Should Congress save newspapers from Google?

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“In America there is scarcely a hamlet which has not its own newspaper.” —Alexis de Tocqueville, 1835

Today’s issue is on how Australia saved its newspapers from Google and Facebook, and whether Congress will follow suit in America.

The Dean of the Columbia School of Journalism did public introspection in a Politico article last week. For a nine-and-a-half-month program to get a journalism degree, the price is $121,290. Traditionally a working class profession, journalism, like fashion or art or publishing, is now a sinecure for the wealthy.

There are a lot of discussions about the media in American politics, but very few about advertising, which is the key pivot point around which the media organizes itself. In America, and throughout the world, the press is dying, starved of ad revenue. Since 2005, we’ve lost more than 2,500 newspapers and tens of thousands of jobs in journalism. Australia for instance, lost more than 15% of its newspapers from 2008-2019, and you can trace similar declines globally.

A common explanation is, well, the internet killed the news. And yet, ad revenue for newspapers peaked in 2006, which was more than 10 years after the internet became a commercial medium. A different explanation for the decline of news publishing is that, starting in the mid-2000s, Google and Facebook built market power in ad markets, directing revenue away from newspapers and toward themselves. One very clear indication that the market power story has merit is that last year, the Australian government made a significant change to policy to undo part of big tech’s bargaining leverage. If “the internet killed the news,” then changes to ad markets wouldn’t matter. But the result of the new law was a massive increase in journalism.

In fact, in Australia today, it is hard to recruit interns at newspapers because there are so many full-time jobs available, even as Gannett in the U.S. just did yet another round of layoffs. Now the U.S. Senate, as well as legislatures around the world, is poised to copy Australia’s example through an antitrust bill called the Journalism Competition and Preservation Act (JCPA).

That’s what I’m going to write about today. The death of the news, its revival in Australia, and the weird politics around the debate.

Can America Exist without Newspapers?

Let’s start with the problem, which is that newspapers are disappearing en masse across America. So far, one might say, so what? In the 1980s, newspapers became part of big conglomerates and failed to address their business model problems, instead collecting high profit margins due to local monopoly status. That’s certainly Jack Shafer’s view. They are also owned by big private equity predators. Why care about whether some hedge fund magnate has more money versus some Palo Alto magnate? Moreover, the news world hasn’t covered itself in glory. As someone who is still angry about the lies that led us into the war in Iraq, I shrug my shoulders about the bankruptcy of any particular news outlet.

However, newspapers and the news are not the same thing. One typical way to fix the news is by starting new outlets to compete with the old ones. That’s how the alt-weeklies of the 1960s were formed, filling a void that the audience wanted. And yet, despite high traffic to local news, as well as high interest in niche communities, new outlets are mostly not being born. No one is replacing the local newspapers that go out of business, such that today, nearly a third of U.S. counties have no daily paper. People have tried many different innovative strategies, and they can generate traffic and readers. But unlike in any other period in American history, publishers can’t manage to sell ads. And if they can’t sell ads, they can’t finance a diverse set of independent publishing outlets.

This situation, of a newspaper-less nation, is a crisis. America has never existed as an independent nation without lots and lots of local and niche newspapers. “Nothing is easier than to set up a newspaper, and a small number of readers suffices to defray the expenses of the editor,” Alexis de Tocqueville wrote in 1835 in his iconic Democracy in America. “The number of periodical and occasional publications which appears in the United States actually surpasses belief.” Tocqueville actually found it kind of annoying because the papers were often crude. And yet, it was also a source of public order and local control of politics.

In 19th century Europe, aristocrats and kings controlled and financed the news. But most American papers, by contrast, were chock-full of advertising. No one paper was powerful, Tocqueville argued, because there were so many. Anticipating the debate over “disinformation” today, he called it “self-evident” that “the only way to neutralize the effect of public journals is to multiply them indefinitely.” The wide distribution of lots of opinions meant that, in America, no one who was particularly powerful could use papers, as Tocqueville noted, to “excite the passions of the multitude to their own advantage.” In Europe, there were fewer outlets, and not being financed by ads, they were often state-controlled, polarizing, elitist, and destructive.

The European aristocratic system of the press is what American journalism looks like today. Trade publications and elite news centered in New York City and D.C. do pretty well, cable news gets automatic payment from subscriber fees, but the local news is dying. It’s very hard to start a paper these days and have it financed by anyone but foundations or billionaires. Jeff Bezos owns the Washington Post, Marc Benioff owns Time, Laurene Powell Jobs owns The Atlantic, and Miriam Adelson owns the Las Vegas Review-Journal. Meanwhile, private equity funds are squeezing whatever they can out of the remaining local press, laying journalists off en masse. The news increasingly looks like an oligarchy.

The intense paranoia about “disinformation” is a result of the narrowing of the economic and political basis of news. The idea of free expression as a mechanism to promote liberty and correct errors is ebbing in parts of our political spectrum. Even certain left-wing advocacy groups are teaming up with dominant distributors in Silicon Valley to advocate against antitrust rules and for mass censorship, attacking the basic diversity of thought that underpinned American democracy in the name of preventing “disinformation.”

But there’s an economic basis to this shift.

The 257 Billion Reasons for the Collapse of the News

Let’s start with why news collapsed, which has to do with advertising markets. From the early 1900s until the early 2000s, 60% to 80% of the budgets of newspapers came from advertising. And in the 1990s and early 2000s, this model ported reasonably well to the web, with a host of ad intermediaries fostering open markets for internet advertising. But a host of mergers, culminating in 2007 with Google’s purchase of DoubleClick, changed the situation.

What makes advertising valuable is two things. First is the placement. Is there a pair of eyeballs looking at an ad? And second is data. Who is looking at the ad, and are they looking at it when they want to buy something? In 2007, Google was the dominant search engine, and DoubleClick was the dominant system tracking people all over the web. DoubleClick DART software enabled publishers and advertisers to serve ads in standardized formats. The company began brokering advertising, helping to match ad buyers with available ad inventory.

When Google sought to buy DoubleClick, it was a major pivot point in the industry, and highly controversial. The Federal Trade Commission (FTC) oversaw the merger, but voted 4-1 to let it go through. When these firms combined, it “tipped” online advertising into a monopoly. Google could now track every individual everywhere online, and show them ads with more granularity than anyone else. Because of DoubleClick’s market position and its own search data, Google now had a God’s-eye view into what every publishing company, every advertiser, and every user did. (I’m going to tell the Google story here, but the Facebook story is roughly similar, and the two, in fact, entered into a presumed cartel in the mid-2010s that is now being litigated in an antitrust suit.)

From 2003 onward, Google rolled up much of the online intermediary world. It bought YouTube, Applied Semantics, Keyhole, Admob, Urchin, Android, Neotonic, and hundreds of other firms. Though Google portrayed itself as innovative, in fact, most of its products, from Maps to Gmail, came from acquisitions. By 2014, Google was no longer just a search engine; if you bought advertising, sold advertising, brokered advertising, tracked advertising, etc., you were doing it on Google tools. It tied its products togethers so you couldn’t get access to Google search data or YouTube ad inventory unless you used Google ad software, which killed rivals in the market. It downgraded newspapers that tried to negotiate different terms.

This leverage came from Google’s control of both the distribution of news and the software and data underpinning online ad markets. Roughly half of Americans report getting news from social media, while 65% get it from a search engine like Google. That means newspapers are getting a lot of their customers from entities who compete with them to sell ads, often to their same audience. And they must use the software offered by Google to sell those ads, and often display content on Google News under the terms that Google demands, which includes allowing Google to display much of the article itself on its own properties. (If you want a good example of how Google steals content, read this piece on what it did to Celebrity Net Worth.)

Over these years, Google introduced Google News and standards for web pages that privileged its own services, cut favorable deals with adblockers, and fought against things like header bidding, which was an attempt by publishers/advertisers to get better prices than Google was offering for ad inventory. Google began demanding terms for data and formatting that publishers had no choice but to supply. In 2017, for instance, the Wall Street Journal refused to allow Google search users to read its content for free, instead locating its content behind a paywall. Google downgraded the status of the newspaper in its search rankings. While subscriptions went up, traffic to the newspaper dropped by 44%.

Over the course of these 20 years, under Republican and Democratic administrations, neither Congress nor the FTC created mandatory public rules over the use of data, and enforcers pursued no meaningful antitrust suits to stop big tech firms. In 2012, the FTC Bureau of Economics, in one of the all-time most embarrassing episodes for economics, actively killed a suit that could have stopped the monopolization of the search market. So Google became a monopoly in the advertising industry, not just over search ads, but over most online advertising markets. Last year, Google’s global revenue amounted to $257.6 billion, which is nearly all from advertising. That’s a huge amount of money, some of which used to go to finance journalism, but now goes to private jets in Palo Alto.

The net effect of decades of bad policy is simple. Newspapers began to die, and private equity is now feeding on the carcasses. This collapse, and the turn toward aristocracy it is fostering, is not driven by some large culture force, but by shifts in competition and antitrust law that fostered market power in advertising markets.

Why the Australian Law Works

One possible way that newspapers could have fought back would have been to band together and bargain collectively with Google. One newspaper can’t stop Google News from imposing new contractual terms or prevent Google from rolling out new ad-formatting standards, but thousands of them can if they work together. The problem is that, independent businesses collectively bargaining against a dominant firm is an antitrust violation, seen as price-fixing by enforcers. In 2012, for instance, book publishers and Apple were sued by the Department of Justice for trying to create a competitor to Amazon’s Kindle e-book reader. The sword of antitrust was perversely used by the Obama administration on behalf of the monopolist.

Prosecuting all collaboration with rivals as price-fixing while legalizing mergers creates a tremendous incentive to merge to monopoly. And that’s exactly what happened. Google’s hundreds of mergers were legal, but newspapers couldn’t band together to address the bargaining power because that was considered price-fixing. (This dynamic is similar to Uber drivers, who can’t collectively bargain because they are independent businesses, and that would be price-fixing.)

Here’s my crude drawing of what this dynamic looked like. On the left, Google’s mergers are legal, so it can combine and form a conglomerate with products like YouTube, AdMob, DoubleClick, and hundreds of other firms. On the right, newspapers cannot work together, that combination is illegal.

I’ve drawn a slightly modified picture to illustration the resulting bargaining imbalance. On the left, Google gets to put the full weight of its conglomerate power in any negotiation with any supplier or customer or user. On the right, each newspaper must bargain on its own.