Inevitably, resentment toward the AP spread among newspapers. The AP is a nonprofit cooperative owned by its fifteen hundred or so newspapers. It employs a staff of about four thousand, and because the AP smartly diversified, a third of its revenues come from selling video and online news to its members. While most of its newspaper constituents struggle, the AP’s revenues grow annually at about 5 percent. The licensing agreement with Google promised to boost these revenues. Unable to share this growth, U.S. newspapers began to petition the AP to lower the fees it charged them. As part of their cost cutting, the Chicago Tribune-owned newspapers, along with about 7 percent of the AP’s U.S. newspapers, announced plans to cancel their relationship, a step that, contractually, takes two years.
In the spring of 2007, Rupert Murdoch summoned all his News Corporation newspaper editors and publishers from around the world to a retreat at his ranch in Carmel, California. There they spent a couple of days wrestling with one terrifying question: What is the future of newspapers? Their conclusions, according to Jeremy Philips, the News Corporation executive vice president who prepared the agenda, were bafflingly mixed. The short-term outlook for newspapers promised more declines in advertising, circulation, and classified ad revenues; the long-term prognosis-if the papers could hold on-promised lower costs for printing, paper, and distribution online. “The headline is a paradox,” said Philips. “The macrotrends underlining these businesses have never been stronger. The consumption of news is greater than ever before. And the cost of delivering news is lower than ever before.” He noted that the online version of The Times of London and the New York Times have ten times the readers as their print editions had. On the other hand, he continued, “The microeconomic trends are problematic. The advertising available has declined because there are more places to advertise. Newspapers have lost control of classified advertising. In addition, the migration to online leads to a revenue gap because the print reader is more valuable today. And young people are reading fewer newspapers. This is a long-term trend.” In a world where online links to content obscure the brand names that produce it, the economic vise tightens faster for small and midsize newspapers as their costs rise and their revenues decline.
THE CONTROVERSIES DID NOT HINDER Google’s growth. At the end of 2006, it had 10,674 full-time employees, about half of them engineers. It had reached $10 billion in revenues, a year ahead of Wall Street analysts’ expectations, and $3.5 billion in profits, meaning that for every dollar collected, a hefty thirty cents was profit. (Amazon, which was sucessfully branching out from selling books to selling other goods, made a profit of about two cents on every dollar; Wal-Mart made almost four cents.) Google pleased many of its partners-from AOL to MySpace to thousands of Web sites-then paying them a total of $3 billion from its AdSense program. In their annual letter to shareholders, the founders spoke of improvements in search and pitched their new products. However, the core of their thirteen-page letter consisted of endorsements from those who benefited from Google, including Quincy Smith of CBS, who was quoted as saying: “YouTube users are clearly being entertained by the CBS programming they’re watching as evidenced by the sheer number of video views. Professional content seeds YouTube and allows an open dialogue between established media players and a new set of viewers.”
There was much in the annual letter to sharpen traditional media’s concern about Google’s intent. User-generated content was “central” to the site’s success, the letter said, and these users would “become the broadcasters of tomorrow.” Page and Brin spoke of their new efforts to sell radio and newspaper advertising, declaring, “Our goal is to create a single and complete advertising system.” This system, they added, was one in which Google was “helping advertisers of all sizes buy and place offline ads more effectively”
A rain of arrows would soon be aimed at Google. Quincy Smith thought this was a mistake. “I’ve never seen a company so loved on Wall Street and by advertisers, yet so despised by media companies,” he said. “Media companies don’t understand that the platform is the business. Google is a platform. They help you monetize your content.” For many media companies, however, this was a risk they were unwilling or unable to take.
CHAPTER NINE. War on Multiple Fronts
(2007)
Once you get to a certain size, you have to figure out new ways of growing,“ said Ivan Seidenberg, CEO of Verizon. ”And then you start leaking on everyone else’s industry. And when you do that, you sort of wake up the bears, and the bears come out of the woods and start beating the shit out of you.“ Seidenberg was speaking of Google, with whom he started jostling in 2007 to prevent Google from entering his mobile phone business. The Verizon bear was now awake to the perceived Google menace, as was Viacom.
Of the two, Sumner Redstone was the more openly belligerent. In late 2006 and early 2007, he demanded that YouTube immediately remove one hundred thousand clips of Viacom’s copyrighted content. Viacom CEO Philippe Daumann became convinced that Google was “very lackadaisical” about the content that appeared on YouTube. He cited Al Gore’s movie, An Inconvenient Truth, which Paramount released and which appeared on YouTube in its entirety. “We got frustrated. We told them to take our content down.” How come, he asked, YouTube could successfully block spam and pornography and hate speech from appearing, yet said it couldn’t block copyrighted Viacom content from being displayed? Redstone, who had long championed the idea that content was king, was furious. He and Daumann resented having to pay what they claimed to be one hundred thousand dollars a month to monitor what appeared on YouTube.
Google countered that only the copyright holder knows what content is under copyright, said Eric Schmidt, citing the Digital Millennium Copyright Act, which makes monitoring a shared responsibility. “The law basically said that the copyright owner monitors, and then we expeditiously remove, and we’ve done that,” he told Wired magazine. “And it’s well documented, because Viacom told everybody that they gave us one hundred thousand video takedowns, which we did very, very quickly. And what was interesting was that our traffic to YouTube has grown very strongly since then. So one of the arguments that they made was that somehow YouTube was built on stolen content, which is clearly false.” He said Google was testing various technologies but had yet to solve the piracy puzzle. Viacom did not believe a technology company could fail to find a remedy-unless it lacked the will.
In March, Viacom filed a lawsuit in federal court charging Google and YouTube with “massive intentional copyright infringement” and asking for $1 billion in damages. Viacom said YouTube effectively stole almost 160,000 clips of its programming and allowed these to be shown more than 1.5 billion times. YouTube’s Chad Hurley doesn’t deny there were copyright infringements, but he insisted they were not deliberate. His argument was twofold: First, YouTube is just “a clip site. We don’t want full programs.” And second, Web videos are so new that “everybody’s still trying to figure it out.” Viacom, he believed, sought clear answers when there were none. Hurley, like top executives at Google, believed the litigious Redstone was using the lawsuit as leverage to negotiate a better deal. Schmidt grows uncharacteristically agitated when Viacom’s suit is mentioned. At a 2008 conference at which Philippe Daumann spoke and castigated Google for stealing copyrighted materials, Schmidt sought me out and growled, “Everything Philippe said was a lie. And you can quote me!”