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

Google at first said it was not in competition with Amazon to sell hard-cover copies, because most of the books they want to sell online are out of print. “We are unlocking access to millions and millions of books,” Drummond said. But of course, they could be in competition with Amazon-or any distributor-to sell electronic books. (In May 2009, Google announced it would compete to sell e-books.)

Might the book settlement apply to newspapers and open a vein of revenue for them? Drummond didn’t think so: “For news, it’s a little different. News has to be current. It doesn’t have the same shelf life as a book. We are thinking deeply about how to help. Now we send newspapers traffic.” He knows newspapers want more, but he said Google has found “no silver bullet yet.”

NOR, BY THE END OF 2008, had traditional media companies found the silver bullet. With some exceptions-the thriving worldwide game business being one-most media businesses seemed to be falling off a cliff. Their fall preceded the worldwide recession that struck like a category five hurricane in the last half of the year. The dismal headlines were not pretty.

By the end of 2008, daily newspaper ad revenues dropped 17.7 percent, about double the 9 percent decline of the previous year; average daily newspaper circulation among 395 dailies dropped 7.1 percent.

Magazine advertising pages plunged 11.7 percent in 2008, fell 26 percent in the first quarter of 2009, and were projected to fall 10.9 percent for the year.

The number of viewers tuning to prime-time network shows dropped almost 10 percent, and according to Nielsen, this figure includes viewers who later watch the shows on DVRs. Broadcast network television advertising fell 3.5 percent.

Broadcast radio advertising fell 9.4 percent.

Aside from Internet advertising, whose growth rate dipped in 2008 but still rose 10.6 percent, according to Nielsen the only medium to experience ad revenue growth in 2008 was cable television, rising 7.8 percent.

Record album sales dropped 14 percent.

The number of people going to movie theaters dipped, but thanks to an increase in ticket prices, box office revenues rose by 2 percent. DVD sales, which had been a revenue gusher, dipped to their lowest level in five years.

Book sales of about three billion books fell 2.8 percent, according to the Association of American Publishers (1.5 percent, according to the annual report from Book Industry Trends). And although electronic book sales climbed 7 percent to $113 million, this was a tiny percentage of the just over $11 billion generated by adult books.

Advertising spending in the United States was flat in 2008 at about $162 billion, and was projected by GroupM to fall by 8 percent in 2009. World wide advertising spending of about $450 billion grew just 1 percent in 2008 and was projected to fall by almost 7 percent in 2009, according to ZenithOptimedia, the media-buying arm of Publicis, the world’s fourth largest advertising/marketing company. Although estimates of ad spending differ, the other major firms predicted similar drop-offs. Total marketing spending-direct mail, event marketing, public relations, etcetera-dropped 1.7 percent in 2008.

In a December 2008 report, Morgan Stanley’s Mary Meeker produced a chart that should alarm traditional media. Titled “Media Time Spent vs. Ad Spend Out of Whack,” the chart reveals that advertising expenditures don’t conform to where consumers spend their time. Newspapers, for example, consume 8 percent of our time, yet receive 20 percent of advertising dollars. By comparison, the Internet garners 29 percent of our time, yet attracts just 8 percent of advertising dollars. At some point, those ad dollars will shift away from traditional media, probably dramatically. Whether or not one factors in the most severe recession to strike the United States since the thirties, change was slamming into traditional media with new ferocity. Unlike the fog in Carl Sandburg’s famous poem, it did not creep in “on little cat feet.”

(2008-2009)

In September 2008, Google was ten years old, which in Internet years virtually qualifies it for senior citizenship. Yet the company did not slow down and move on “little cat feet.” Announcements of fresh initiatives kept rolling out.

In the second half of the year, it was announced that the Google Content Network would employ its AdSense program to identify video-hosting Web sites and sell syndicated programs to them. The first show was a new animation series, Cartoon Cavalcade of Comedy, created by Seth MacFarlane, whose credits include Family Guy, a hit comedy show on Fox. There was Google Ad Planner, which provides advertisers with digital data free of charge to identify the Web sites their desired audience visits. There was the exchange of employees between Google and Procter amp; Gamble, with P amp;G saying it hoped to better understand how its present and future customers use the Internet and Google not saying that it hoped to snare a bigger slice of P amp;G’s $8.7 billion ad budget.

There was Google Maps for transit, an online navigation tool to allow riders to figure out subway routes in New York City and other metropolitan areas, and an announcement that Google News would pay to digitize newspaper archives, place ads next to the search results, and share any revenues with the publications. There was a new partnership with General Electric to improve the efficiency of the electric grid; new investments were made in renewable energy that would be cheaper, and cleaner, than coal.

Larry Page, usually parsimonious with his public appearances, mounted a campaign of speeches to persuade the FCC to set aside an unused block of the radio spectrum (known as white space) for wireless devices, including Wi-Fi and other high-speed wireless connections to the Internet. Broadcasters and Broadway theater owners protested that the use of that spectrum by these devices might interfere with broadcast signals and wireless microphones in theaters. The FCC voted 5 to 0 to open the spectrum. Google launched Knol, a searchable user-edited encyclopedia, to compete with Wikipedia; Google strayed still deeper into content by signing up Michael Davies, creator of Who Wants to Be a Millionaire, to produce an entertainment-news show called Poptub, to be distributed on YouTube and the Google Content Network.

David Calhoun of Nielsen said Google could no longer claim to be a digital Switzerland. “YouTube crossed the line by a mile. YouTube’s audience competes with other content.” If Google hopes to sell display advertising, as it does on YouTube, Terry Semel believes it will have to own content. User-generated content on YouTube “does not feel safe” to advertisers, he reasoned, and to lure ads Google will need to own attractive content in order to attract advertisers.

Eric Schmidt, when asked if Google had gone into the content business, split hairs, saying that YouTube and the Google Content Network were merely “hosts” of the content, “not authors.” This is akin to saying that ABC merely “hosts” the programs it chooses to pay for and air. Schmidt’s distinction ignores another salient fact: the more traffic his sites generate, the more data Google gets, and the more dollars it receives for its ads.

And what about Knol?

“Knol is an example of something right on the edge,” he conceded. (Not that Knol, which debuted in July 2008, posed a serious threat to Wikipedia. By the following January, it had just a hundred thousand entries and had relatively few page views.)

With all these new initiatives, the opportunity Schmidt was most excited about in late 2008 was cloud computing. It was an idea that had animated him since his days at Sun, when he promoted what was called “the network is the computer.” Now, he said, the shift from the PC to the Web was “the defining technological shift of our generation.” The excess capacity of Google’s data centers, and the variety of applications the company had developed-Gmail; Google Earth; Google Maps; Google Scholar; Google Finance; Google Product Search; Google Calendar; Google Desktop to search all text on a personal computer; Google Docs to do all word processing, spreadsheets, and presentations-offered Google enormous growth opportunities. “Eventually, this will be a very large source of revenue for our company,” he said, citing a professor in Africa who had told him his schools had no textbooks but as a substitute they used Google search. He was aware that South Korea, which has the world’s highest broadband penetration, was already eliminating textbooks and downloading books to laptops.