Google Chooses Big Media

By Justin Fox

The search giant rewrote the rules of distribution and selling ads. The big movie, TV and print outfits may never catch up.

“Content is a king.” It’s a phrase uttered repeatedly by media ex­ecutives making the case that the movie, music, TV shows, books and journalism their companies produce are the core of their busi­ness.

It happens to be a dubious claim. Sure, movies, music and TV shows have value – as do magazine columns. But they alone have never generated the huge, reliable profits that keep investors happy and pay for midtown Manhattan skyscrapers. No, the big money in media has always been in distribution.

Sometimes the media companies do this distributing themselves – think of TV networks, or newspapers and their delivery boys. But even when others own the movie theatres or the bookstores, big me­dia have long been defined by their ability to make sure their prod­ucts are displayed prominently there. “The historical media play,” says consultant John Hagel,” is having privileged access to limited shelf space.”

On the Internet, though, the shelves go on and on and on. And as words, music and now video move to the new environment, that traditional economics of media are under attack. Tellingly, the most valuable media company in the world right now is not Disney or News Corp. or Time Warner (owner of Time) but Google, which helps people find stuff on those endless online shelves.

Google makes virtually all its money - $10.6 billion in revenue last year and $3.1 billion in after-tax profit – selling advertisements. But except for a few endeavours like Google Maps, it’s a media firm that produces no content. Rather than take on established media out­fits as outright competitors, Google has been trying to persuade them to let it help them find audiences and sell ads. Some media powers have signed up. But the prospect of a world organized on Google’s terms remains unsettling to executives accustomed to controlling the path their products take to consumers.

“Once, we had a very simple distribution model, our own branded store,” Mark Thompson, director general of the British Broadcasting Corporation (BBC), said. Now “we’ve got to get used to an envi­ronment where people access our content in a variety of different ways.” Thompson sees this is an opportunity – the BBC signed a deal to set up three new “channels” on Google’s YouTube site to show short video clips from its programs and share in the ad reve­nue YouTube generates.

“One of the things no media organization can do now is cancel the future,” he said.

US media giant Viacom – whose founder, Sumner Redstone, is credited with coining the phrase “Content is king” – has taken a dif­ferent tack. Viacom’s Daily Show and Colbert Report generated a steady stream of popular clips on YouTube. In February the com­pany demanded that YouTube remove the videos, and this month it sued Google for $1 billion. Viacom also signed a deal to distribute shows via YouTube competitor Joost.

Viacom’s aim, CEO Philippe Dauman said at an investor confer­ence, was “to show our content in an environment we control.” But online audiences gravitate toward neutral platforms that old-line media companies don’t control, from Google’s search box to Ap­ple’s i’Tunes Music Store – and to You-Tube, which already gets more traffic than all the TV-network websites combined, according to research firm Hitwise. “Eventually all of the copyrighted content will be available on virtually all of the sites,” Google CEO Eric Schmidt said in an interview on Bloomberg TV. “The growth of You-Tube, the growth of online, is so fundamental that these com­panies are going to be forced to work with and in the Internet.”

But will YouTube and sites like it ever deliver media companies the sort of return on content that they’re accustomed to? Google’s big stroke of moneymaking genius was to sell them to anybody. With five minutes and a credit card, you can sign up to bid on a search phrase – cream cheese, say – and pay Google only if people actually click through to your site. Google has since extended this advertis­ing network to other sites, so your ads might show up next to a food blogger’s post about bagels as well.

For small advertisers and publishers, Google’s automated advertis­ing network is a boon: a new, cost-effective way to connect with one another and with customers. But big media companies had al­ready established connections before Google came along, and so far the amounts of money Google offers content producers are paltry compared with what gets thrown around in traditional media. This is especially true with online video, where nobody has really figured out how to match ads to content. YouTube, which Google pur­chased for $1.65 billion in October, took in just $15 million in reve­nue last year – less than the cost of making two episodes of the BBC/HBO drama Rome.

That said, YouTube’s audience is growing fast, and there is a cer­tain inevitability of a world where all content producers succumb to the rules of the Web.Hagel, a veteran at parsing the strategic impli­cations of the Internet for business, thinks established media should be trying to “build relationships with audience members” by rec­ommending content made by others and encouraging participation. He’s probably right about this, but lots of purely online companies – among them Yahoo! And, yes, Google – are working on it too. The upshot is that content may increasingly have to stand, or swim, or sink on its own, which isn’t something kings do very well.

Source: Time, 2007, March, 26

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