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Google vs. the press: avoiding the lose-lose scenario

 

Google and the French press have been negotiating for almost three months now. If there is no agreement within ten days, the government is determined to intervene and pass a law instead. This would mean serious damage for both parties. 

An update about the new corporate tax system. Read this story in Forbes by the author of the report quoted below 

Since last November, about twice a week and for several hours, representatives from Google and the French press have been meeting behind closed doors. To ease up tensions, an experienced mediator has been appointed by the government. But mistrust and incomprehension still plague the discussions, and the clock is ticking.

In the currently stalled process, the whole negotiation revolves around cash changing hands. Early on, representatives of media companies where asking Google to pay €70m ($93m) per year for five years. This would be “compensation” for “abusively” indexing and linking their contents and for collecting 20 words snippets (see a previous Monday Note: The press, Google, its algorithm, their scale.) For perspective, this €70m amount is roughly the equivalent to the 2012 digital revenue of newspapers and newsmagazines that constitutes the IPG association (General and Political Information).

When the discussion came to structuring and labeling such cash transfer, IPG representatives dismissively left the question to Google: “Dress it up!”, they said. Unsurprisingly, Google wasn’t ecstatic with this rather blunt approach. Still, the search engine feels this might be the right time to hammer a deal with the press, instead of perpetuating a latent hostility that could later explode and cost much more. At least, this is how Google’s European team seems to feel. (In its hyper-centralized power structure, management in Mountain View seems slow to warm up to the idea.)

In Europe, bashing Google is more popular than ever. Not only just Google, but all the US-based internet giants, widely accused of killing old businesses (such as Virgin Megastore — a retail chain that also made every possible mistake). But the actual core issue is tax avoidance. Most of these companies hired the best tax lawyers money can buy and devised complex schemes to avoid paying corporate taxes in EU countries, especially UK, Germany, France, Spain, Italy…  The French Digital Advisory Board — set up by Nicolas Sarkozy and generally business-friendly — estimated last year that Google, Amazon, Apple’s iTunes and Facebook had a combined revenue of €2.5bn – €3bn but each paid only on average €4m in corporate taxes instead of €500m (a rough 20% to 25% tax rate estimate). At a time of fiscal austerity, most governments see this (entirely legal) tax avoidance as politically unacceptable. In such context, Google is the target of choice. In the UK for instance, Google made £2.5bn (€3bn or $4bn) in 2011, but paid only £6m (€7.1m or $9.5m) in corporate taxes. To add insult to injury, in an interview with The Independent, Google’s chairman Eric Schmidt defended his company’s tax strategy in the worst possible manner:

“I am very proud of the structure that we set up. We did it based on the incentives that the governments offered us to operate. It’s called capitalism. We are proudly capitalistic. I’m not confused about this.”

Ok. Got it. Very helpful.

Coming back to the current negotiation about the value of the click, the question was quickly handed over to Google’s spreadsheet jockeys who came up with the required “dressing up”. If the media accepted the use of the full range of Google products, additional value would be created for the company. Then, a certain amount could be derived from said value. That’s the basis for a deal reached last year with the Belgium press (the agreement is shrouded in a stringent confidentiality clause.)

Unfortunately, the French press began to eliminate most of the eggs in the basket, one after the other, leaving almost nothing to “vectorize” the transfer of cash. Almost three months into the discussion, we are stuck with antagonistic positions. The IPG representatives are basically saying: We don’t want to subordinate ourselves further to Google by adopting opaque tools that we can find elsewhere. Google retorts: We don’t want to be considered as another deep-pocketed “fund” that the French press will tap forever into without any return for our businesses; plus, we strongly dispute any notion of “damages” to be paid for linking to media sites. Hence the gap between the amount of cash asked by one side and what is (reluctantly) acceptable on the other.

However, I think both parties vastly underestimate what they’ll lose if they don’t settle quickly.

The government tax howitzer is loaded with two shells. The first one is a bill (drafted by no one else than IPG’s counsel, see PDF here), which introduces the disingenuous notion of “ancillary copyright”. Applied to the snippets Google harvests by the thousands every day, it creates some kind of legal ground to tax it the hard way. This montage is adapted from the music industry in which the ancillary copyright levy ranges from 4% to 7% of the revenue generated by a sector or a company. A rate of 7% for the revenue officially declared by Google in France (€138m) would translate into less than €10m, which is pocket change for a company that in fact generates about €1.5 billion from its French operations.

That’s where the second shell could land. Last Friday, the Ministry of Finances released a report on the tax policy applied to the digital economy  titled “Mission d’expertise sur la fiscalité de l’économie numérique” (PDF here). It’s a 200 pages opus, supported by no less than 600 footnotes. Its authors, Pierre Collin and Nicolas Colin are members of the French public elite (one from the highest jurisdiction, le Conseil d’Etat, the other from the equivalent of the General Accounting Office — Nicolas Colin being  also a former tech entrepreneur and a writer). The Collin & Colin Report, as it’s now dubbed, is based on a set of doctrines that also come to the surface in the United States (as demonstrated by the multiple references in the report).

To sum up:
— The core of the digital economy is now the huge amount of data created by users. The report categorizes different types of data: “Collected Data”, are  gathered through cookies, wether the user allows it or not. Such datasets include consumer behaviors, affiliations, personal information, recommendations, search patterns, purchase history, etc.  “Submitted Data” are entered knowingly through search boxes, forms, timelines or feeds in the case of Facebook or Twitter. And finally, “Inferred Data” are byproducts of various processing, analytics, etc.
— These troves of monetized data are created by the free “work” of users.
— The location of such data collection is independent from the place where the underlying computer code is executed: I create a tangible value for Amazon or Google with my clicks performed in Paris, while the clicks are processed in a  server farm located in Netherlands or in the United Sates — and most of the profits land in a tax shelter.
— The location of the value insofar created by the “free work” of users is currently dissociated from the location of the tax collection. In fact, it escapes any taxation.

Again, I’m quickly summing up a lengthy analysis, but the conclusion of the Collin & Colin report is obvious: Sooner or later, the value created and the various taxes associated to it will have to be reconciled. For Google, the consequences would be severe: Instead of €138m of official revenue admitted in France, the tax base would grow to €1.5bn revenue and about €500m profit; that could translate €150m in corporate tax alone instead of the mere €5.5m currently paid by Google. (And I’m not counting the 20% VAT that would also apply.)

Of course, this intellectual construction will be extremely difficult to translate into enforceable legislation. But the French authorities intend to rally other countries and furiously lobby the EU Commission to comer around to their view. It might takes years, but it could dramatically impact Google’s economics in many countries.

More immediately, for Google, a parliamentary debate over the Ancillary Copyright will open a Pandora’s box. From the Right to the Left, encouraged by François Hollande‘s administration, lawmakers will outbid each other in trashing the search engine and beyond that, every large internet company.

As for members the press, “They will lose too”, a senior official tells me. First, because of the complications in setting up the machinery the Ancillary Copyright Act would require, they will have to wait about two years before getting any dividends. Two, the governments — the present one as well as the past Sarkozy administration  — have always been displeased with what they see as the the French press “addiction to subsidies”; they intend to drastically reduce the €1.5bn in public aid. If the press gets is way through a law,  according to several administration officials, the Ministry of Finances will feel relieved of its obligations towards media companies that don’t innovate much despite large influxes of public money. Conversely, if the parties are able to strike a decent business deal on their own, the French Press will quickly get some “compensation” from of Google and might still keep most of its taxpayer subsidies.

As for the search giant, it will indeed have to stand a small stab but, for a while, will be spared the chronic pain of a long and costly legislative fight — and the contagion that goes with it: The French bill would be dissected by neighboring governments who will be only too glad to adapt and improve it.

frederic.filloux@mondaynote.com   

Next week: When dealing with Google, better use a long spoon; Why European media should rethink their approach to the search giant.

Linking: Scraping vs. Copyright

 

Irish newspapers created quite a stir when they demanded a fee for incoming links to their content. Actually, this is a mere prelude to a much more crucial debate on copyrights,  robotic scraping and subsequent synthetic content re-creation from scraps. 

The controversy erupted on December 30th, when an attorney from the Irish law firm McGarr Solicitors exposed the case of one of its client, the Women’s Aid organization, being asked to pay a fee to Irish newspapers for each link they send to them. The main quote from McGarr’s post:

They wrote to Women’s Aid, (amongst others) who became our clients when they received letters, emails and phone calls asserting that they needed to buy a licence because they had linked to articles in newspapers carrying positive stories about their fundraising efforts.
These are the prices for linking they were supplied with:

1 – 5 €300.00
6 – 10 €500.00
11 – 15 €700.00
16 – 25 €950.00
26 – 50 €1,350.00
50 + Negotiable

They were quite clear in their demands. They told Women’s Aid “a licence is required to link directly to an online article even without uploading any of the content directly onto your own website.”

Recap: The Newspapers’ agent demanded an annual payment from a women’s domestic violence charity because they said they owned copyright in a link to the newspapers’ public website.

Needless to say, the twittersphere, the blogosphere and, by and large, every self-proclaimed cyber moral authority, reacted in anger to Irish newspapers’ demands that go against common sense as well as against the most basic business judgement.

But on closer examination, the Irish dead tree media (soon to be dead for good if they stay on that path) is just the tip of the iceberg for an industry facing issues that go well beyond its reluctance to the culture of web links.

Try googling the following French legalese: “A défaut d’autorisation, un tel lien pourra être considéré comme constitutif du délit de contrefaçon”. (It means any unauthorized incoming link to a site will be seen as a copyright infringement.) This search get dozens of responses. OK, most come from large consumers brands (carmakers, food industry, cosmetics) who don’t want a link attached to an unflattering term sending the reader to their product description… Imagine lemon linked to a car brand.

Until recently, you couldn’t find many media companies invoking such a no-link policy. Only large TV networks such as TF1 or M6 warn that any incoming link is subject to a written approval.

In reality, except for obvious libel, no-links policies are rarely enforced. M6 Television even lost a court case against a third party website that was deep-linking to its catch-up programs. As for the Irish newspapers, despite their dumb rate card for links, they claimed to be open to “arrangements” (in the ill-chosen case of a non-profit organization fighting violence against women, flexibility sounds like a good idea.)

Having said that, such posture reflects a key fact: Traditional media, newspapers or broadcast media, send contradictory messages when it comes to links that are simply not part of their original culture.

The position paper of the National Newspapers of Ireland association’s deserves a closer look (PDF here). It actually contains a set of concepts that resonate with the position defended by the European press in its current dispute with Google (see background story in the NYTimes); here are a few:

— It is the view of NNI that a link to copyright material does constitute infringement of copyright, and would be so found by the Courts.
— [NNI then refers to a decision of the UK court of Appeal in a case involving Meltwater Holding BV, a company specialized in media monitoring], that upheld the findings of the High Court which findings included:
– that headlines are capable of being independent literary works and so copying just a headline can infringe copyright
– that text extracts (headline plus opening sentence plus “hit” sentence) can be substantial enough to benefit from copyright protection
– that an end user client who receives a paid for monitoring report of search results (incorporating a headline, text extract and/or link, is very likely to infringe copyright unless they have a licence from the
Newspaper Licencing Agency or directly from a publisher.
— NNI proposes that, in fact, any amendment to the existing copyright legislation with regard to deep-linking should specifically provide that deep-linking to content protected by copyright without respect for  the linked website’s terms and conditions of use and without regard for the publisher’s legitimate commercial interest in protecting its own copyright is unlawful.

Let’s face it, most publishers I know would not disagree with the basis of such statements. In the many jurisdictions where a journalist’s most mundane work is protected by copyright laws, what can be seen as acceptable in terms of linking policy?

The answer seems to revolve around matters of purpose and volume.

To put it another way, if a link serves as a kind of helper or reference, publishers will likely tolerate it. (In due fairness, NNI explicitly “accepts that linking for personal use is a part of how individuals communicate online and has no issue with that” — even if the notion of “personal use” is pretty vague.) Now, if the purpose is commercial and if linking is aimed at generating traffic, NNI raises the red flag (even though legal grounds are rather brittle.) Hence the particular Google case that also carries a notion of volume as the search engine claims to harvest thousands of sources for its Google News service.

There is a catch. The case raised by NNI and its putative followers is weakened by a major contradiction: everywhere, Ireland included, news websites invest a great deal of resources in order to achieve the highest possible rank in Google News. Unless specific laws are voted (German lawmakers are working on such a bill), attorneys will have hard time invoking copyright infringements that in fact stem for the very Search Engine Optimization tactics publishers encourage.

But there might be more at stake. For news organizations, the future carries obvious threats that require urgent consideration: In coming years, we’ll see great progress — so to speak — in automated content production systems. With or without link permissions, algorithmic content generators will be able (in fact: are) to scrap sites’original articles, aggregate and reprocess those into seemingly original content, without any mention, quotation, links, or reference of any kind. What awaits the news industry is much more complex than dealing with links from an aggregator.

It boils down to this: The legal debate on linking as copyright infringement will soon be obsolete. The real question will emerge as a much more complex one: Should a news site protect itself from being “read”  by a robot? The consequences for doing so are stark: except for a small cohort of loyal readers, the site would purely and simply vanish from cyberspace… Conversely, by staying open to searches, the site exposes itself to forms of automated and stealthy depletion that will be virtually impossible to combat. Is the situation binary — allowing “bots” or not — or is there middle ground? That’s a fascinating playground for lawyers and techies, for parsers of words and bits.

frederic.filloux@mondaynote.com

Politico’s Way

To cover American politics, Politico deploys an editorial staff of 150. This is more than any news organization in the United States for the same beat. It all started five years ago: a niche website launched by three seasoned political reporters who sharpened their claws in mainstream medias. As envisioned by John Harris, Jim VandeHei and Mike Allen, Politico was to start with a kernel of 12 hardcore political reporters who would aggressively run after all the balls.

Four years later, as a new presidential campaign gears up, Politico owns the news cycle, from 4:30am to midnight, on all vectors: web, mobile, television and… print. And it does so in rapid-fire mode.

Last week, I chatted with Bill Nichols, Politico’s managing editor. Before Politico, he spent 24 years at USA Today. There, among the many items on his impressive résumé, he covered six presidential campaigns as well as the State Department. Bill was in Paris to deliver the inaugural lecture at the Journalism School of Sciences-Po where I happen to have a gig (highlight of the lecture summed up in French on Slate.fr). His talk provided the students with a great start for their year; they were listening to a fifty-plus journalist who didn’t hesitate to leave the comfort of a great newspaper to jump into the unknown. Even in 2007, going after the Washington media establishment with a website was quite a bold move. Today, Nichols is obviously having a lot of fun — which is the best message to convey to a crowd of aspiring journalists.

The lessons to draw from Politico’s success are connected journalistic and business ones.

Politico has literally sliced and diced the news cycle with an array of dedicated products fitting all possible subjects, reading time and formats. Anyone serious in politics or government affairs will begin his day with a peek at the mobile version of the Politico Playbook. Described as ” Must-read briefing on what’s driving the day in Washington”, it is written by Mike Allen, the chief White House correspondent. The site features eight other “tip sheets”:

  • Huddle A play-by-play preview of the day’s congressional news
  • Pulse The latest in health care policy every weekday morning
  • Morning Money Political intelligence on the intersection of D.C. and Wall Street
  • Morning Score A pre-dawn guide to the permanent campaign
  • Morning Tech Daily download of technology news from D.C. and Silicon Valley
  • Morning Defense A daily briefing from inside D.C.’s national security apparatus
  • Morning Energy The one-stop source for energy and environment news
  • Influence Intelligence and analysis on lobbying

The idea is to hook the reader on the day’s “must-follow” items. Then, developing stories will be made available in all possible forms: stream of stories as the news dictate, a great deal of support through countless TV appearances (Politico maintains its own studio linked to all networks and all reporters are required to promote their work). Many times a day, breaking news, alerts, warnings are pushed on mobile. Then, to maximize the impact, top stories will be re-edited to feed the eponymous daily. It is published five days a week, only when congress in in session, and its 34,000 (free) copies are distributed at various strategic spots in DC.

Then, the Politico tone. As Bill Nichols acknowledges, Politico’s pitch is slightly more tabloidish than mainstream media. It doesn’t pontificate, nor does it endlessly circle around a subject. It reflects internal newsroom discussions and the talk of the town. A few days ago, recounts Nichols, the editorial staff was discussing Republican Texas governor Rick Perry’s intellectual ability to run for the presidency; instead of going for a convoluted story loaded with nuances, Politico went straight with this headline: Is Rick Perry Dumb? This treatment was later supplemented by an informative 1600 words piece about Perry’s 2010 book “Fed Up!”, itself a great gift to his opponents. (To nail it, Politico published a Nine questions for Perry article listing subjects the candidate will have hard time eluding.)

That’s Politico’s way: aggressive, relentless, fun, witty, but also dedicated to providing in-depth, well-reported journalism. Last year, the New York Observer ran an interesting story on how The Atlantic (great magazine, along with an equally great site) was fighting back Politico on the Washington scene. David Bradley, owner of Atlantic Media company, had this comment:

“It was much happier to do what we were doing until Politico arrived in the world. Politico introduced a whole new standard of, I wouldn’t say quality, but I would say velocity and metabolism. I responded way too slowly. (…) They are going to be at the more racy, tabloid end of the spectrum. That seems to be the position they have chosen. I think we’ll be more of the authoritative end.”

To which Jim VandeHei retorted

“People come to us because we break news, we are authoritative and we help readers understand how Washington really works. I think Bradley’s description is clearly motivated by business interests. That said, we take all competitors seriously.”

Business is important as well to Politico and its powerful backer, the Allbritton family. As a privately held company it does not disclose financial data. Even with its large staff of 200 in total, it is said to be profitable thanks to its multi-pronged product strategy:

–The web site had an audience of 4 million unique visitors last July, according to Comscore (it should triple during the 2012 campaign). This is rather small compared behemoth such as the Huffington Post or the NYTimes that are more into the 50 million UVs range. But the value extracted from each visitor is quite high.

— Around half of its revenue is coming from the newspaper which sells high premium ads. Thanks to the geographical concentration of the Washington elite, the paper does not cost too much to distribute and its pagination and printing costs are adjusted to the advertising load.

— Last November, Politico launched “Politico Pro”, an in-depth paid-for service focusing on three critical (and lobbying-intensive) issues: energy, technology and healthcare. The price is $2,500 per month (story in the Columbia Journalism Review). “Pro” relies on several dozens of reporters and editors integrated with the rest of the newsroom.

— Recently, Politico added an event department: get-togethers for the Happy Few with big political names, moderated by staffers. The guests don’t pay, but big sponsors do — happily it seems. Events will be organized not only in Washington but on the campaign trail as well.

— Last June, Politico announced an e-Book venture with Random House. The concept: quick accounts, 20,000 to 30,000 words (80-120 pages), of the 2012 campaign. Produced at little additional cost, promoted by the brand, these could be pure gravy.

Politico’s potential revenue pool is huge. According to the Center for Responsive Politics, the 13,000 registered lobbyists in Washington spent $3.51 billion (!!) in 2010. This is an affluent market, highly concentrated, both geographically and interests wise.

On the surface, Politico’s method of squeezing money from every slice of its market looks logical and reproducible. But its unique ecosystem makes Politico’s success difficult to replicate elsewhere.

frederic.filloux@mondaynote.com