Monday Note

Questions: should newswire agencies serve consumers – directly? And, to a broader extent, how does the current information shift impact the agencies’ future? Two recent events lead me to explore these questions in today’s Monday Note. The first one is rather significant: last week, Associated Press announced a deal with Google allowing the search engine to republish its newswire stories. And the second was the admission by the new CEO of Agence France-Presse that he was indeed willing to join the B2C fray.

Before going further, a bit of disclosure. About a year ago, the previous AFP CEO  asked me to evaluate the newswire agency’s strategy. I interviewed countless people, insiders and outsiders — especially AFP customers. Early this year, I handed my report to the CEO who, in turn, forwarded it to the union representatives (the unofficial agency co-managers). Consistent with their unabated propensity to relieve themselves on their doorsteps, the unions leaked the report to everyone around them, they even made it downloadable. (Expecting their reaction, I had carefully redacted every piece of data that could have been of interest to the competition.) Needless to say, my report was blasted by unions, with truckloads of personal attacks targeting my past, my career, my connections, my supposed agenda. Again, this is part of the French news agency’s folklore. Since then, the CEO who ordered the report has resigned — he was clearly at odds with the unions –  was replaced by the former head of the national TV archives whose primary mission, given by the Culture minister, was avoiding any conflict with the unions (in other words, give them what they want, elections are two years down the road). Why the Culture minister, you ask? Because he oversees the Agency, which draws 40% of its revenue from the government. (The new CEO was picked by president Sarkozy within the minutes of his predecessor’s resignation.)

With this out of the way, let’s go back to the issue of newswires going after the consumer market. Should they do it?

Unfortunately, there is not one answer to this question. It depends on each company’s customer base, on its shareholder structure, and on its financial health. Historically, newswire agencies justify their existence with their unique ability to provide breaking news, in depth-reporting, on a global scale. In order to do this, they maintain a network of bureaus and correspondents all over the world, with the ability to collect and process huge amounts of text, photo and video on a round the clock basis. All the four major agencies — Associated Press, Reuters, AFP and Bloomberg — are truly amazing news gathering machines with large staffs of highly dedicated newspeople at the frontline of the information.

With the advent of instant and ubiquitous information, the dominance – and even the relevance – of the “Big Three” (Bloomberg is marginally in the general news segment) is now seriously challenged. Newsrooms wonder: does it make sense to pay high subscription fees to newswire services increasingly undermined by the global information overflow?

One of my recommendations to Agence France-Presse was to assign a lower priority to breaking news – no longer a monetizable monopoly – and to focus instead on its unique assets: network and expertise. Another suggestion was to segment its subscription system — the “one size fits all” being no longer relevant — and to develop high-value, “à la carte” news products.

But, in my view, the most important item on the to-do list was changing its ownership structure which was at the core of conflicts of interests. AFP and AP share an absurd feature: their owners are also their prime clients. In the morning, you have a group of media executives discussing strategy at the agency’s board meeting; in the afternoon, the same media execs threaten to terminate subscriptions unless the news suppliers grant a hefty discount. For AFP, I suggested changing the board structure and putting in place genuinely independent directors truly committed to the newswire’s development. (Unions were against this, causing the government to balk). For the Associated Press, even though it is a newspaper-controlled cooperative, the ambiance sounds a bit more business-friendly and, apparently, its management doesn’t feel the need for a more conventional ownership structure.

Here lies the real divide among the newswire players: one one hand, you have the AP-AFP genre, crippled by strange kolkhoze-like governance and weakening revenue streams; on the other, you have the pure commercial entities, Reuters and Bloomberg, extremely wealthy, which function as a traditional corporations and have a long history of diversification. The latter two agencies are built on the formidable windfall of financial information. Reuters Media revenue represent less than 4% of Thomson Reuters revenue ($13bn) and Bloomberg doesn’t even bother to account separately for its non-financial coverage. As comparison, in 2009, AP made less than $700m, and AFP $350m — including $140m provided by taxpayers.

Therefore, for targeting the general consumer market, these two groups can’t have the same approach. Let’s say the Agence France-Presse wants to jump into it with a good news website and a set of mobile applications (they have none of them). Their client-directors will go ballistic and yell about unfair competition. For the commercial players, things are different. Bloomberg maintains an excellent website and one of the best business news applications on the iPhone. As for Reuters, I’m told they intend to beef up their public website and mobile apps. For both, not only is providing numerous free stories to the general public a mere mosquito bite on their revenue elephant’s behind, but the freebies also boost brand awareness. To put it another way, what could be a significant dent in the revenue stream and a questionable strategic move for AP of AFP turns out to be an excellent, inexpensive promotional tool for Reuters and Bloomberg!

Dealing with Google is a different story. Immersed in its engineering culture, Google has never been willing to recognize the value of contents. True, its search engine and Google News are sending back a lot of traffic to news sites (as much as 30 or 40% combined). Except Google always fell short of providing precise numbers. It would be easy to say: ‘Guys, stop winning! Over the last 12 months, we channeled back x clicks to US newspapers sites, y to French ones, translating into $z in advertising revenue.’ Google knows these figures down to the very last cent. But Google has a hell of a problem dealing with content providers, newsmedia or book publishers. It’s their culture.

Unable to position itself as a genuine partner to the media sphere, Google tries to fracture it by striking deals left and right. In this divide and conquer respect, the AP agreement is a good one — from a Google standpoint. First, Google buries the hatchet for good with AP, transforming a contentious relationship into a true partnership. Second, this deal is a major departure from the “snippets strategy”,  in which, until now, Google News contented itself by crawling thousands of sources and extracting headlines and short abstracts. Under the the new AP-Google agreement, Google pays an undisclosed amount of money to AP and provides precious traffic data — in exchange of full stories. (To be complete, AFP also has its own deal with Google, although a more modest one). As I write this, I spot Gulf oil spill stories: 760 words from AP and 370 words from AFP, both hosted on Google News. Others medias are limited to mere snippets linking back to their sites – with a lower ranking. Thanks to its deal with the two newswire agencies, Google is now in the self-sustaining news business.

For AP and AFP, these licensing deals with the search engine go against developing their own business to consumer website. Frankly, who will go to their home pages when Google News already hosts the newswires stories, with a better access, and… native search engine optimization?  Why build a website that will compete against a full licensing deal? It doesn’t make sense.

Again: Associated Press and Agence France-Presse are fantastic news machines, manned by high quality people. They have gold in their hands — even if some nuggets are buried deep sometimes. They should monetize those nuggets, they ought to sell high premium contents to news organizations that have less and less of the financial means to generate their own. Should they address the general public for image and branding purposes? Maybe. Only if doing so doesn’t decrease the value of premium contents. But hitting the net under the Google umbrella doesn’t do any good.

—frederic.filloux@mondaynote.com

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