Inside Google’s Deal with the French Media
Google will end up giving about €150m to the French press over the next three years. The details show a mixture of a genuine and impactful arrangement and the usuall convoluted dealings to make a new set of subsidies looking like a sound business deal.
(This is the first part of a series about the relationships between the platforms and the news industry)
Update 02.13.21: PARIS (Reuters) — Alphabet Inc’s Google has agreed to pay $76 million over three years to a group of 121 French news publishers to end a more than year-long copyright spat, documents seen by Reuters show.(more)
It took a year of discussion between Google and the representatives of the French media industry to come up with a deal on the European directive on copyright and neighboring rights (see a previous Monday Note). The EU copyright Directive had been translated into a French law, forcing the parties to find an agreement by the end of next year.
The sign that the deal could be a decent one is that none of the parties are gloating about it. There is no obvious winner: the French media tamed its expectations while Google yielded on many points with the idea of keeping the lid on a costly Pandora’s box.
The deal in itself is quite complicated to the extent that not all the publishers I talked to were able to draw a complete picture of it. Here is the best obtainable version of the puzzle:
1 . The arguments
The publishers’ side
Over the past ten years, they say, “Google has profusely siphoned our financial resources by capturing a sizable amount of the advertising we used to own. At the same time, they make tons of money by using our content which appears prominently in their search results pages, without paying a dime for it”.
Publishers refer to this:
“Without the news media,” they add, “Google’s search engine would not perform as it does; it would be less relevant, and would carry only low-quality content. The main search algorithm would not work so well as it would be fed with crappy stuff.”
Among the litany of complaints: “Google knows our readers better than we do and they refuse to share any data that could vastly help our business.” The data sharing has always been a contentious issue for publishers with a yawning gap between their own vague knowledge of their readership and Google’s hyper granular profiling, with thousands of data points on each of us. To the dismay of the French publishers, their attempt to create data a common data hub to regain some credibility vis-à-vis the advertising market completely bombed. Big brands such as L’Oreal that are used to buying splashy ads in the press to showcase their products completely ignored the efforts of the media when quantifiable returns were needed.
Last but not the least, French media have tried to use alternative tools to place their ads or measure campaign efficiency, but were eventually forced to use Google’s prolific toolbox, which offers better performance and is favored by advertisers.
Hence a certain level of bitterness.
Last week, I was offered another view: “You need to put this into a historical perspective”, my interlocutor said. “When Google started to take off, a great part of the lift was provided by the media industry, which brought quality content, credibility, and notoriety. It undoubtedly accelerated the public acceptance of the search engine and later all the services that were stacked upon it. The same goes for Facebook. Without the media industry, Facebook would be MySpace and Google the Yellow Pages. If you add to that the fact that Google has basically destroyed our business, they definitely need to pay at some point.”
The person who said this is not an old media baron, nostalgic for the past luster of the industry. It comes from a smart and witty woman in her thirties, with a business degree and experience abroad. I won’t go into the details of this long conversation, but I told her that building a long-lasting (and global) business agreement can hardly be considered as some kind of “reparations”.
That view is worth considering just as an example of how pervasive and widespread the emotional context is in France. Especially now with the Covid-related crisis, the behavior of American Big Tech is seen as salt in the wound of a media industry that isn’t healing. This element of context, which is often lost in translation when seen from Mountain View, is important to keep in mind.
Google’s Position
For nearly a decade Google adamantly opposed the idea that it had to pay for snippets, the text it shows below headlines, fearing that it would open a Pandora’s box filled with the demands of thousands of digital outlets across the world. More broadly, the firm invokes the fair use legal doctrine, which allows limited reuse of copyrighted content. While it is more restricted in France, in the United States, its extensive use has opened the way to a cottage industry of aggregated content, such as pro or prosumer newsletters (including paid-for) that thrive on it.
Google’s strongest argument — also the least known — is the transfer of value to the publishers, i.e.: when someone clicks on a “blue link” of the search result page, they are sent to the publisher who will (hopefully) monetize the page with ads or various tools to convert the fly-by reader into a subscriber. Google reluctantly agreed to a vague approximation on this in the new deal, saying that it was globally sending 24 billion visits to the press per month [and not per year as stated erroneously]. But without any point of reference or any idea of what it encompasses, this figure is completely pointless. This imprecision is a terrible and recurring mistake attributable to an ingrained disregard for strategic communication (I bet Google’s blunders in the matter will be taught someday in B-schools). Too bad because the actual transfer of value would have constituted the best argument ever to not pay a dime to the publishers.
2. The Amount
The most discussed aspect of the new deal was the global amount of money Google was willing to give and for how long. At the opening of the negotiation, the publishers came with a demand of €150m per year. The figure was based on an Ernst & Young research paper, which is unlikely to remain in the audit firm’s best-of portfolio.
Google said no. After a month, publishers came with a sweetened offer: €149m/year. “We knew that we could be there for a long time”, recalls a participant. To put things into perspective, €150m/year is about 12% of the revenue of the entire legacy French press.
The most reasonable negotiators had in mind the 2013 deal signed in person by Eric Schmidt (at the time executive chairman of Google) and then president François Hollande. At the time, the French media obtained a commitment of €60m over three years for its transition to digital. While the effort led to genuine innovations by small companies, for the legacy media it was essentially a brand new subsidy channel. Most of the publishers promptly used the proceeds for current business expenditures such as a top-class TV studio or apps that were already in the pipeline (one publisher even asked for money to offer tablets to its new subscribers). The move also led to the more ambitious and impactful Global News Initiative.
Seven years later, Google’s global revenue has more than tripled and publishers were keen for a serious hike.
Refusing to even consider the €150m demand, Google came up with the actual figure for the value it transfers to the French publishers: a staggering number, several times the amount asked by the publishers. As Google exposed its methodology, publishers quietly rolled back their EY fantasies and the discussion started on the right footing.
The parties agreed on a final mark slightly above €30m a year over a three years initial period (publishers wanted a much larger horizon, if not perpetuity). The distribution will be made through a complex equation mixing various audience metrics, the number of journalists, typology of content (serious news as opposed to entertainment and service). That’s for the base part of the deal.
Adding everything, the final number is about €50m that Google will spend each year.
3. The Deal Structure
Coming up with a convoluted solution that would not appear as a gift, a subsidy, or some kind of settlement required some complicated dealings. For Google, it was also important to not yield, at least formally, to the exotic notion of “neighboring rights” — the “no money for snippets” motto. That’s why the core of the deal is a licensing system based on News Showcase, the latest product engineered in Mountain View to boost the news ecosystem. According to Google:
“News Showcase is made up of story panels that will appear initially in Google News on Android. The product will launch soon on Google News on iOS, and will come to Google Discover and Search in the future. These panels give participating publishers the ability to package the stories that appear within Google’s news products, providing deeper storytelling and more context through features like timelines, bullets and related articles. Other components like video, audio and daily briefings will come next.”
It looks like this:
So that’s the €30m/year part and the framework agreement (everyone signs the same deal). Publishers are not entirely convinced, but at least the money is there and there is good potential. As one of them told me: “We won’t make much of an audience with News Showcase but at least we control the type of stories we will push, and we can put premium content that is good at boosting subscriptions”.
Like in every Western market which has suffered from depleted advertising revenue, subscriptions are key for the survival of the species, and the French press is doing quite well thanks to the lockdown.
The second stage of the rocket involves precisely the subscription model. It is based on the Subscribe with Google (SwG) program:
The product has been deployed in several countries where it proved to be quite successful. It vastly simplifies the subscription process, it’s not expensive for the publisher as Google keeps 5% and the cherry on top is that google agreed to share some data.
But the French press further enhanced it to their gain, not only to stimulate their subscription channel but to squeeze more cash from it.
Here is how it will work: the publishers will first collect financial aid to support their technical teams working on the SwG program. Details remain sketchy, but for some, that will translate into something tangible. That could be seen as the reward for chronic technical incompetence, but never mind.
Even better, Google will support the promotional efforts made by the publishers to sell more subscriptions. Again, more direct money. Example: Le Monde currently has a promotional offer at €1 for one month, then the normal price of €9.99 per month. According to the deal, Google will pay Le Monde for the difference between the promotional and the nominal rates (there are some variations, but that’s the idea). And it worked beautifully for Le Monde as SwG accounts for 40% of its current subscription inflow.
“Le Monde signed early on its own, but we expect the same deal”, a publisher told me. “Even more, Google agreed to pay for the promotion of our subscription packages on any media — including Facebook!” Don’t pinch yourself too hard, dear Anglo-Saxon reader. We are in France, in which good money doesn’t stink and the notion of amour-propre can easily bend to business necessities.
There will be other special deals, like with the powerful regional papers. While editorially mediocre in general — no content that could ruffle the feathers of a local potentate, no scoops or investigative piece that will get national attention and pathetically backward when it comes to their transition to digital — their influence remains high in their own fiefdoms. A few months ago, French President Emmanuel Macron personally weighed in to make sure that the provincial media barons will end up satisfied.
All included, a large media group like Le Figaro, Le Monde, or Le Parisien/Les Echos will each get 3 to 5 million euros in revenue per year (probably closer to 5), which is not a negligible return without even counting the long terms benefit of Subscribe with Google, which turned out to be a powerful conversion channel. The benefits for the regional and local press are more difficult to assess due to the myriad of publications involved, but all my interlocutors told me that they will do well.
I will stop here, for now, though.
In an upcoming series of Monday Notes I will look at this deal through a more global lens:
The snowball effect. How will the French deal reverberate across Europe and the rest of the world? That’s the one billion dollar question for Google (which is the amount of money committed by Google for the news media).
Is it a good deal? Is this kind of arrangement a good blueprint for a sound perennial cooperation between the Big Tech the news media? Could the pubs get something better — I’m not talking about disguised subsidies but actionable items with long-lasting impact?
Advertising and Business model. More broadly, how solid is the argument that puts the responsibility on the tech giants for the devastation of the media revenue model? (This question unavoidably gets me harsh criticism from both sides).
Stay tuned and stay safe.
— frederic.filloux@mondaynote.com
