Com, one of the early financial news sites, brought just $33 million in a sale to Maven (NASDAQ:MVEN), a small digital publishing company. Even that price represented more than twice Maven’s market cap. (Full disclosure. I worked for TheStreet for a few years earlier in this decade.)
The control of digital advertising by Google — and Facebook (NASDAQ:FB) and Twitter (NASDAQ:TWTR) — has Reuters asking if news has any economic value.
Maybe not, but it does have political value.
Consider a recent New York Times piece on the subject. It’s based on a “study” from the New Media Alliance (formerly the Newspaper Association of America). The study claims Google made $4.7 billion last year from news content that it did not produce. The U.S. news industry as a whole brought in just $5.8 billion from digital ads on content it did produce.
It’s worth noting that the $4.7 billion figure is based on extrapolating from a 2008 since exact figures are not available.
Politically, the study seems aimed at bringing the European concept of a “link tax” to the U.S. It’s aimed at making Internet platforms pay for links to news content. Google argues such a tax would cut traffic to news sites, because their response would be to stop linking or shut down Google News in Europe altogether.
Show Me the Money
Absent ad revenue, most newspapers have put up paywalls, allowing only subscribers to see their product.
The New York Times (NYSE:NYT) has tripled its stock value in five years, it says, because of its paywall. But only a few national newspapers, including The Washington Post (owned by Amazon’s (NADSAQ:AMZN) Jeff Bezos) and The Wall Street Journal, have made money on paywalls, which cut market reach substantially. Many smaller market papers now run with a skeleton staff.
The result, for Google, is that its News product has become less useful even as it has been expanded. Its links lead regular readers to paywalls.
More important, the enmity of major journalism organizations, both TV and print, plays into the hands of the Department of Justice — at least in this area. The DOJ is busy creating new interpretations of antitrust law to apply to the digital age.
The Bottom Line
Since the antitrust issue began blowing up a few months ago Facebook stock is down 10% and Alphabet is down 17%, trading early on June 12 at $1,076 per share.
There are analysts claiming Google would, like Standard Oil over a century ago, benefit from a breakup. But I find that claim is dubious.
However, Google’s refusal to play ball — or in the case of a link tax, refusal to give the ball players a cut of the tickets they sold to their game — doesn’t bode well for future regulation.
Someone will pay the price of this. Whether it will be Google or the news media and the people who depend on it for information remains to be seen. In a time when the president routinely refers to the press as “the enemy of the people,” the effects of the fight could be even worse than lost shareholder value.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
