Ken Auletta - Googled - The End of the World as We Know It

Bloomberg and Reuters, for their part, were sitting on data-generating gold mines. Bloomberg, like Reuters long before it merged with Thomson, started as a collector and provider of financial data; essentially, it was in the service business, not the news business. The value of this business is demonstrated by contrasting two business transactions. In 2007, when Rupert Murdoch acquired Dow Jones, parent of the Wall Street Journal (and former owner of Telerate, a data business it failed to invest in and eventually sold), he paid five billion dollars. In 2008, when Merrill Lynch sold its 20 percent ownership in Bloomberg, the company was valued at a whopping twenty-two billion dollars. Both Bloomberg and Thomson Reuters tapped a rich revenue source from the terminals they rented to companies, and with readers hungry for business information from around the world, they expanded into news. According to Thomas Glocer, by 2008, Reuters had 2,600 reporters, and six hundred broadcast outlets as customers for its video news service; its profit margins topped 20 percent. Unlike newspapers, the three wire services were publishers who did not have the expense of paper, printing presses, or distribution.

On stage at the Dow JoneslJournal’s annual All Things Digital Conference in San Diego in May 2008, Murdoch noted that newspapers had lost 10 to 30 percent of their revenues and almost all were engaged in a frenzy of cost cutting. He said he saw this as an opportunity, and would pour more resources into the Journal, aiming to siphon general and business readers from the Times and the Financial Times. The jury was out as to whether by going after general readers of the Times he would over the long run chase business readers from the Journal, but to date his strategy has been a modest success. Comparing the Journal’s circulation in the six months ending March 2009 versus the same period ending in March 2008, the Audit Bureau of Circulations reported that the Journal was the only one of the top twenty-five newspapers to gain (just under 1 percent) circulation.

Murdoch was well aware of the newspaper industry’s plight. Some newspapers, he said, “will disappear.” As more news is aggregated online, it weakens the value of a newspaper brand. “What really is going on underneath this news aggregation,” said Tad Smith, CEO of Reed Business Information, “is that for journalism the return on investment for going out and hiring other journalists is negative. What that means is that Google has created an environment where the way to make money in the media world is with OPC: other people’s content.” Smith experienced firsthand the plight of print publications when his parent company put his division up for sale in 2008 and was unable to find a buyer to pay what it considered a fair price. They took Smith’s division off the market.

Eric Schmidt bridled at the suggestion that Google was somehow the fall guy for an Internet that had inevitably changed the rules of the game. “There is a systematic change going on in how people spend their time,” he said. “I think it’s important that Google understand that we are one of the companies that is making that happen. It’s very important that we be polite about it, and not be arrogant or obnoxious, because there is real damage being done. But also, our rationale is that it’s the end users who are choosing this. This is not a concerted effort by us to do anything other than adapt to the way end users behave. If looked at that way, we have a shared problem. We need newspapers’ content. And it’s critically important that they continue.” When users do a Google search or come to Google News and click on a newspaper story, he said, they are taken to that paper’s Web site, which increases its traffic and its ability to sell more online ads. Schmidt and newspaper proprietors have no illusions that Google can magically restore the economic vitality of newspapers. Google rubbed salt in the wound, however, when after seven years of being ad free, Google News in 2009 for the first time started accepting small text ads, triggering renewed newspaper complaints that Google was enriching itself on their content.

Book publishing “is in so much better shape than the music industry or certainly the newspaper or magazine industry,” said Authors Guild executive director Paul Aiken. He thinks the physical format of a book-and therefore the publishing business model-is not as easily altered. Nor is book publishing dependent on fickle advertisers, as are newspapers and magazines. But when asked if he was an optimist about the future of books, Aiken paused before candidly responding, “Sometimes.”

The reasons to be wary are many. Book sales were relatively flat in 2007, reaching $3.13 billion in the United States, a rise of less than 1 percent from the previous year. And according to a 2007 study by the National Endowment for the Arts (NEA), when adjusted for inflation, money spent to purchase books “has fallen dramatically.” Publishers rarely say aloud what this study suggested: books are losing younger readers. “Nearly half of all Americans ages 18 to 24 read no books for pleasure,” the study found, and the percentage of those 18 to 44 who read books was sliding. It is true that the following year, 2008, the NEA reported a modest increase in reading. But if one asked publishers, or educators, whether they had high hopes for the expansion of book reading, few would say yes. Publishers also fretted about whether Google Books would bring them the same piracy woes that bedevil music and movies; about the disappearance of independent bookstores and the squeeze on their profits from big distributors like Amazon and Barnes amp; Noble; about publishing houses’ increasing dependence on blockbusters, making it harder for them to justify publishing so-called midlist books that often make editors proud but lose money; about the folks who sign their checks but who often treat publishing as just another business and not an endeavor that can replenish the culture. That one day books would be printed on demand or that online book sellers could reach into the long tail and resuscitate books that were no longer in print was a distant shore to most book publishers in late 2008, when they imposed layoffs akin to those at newspapers. One publisher, Houghton Mifflin Harcourt, followed its round of layoffs by announcing that it would temporarily suspend the acquisition of new books.

Broadcast radio, with the notable exceptions of sports and talk radio, was also losing altitude in 2008; revenues began a steady decline in 2006, which has since accelerated. Les Moonves announced in July 2008 that he was selling fifty of his Infinity Broadcasting’s smaller-market stations. With his CBS stock hammered by investors who saw no growth prospects in the saturated radio market, he said he would sell his entire station group for the proper price, which he cannot get. Similar maladies afflicted satellite radio. Even with nearly twenty million customers and a merger between the two satellite services, Karmazin’s Sirius XM Radio, burdened by huge programming and satellite and debt costs-and by the emergence of new digital competitors that allowed consumers to program playlists for themselves-teetered near insolvency. All of radio is besieged by too many ads and too many choices-from Internet radio to podcasts to iPods to MP3 players-that siphon off listeners because they empower them to become their own disc jockeys.

Traditional advertising companies were growing, but only because they were no longer focused exclusively on creating advertising and selling it. They had merged and morphed into four worldwide marketing conglomerates-the WPP Group, the Omnicom Group, the Interpublic Group, and Publicis-with public relations and marketing and direct mail and polling and research and lobbying and political consulting divisions. Ad spending in the United States grew an average of about 5 percent from 1963 to 2007, peaking at $162.1 billion in 2008, according to Gotlieb’s GroupM. This was about 36 percent of the estimated $445 billion spent globally on advertising. Yet ad spending was less than half of what was spent on what is euphemistically now called “marketing.” A media campaign no longer consisted of buying ads on the three networks and a few other places; now a campaign might combine ads on TV and in magazines, a viral effort online, search ads, in-store sales promotions, telemarketing, polling, public relations-all of which was more expensive. The increased expense, and spending, spurred media buying agencies to merge into su peragencies, such as Irwin Gotlieb’s Group M. These media buyers now had enormous clout, which they exercised over traditional media companies that relied on advertising.