Should Congress save newspapers from Google?

This article is republished with permission from BIG, a newsletter on the history and politics of monopoly power. Subscribe here.

“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.

Of course, these images only approximate reality. Google is much, much, much bigger than the entire news industry, but the basic bargaining imbalance in ad markets is at the core of the death of news gathering. It’s not just the reason for why newspapers are falling apart, it’s also why it’s extremely difficult to start new ad-financed publications.

Now, the market power story isn’t obvious. Much of the shift was disguised by two events. Craigslist in the mid-2000s killed classified ads, and then the financial crisis crushed the whole ad market, temporarily. Newspaper publishers were confused, and did not at first understand what was happening. Moreover, advertising is weird and confusing and full of quasi-con artists who spout chatter about data, so most people just take the false narrative that “the internet killed the news.”

Moreover, depending on your perspective, it often doesn’t look like Google is the bad guy. Google is delivering free services to consumers, and consumers don’t know that the content is stolen from publishers. It just looks like awesome free content. And to newspaper workers, each newspaper—especially because many have been bought by corporate chains—looks powerful, buying back tens of millions of dollars of stock. “I don’t bargain with Google, I bargain with the publishers, so how money comes in is less urgent to me as a union than how it’s spent,” one reporter told me over Twitter to explain skepticism toward the bill. But newspapers are a flea on an elephant when compared to Google, and they are being squeezed by forces much larger than themselves.

And this brings me to how Australia started fixing the problem. I’ve been following the Australian competition authorities for years because they are ahead of the game when it comes to big tech. After the Australian Competition and Consumer Commission (ACCC) did a long series of investigations and reports on how big tech firms operate, Australia passed a law letting newspapers band together and bargain against big tech. Here’s another crude drawing showing the fix.

The government also set certain rules mandating how the bargaining should take place. Newspapers got to form co-ops, but also request arbitration with dominant big tech firms. As I wrote, “the arbitrator doesn’t micromanage the process, but does ‘baseball style’ arbitration, meaning both sides give an offer, and the arbitrator picks one of them. This kind of arbitration is both faster and less intrusive that standard government regulation, and creates the incentive for both sides to offer non-extreme proposals they can live with, for fear the arbitrator will simply pick the other side if they suggest something outlandish.”

Now, the ideal solution is a time machine to prevent Google from becoming a monopoly in the first place. But a temporary exemption from antitrust laws, along with rules that mimic a healthy market where there is transparency of data and a robust set of buyers and sellers instead of a few dominant platforms, is the next best thing, at least for now. As the legislature noted, “This allows the panel, in making their determination, to consider the outcome of a hypothetical scenario where commercial negotiations take place in the absence of the bargaining power imbalance.”

When Australia proposed this legislation, large swaths of the media reform and internet world freaked out. Many tech-friendly lobbyists, like those at Techdirt and various trade associations, obviously opposed it, claiming that the law would place a tax on every single link and destroy the web. This “link tax” idea spread among normally credible actors. For instance, here’s the inventer/founder of the World Wide Web, Tim Berners-Lee, making that point.

He wasn’t the only one. The nonprofit group Public Knowledge, which, though funded by Google and Facebook, has supported certain antitrust law to address big tech dominance, argued that the legislation would be “a radical change that threatens the fundamental nature of the internet as it exists today.” The left-wing group Free Press argued that the bill simply forced publishers to “pay for links” and would backfire, “wedding an old-media business model to a new-media disinformation engine.” There were many more criticisms, but that’s the gist.

The basic argument from some of these advocates was that for-profit media simply isn’t realistic anymore. “The market-driven model that once helped sustain public-interest news doesn’t function in a world where attention is the main commodity,” wrote Tim Karr of Free Press. “No amount of tinkering with these mechanics can fix that.” Karr went on to note there was “little evidence that any of the money generated through negotiations with Big Tech would go to putting reporters back on local beats where they’re needed most.”

There were many arguments about why the Australian law would devastate the internet, create new and intrusive copyright rules, foster hate speech and disinformation, and entrench the existing business models of big media while not helping the little guy. Instead, these groups proposed taxing the big tech firms and having the government redirect that money to newspapers, which is very similar to how Google and Facebook regularly offer grants to local news outlets.

And what happened? For a time, Google threatened to pull out of Australia, and Facebook actually did pull out. But this bullying of Australia generated anger, not just locally, but globally, as regulators everywhere looked at the power of big tech and got both incensed and afraid that their nations might be blackmailed as well. The law went into effect, Google and Facebook quickly caved, and these two firms began cutting deals with Australian newspapers. None of the scare stories about the new law came true. There were no changes to copyright, no link taxes, there was no devastation of the internet, and no increase of hate speech. There was no entrenchment of big media business models, the ACCC continued to move ahead to stop anticompetitive practices in the adtech marketplace.

Big media firms benefitted, but so did small ones, and most of all, so did journalists.

According to Poynter, the main result of this law has not been a link tax, but a flourishing of journalism.

Outlets throughout Australia are hiring new reporters. The Guardian added 50 journalists, bringing their newsroom total up to 150. Journalism professors say their students are getting hired and that there are too many job vacancies to fill.

There are problems with the law, such as a lack of transparency, truculence from Facebook, and a demand from big tech that publishers sign non-disclosure agreements during and after bargaining. The government is reviewing the code, and will make changes. But there’s no other way to characterize the code as anything but a stunning success, and that the arguments against the law as projecting scare stories did not come true.

Bringing the Australian Law to America

This week or next, the Senate Judiciary Committee is going to be looking at a similar bill, the Journalism Competition and Preservation Act. The JCPA is slightly different than the Australian bargaining code because speech regimes differ between countries. The American version would temporarily suspend narrow applications of antitrust laws for news publishers, letting them band together to bargain with dominant tech platforms who use their content, and imposing an arbitration process for negotiating with big tech firms.

The JCPA mandates certain rules about when publishers can enter co-ops, with no ability to restrict anyone based on viewpoint. It also has a size cap to exempt the biggest newspapers, like the New York Times and Wall Street Journal. Arbitration is baseball-style, similar to Australia. 65% of the payout from these cooperatives would be based on the number of journalists hired by newspapers, and 35% would come from the traffic publishers generated. In some ways, it is similar to agriculture cooperatives, which are bands of farmers exempted from certain antitrust laws so they can collectively bargain with processors.

The co-op incentive model would do two important things to newspapers. First, private equity owners, who right now are laying people off and squeezing whatever remains of the customer base until the papers they own die, will have their incentives changed. They will make money not by firing people, but by hiring people; not by killing journalism, but by doing more of it. And second, it would allow people to form media outlets and monetize the traffic. If Alden Capital chooses to kill a newspaper, journalists from that paper can leave, start a local competitor, and make money doing it.

Given all this, you’d think that the law would be a gimme. Yet despite the success of the law in Australia, the bill has kicked up a storm of opposition, and not all of it in bad faith. In a letter signed by a weird mix, tech lobbyists Chamber of Progress and Computer & Communications Industry Association joined left-wing public interest groups Public Knowledge, Common Cause, Free Press, and Consumer Reports to oppose the bill. They argued, echoing the same discredited critiques of the Australian bill, that the JCPA would foster hate speech, impose a link tax, fail to pay journalists, and help conglomerates but not small publishers. It’s a bizarre letter, written as if we don’t have the example of Australia to look at.

Some of the opposition is easy to explain. Obviously, there are a lot of tech lobbyists who dislike it, and groups paid by big tech firms to oppose it. Libertarian Republicans like Jim Jordan are deeply opposed, arguing that the bill would help entrench the left-wing “big media.” It’s impossible to tell where big tech influence stops and libertarian ideas start, but whether good faith or not, that opposition is understandable.

And yet, big tech money and power doesn’t explain it all. In certain parts of the progressive world, there is a genuine ideological opposition to decentralized ad markets and a diverse press. For instance, influential left-wing scholar Victor Pickard regularly critiques the importance of advertising in the American news landscape, arguing that the mid-20th century moment where news gathering was profitable was something of an anomaly. Commercialism, he argues, “degrades journalism.” Pickard, who I like and respect very much, is taking issue with how Tocqueville laid out the basics of the American media landscape in the 1830s. For these left-wing advocates, the “public option is the best model going forward.”

Pickard’s framing resonates widely among groups like Free Press and Public Knowledge, who have made the case for a tax on targeted advertising and a redirect of that money to public interest news organizations. Behind that is a basic distrust for the commercial press. And that’s the reason the Australian success story doesn’t register with large swaths of the media-reform world. For them, it’s not a success. Their basic assumption, like that of Pickard, is that the centralization of bargaining power by Google and the resulting death of newspapers isn’t a problem, but is in fact a solution to what is their long-standing gripe with for-profit ad-funded news.

In other words, baked into the opposition to the JCPA is a preference for large centralized administrative processes. It’s not just the desire for a centralized funds to finance the news. Free Press, for instance, opposes big tech antitrust bills on the grounds that they would not allow Google and Facebook to sufficiently police the internet for hate speech and “disinformation.” They want censorship, and fear a diversity of press funded by advertising, precisely because it fosters speech that is out of their control.

That desire for centralization is not so different from how Google executives see their role, as “organizing the world’s information,” or how Mark Zuckerberg once framed Facebook’s mission, which was to “make the world more open and connected.” Left or right, centralizers share a utopian vision of a world brought to us by our betters, instead of the muck of advertising and the diversity of speech that, while bringing democratic features, also allows racism and whatever crudeness any ordinary person might see fit to print. As FDR’s antitrust chief and later Nuremberg chief prosecutor Robert Jackson once put it, “what the extreme socialist favors, because of his creed, the extreme capitalist favors, because of greed.”

Open ideological debates are generally not common in American politics because there’s an attempt to paint opponents as evil. I do not believe opponents of the JCPA are evil. I have learned a lot from Pickard, and I respect and have worked with many of the people and groups I have highlighted here as opponents. But on a practical level, for anyone who tracks ad markets, what is happening in Australia is perhaps the most important real-world experiment in structuring a healthy news ecosystem. Love it or hate it, you have to reckon with it. And opponents of newspaper co-ops and the JCPA simply haven’t. Hopefully, Congress will.

Matt Stoller is the research director at the American Economic Liberties Project and the author of Goliath: The 100-Year War Between Monopoly Power and Democracy.

This article is republished with permission from BIG, a newsletter on the history and politics of monopoly power. Subscribe here.