Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

GOOG Rejects Direct Investment In Failing Newspaper Industry

Posted by Tom Foremski - January 7, 2009

Fortune magazine columnist Adam Lashinsky has a very interesting interview with GOOG CEO Eric Schmidt.

Google's business is very clearly making it very difficult for the newspaper industry to transition to an online business model because GOOG can sell advertising very cheaply, it doesn't have to employ legions of editors, journalists, photographers, etc, it uses servers and algorithms to publish content.

GOOG a new media company competing with old media in an online environment where it has by far the most efficient economic model. This is an issue I've been following very closely the past four years - the old media can't transition to the new media economy - "you can't get there from here."

The Fortune interview is set in the context of the dire straits for the newspaper industry:

Eric Schmidt wishes Google could save newspapers - Jan. 7, 2009

...the Christian Science Monitor eliminates its print edition, Tribune Co. declares bankruptcy, Detroit's two dailies slash home delivery to three days a week...

Mr Schmidt says there isn't much that Google can do to help the newspaper industry. He is asked if Google would purchase newspapers (it has enough cash to buy nearly all the publicly traded newspaper companies.)

Mr Schmidt replies:

The good news is we could purchase them. We have the cash. But I don't think our purchasing a newspaper would solve the business problems. It would help solidify the ownership structure, but it doesn't solve the underlying problem in the business.

That's certainly true - why buy a business that isn't viable?

What about a cash investment similar to Microsoft's investment in Apple, Mr Lashinsky asks?

There are no current plans to do that. The necessary criteria to get us to make that decision are not currently in place.

What about an investment from Google.org, the philanthropic organization?

We didn't want to co-mingle philanthropy with business. We are in the advertising business.

It should be pointed out that Google.org is a for-profit organization and expects to make profitable philanthropic investments. Again, the newspaper business is not profitable, so that rules that out.

The best Mr Schmidt can offer is to point to some fringe media projects:

What's an alternative way to support the public good? One is Pro Publica [the non-profit investigative journalism organization headed by former Wall Street Journal Managing Editor Paul Steiger and funded by, among others, the Sandler Foundation].

What if newspapers die?

To me this presents a real tragedy in the sense that journalism is a central part of democracy. And if it can't be funded because of these business problems, then that's a real loss in terms of voices and diversity. And I don't think bloggers make up the difference. The historic model of investigative journalists in any industry is something that is very fundamental. So the question is, what can you do about this? And a fair statement is, we're still looking for the right answer.

Foremski's Take:

Mr Schmidt is crying crocodile tears. There is a tremendous amount that Google could do today for the newspaper industry. Here are some suggestions:

-Pay for the use of newspaper stories in Google News. Monetize Google news and send the revenues to the news organizations so that they can reinvest the money and create a virtuous cycle. Sending traffic to newspaper sites is not good enough--the newspapers can't monetize the traffic to any real extent.

-Create subscription services for news products that can help news organizations monetize their work.

If Google is sincere in believing that news organizations perform a vital role in society and democracy then it should actively help find a way of supporting this extremely important resource. It has the brains, and it has the means, it just needs the will.

I don't see any sign that Mr Schmidt and Google has any desire to solve what is one of the most important issues on the Internet today: how to create a viable online business model for news organizations. Without this we face a dire future as a global society, imho.

- - -

Please see:

Google Is Really Bad At Monetizing Content Yet CEO Schmidt Lectures Newspapers

- FutureWatch: The End Of The News Aggregators And The Future Of News

GOOG Founders Could Buy All US Newspapers and Still Have $12bn

The Financial Crisis and its Impact on Journalism

- What Happens if the Old Media Dies Before the New Media Learns to Walk?

Shrinking Mass Media Masses At Googleplex

Silicon Valley = Media Valley: The MashUp of technology and Media

Google is a Media Company

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