Monday Note

At the last minute, ending three months of  tense negotiations, Google and the French Press hammered a deal. More than yet another form of subsidy, this could mark the beginning of a genuine cooperation.

Thursday night, at 11:00pm Paris time, Marc Schwartz, the mediator appointed by the French government got a call from the Elysée Palace: Google’s chairman Eric Schmidt was en route to meet President François Hollande the next day in Paris. They both intended to sign the agreement between Google and the French press the Friday at 6:15pm. Schwartz, along with Nathalie Collin, the chief representative for the French Press, were just out of a series of conference calls between Paris and Mountain view: Eric Schmidt and Google’s CEO Larry Page had green-lighted the deal. At 3 am on Friday, the final draft of the memorandum was sent to Mountain View. But at 11:00am everything had to be redone: Google had made unacceptable changes, causing Schwartz and Collin to  consider calling off the signing ceremony at the Elysée. Another set of conference calls ensued. The final-final draft, unanimously approved by the members of the IPG association (General and Political Information), was printed at 5:30pm, just in time for the gathering at the Elysée half an hour later.

The French President François Hollande was in a hurry, too: That very evening, he was bound to fly to Mali where the French troops are waging as small but uncertain war to contain Al-Qaeda’s expansion in Africa. Never shy of political calculations, François Hollande seized the occasion to be seen as the one who forced Google to back down. As for Google’s chairman, co-signing the agreement along with the French President was great PR. As a result, negotiators from the Press were kept in the dark until Eric Schmidt’s plane landed in Paris Friday afternoon and before heading to the Elysée. Both men underlined what  they called “a world premiere”, a “historical deal”…

This agreement ends — temporarily — three months of difficult negotiations. Now comes the hard part.

According to Google’s Eric Schmidt, the deal is built on two stages:

“First, Google has agreed to create a €60 million Digital Publishing Innovation Fund to help support transformative digital publishing initiatives for French readers. Second, Google will deepen our partnership with French publishers to help increase their online revenues using our advertising technology.”

As always, the devil lurks in the details, most of which will have to be ironed over the next two months.

The €60m ($82m) fund will be provided by Google over a three-year period; it will be dedicated to new-media projects. About 150 websites members of the IPG association will be eligible for submission. The fund will be managed by a board of directors that will include representatives from the Press, from Google as well as independent experts. Specific rules are designed to prevent conflicts of interest. The fund will most likely be chaired by the Marc Schwartz, the mediator, also partner at the global audit firm Mazars (all parties praised him for his mediation and wish him to take the job).

Turning to the commercial part of the pact, it is less publicized but at least as equally important as the fund itself. In a nutshell, using a wide array of tools ranging from advertising platforms to content distribution systems, Google wants to increase its business with the Press in France and elsewhere in Europe. Until now, publishers have been reluctant to use such tools because they don’t want to increase their reliance on a company they see as cold-blooded and ruthless.

Moving forward, the biggest challenge will be overcoming an extraordinarily high level distrust on both sides. Google views the Press (especially the French one) as only too eager to “milk” it, and unwilling to genuinely cooperate in order to build and share value from the internet. The engineering-dominated, data-driven culture of the search engine is light-years away from the convoluted “political” approach of legacy media that don’t understand or look down on the peculiar culture of tech companies.

Dealing with Google requires a mastery of two critical elements: technology (with the associated economics), and the legal aspect. Contractually speaking, it means transparency and enforceability. Let me explain.

Google is a black box. For good and bad reasons, it fiercely protects the algorithms that are key to squeezing money from the internet, sometimes one cent at a time — literally. If Google consents to a cut of, say, advertising revenue derived from a set of contents, the partner can’t really ascertain whether the cut truly reflects the underlying value of the asset jointly created – or not. Understandably, it bothers most of Google’s business partners: they are simply asked to be happy with the monthly payment they get from Google, no questions asked. Specialized lawyers I spoke with told me there are ways to prevent such opacity. While it’s futile to hope Google will lift the veil on its algorithms, inserting an audit clause in every contract can be effective; in practical terms, it means an independent auditor can be appointed to verify specific financial records pertaining to a business deal.

Another key element: From a European perspective, a contract with Google is virtually impossible to enforce. The main reason: Google won’t give up on the Governing Law of a contract that is to be “Litigated exclusively in the Federal or States Courts of Santa Clara County, California”. In other words: Forget about suing Google if things go sour. Your expensive law firm based in Paris, Madrid, or Milan will try to find a correspondent in Silicon Valley, only to be confronted with polite rebuttals: For years now, Google has been parceling out multiples pieces of litigation among local law firms simply to make them unable to litigate against it. Your brave European lawyer will end up finding someone that will ask several hundreds thousands dollars only to prepare but not litigate the case. The only way to prevent this is to put an arbitration clause in every contract. Instead of going before a court of law, the parties agrees to mediate the matter through a private tribunal. Attorneys say it offers multiples advantages: It’s faster, much cheaper, the terms of the settlement are confidential, and it carries the same enforceability as a Court order.

Google (and all the internet giants for that matter) usually refuses an arbitration clause as well as the audit provision mentioned earlier. Which brings us to a critical element: In order to develop commercial relations with the Press, Google will have to find ways to accept collective bargaining instead of segmenting negotiations one company at a time. Ideally, the next round of discussions should come up with a general framework for all commercial dealings. That would be key to restoring some trust between the parties. For Google, it means giving up some amount of tactical as well as strategic advantage… that is part of its long-term vision. As stated by Eric Schmidt in its upcoming book “The New Digital Age” (the Wall Street Journal had access to the galleys) :

“[Tech companies] will also have to hire more lawyers. Litigation will always outpace genuine legal reform, as any of the technology giants fighting perpetual legal battles over intellectual property, patents, privacy and other issues would attest.”

European media are warned: they must seriously raise their legal game if they want to partner with Google — and the agreement signed last Friday in Paris could help.

Having said that, I personally believe it could be immensely beneficial for digital media to partner with Google as much as possible. This company spends roughly two billion dollars a year refining its algorithms and improving its infrastructure. Thousands of engineers work on it. Contrast this with digital media: Small audiences, insufficient stickiness, low monetization plague both web sites and mobile apps; the advertising model for digital information is mostly a failure — and that’s not Google’s fault. The Press should find a way to capture some of Google’s technical firepower and concentrate on what it does best: producing original, high quality contents, a business that Google is unwilling (and probably culturally unable) to engage in. Unlike Apple or Amazon, Google is relatively easy to work with (once the legal hurdles are cleared).

Overall, this deal is a good one. First of all, both sides are relieved to avoid a law (see last Monday Note Google vs. the press: avoiding the lose-lose scenario). A law declaring that snippets and links are to be paid-for would have been a serious step backward.

Second, it’s a departure from the notion of “blind subsidies” that have been plaguing the French Press for decades. Three months ago, the discussion started with irreconcilable positions: publishers were seeking absurd amounts of money (€70m per year, the equivalent of IPG’s members total ads revenue) and Google was focused on a conversion into business solutions. Now, all the people I talked to this weekend seem genuinely supportive of building projects, boosting innovation and also taking advantage of Google’s extraordinary engineering capabilities. The level of cynicism often displayed by the Press is receding.

Third, Google is changing. The fact that Eric Schmidt and Larry Page jumped in at the last minute to untangle the deal shows a shift of perception towards media. This agreement could be seen as a template for future negotiations between two worlds that still barely understand each other.

– frederic.filloux@mondaynote.com

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