Reviews | Taxing tech companies for the failure of the information industry is simply unfair

Few of us want the commercial tide to take the news industry to the depths. Nor do many of us have much sympathy for overly rich, oligopolistic tech giants. And no one thinks Google and Facebook will miss out much on the $2 billion that one reporter estimates the two companies will end up paying US newspapers each year if the terms of the national deal parallel Australia’s. Google, after all, raked in over $200 billion in ad revenue last year. But the Klobuchar bill unfairly punishes the tech giants by making them support an industry that has largely failed to address its business problems and has been decaying for decades. It is unclear whether these subsidies will restore the health of the news industry, and it seems likely that the law would serve as a prelude to direct government subsidies to save news – another bad idea. Finally, the bill looks like a package of reparations, which is unfair because the tech giants did not cause the decline of the news industry. They just contributed.

It would be nice to blame all the problems of the news industry on the tech behemoths, but the collapse of the newspaper industry began long before the advent of the web. The decline in newspaper circulation per capita began after World War II, as did the industry’s share of advertising expenditure, thanks to competition from radio and television. Total advertising revenue peaked in 2005. Some savvy newspaper investors, like Warren Buffett, predicted the coming decline of the industry in 1992, a good half-decade before the commercial Internet existed. Newspaper audiences and advertising buyers had already begun to migrate to other media, such as television and cable.

A persistent myth about the rise of the Internet is that it took the news industry by surprise. But that’s just not the case. The historical record shows that from the 1970s they invested deeply and experimented extensively with electronic delivery of news and advertisements to the home (Viewtron, QUBE, Extravision, Gateway, Interchange and many other systems) in the hope to invent something like the Web. . What kept them from dominating the electronic space was that the emerging off-the-shelf technology and the open architecture of the Internet allowed free access to the information and advertising market – no license governmental nor large paper press were necessary. Winning in this field meant competing with all comers, and the news business turned out to be a poor competitor. Google, which was founded in 1998, had the best ideas on how to sell ads in the space, and in 2012 its ad revenue surpassed that of the entire US newspaper industry.

The rise of Google and then Facebook has been accompanied by the decline of newspaper revenues, but it would be a mistake to say that one caused the other. As analyst Kamil Franek points out, Google and Facebook did not build their success by “stealing” newspaper advertising. They did this by disrupting the advertising universe with systems that allowed more efficient and cheaper ways to attract potential customers. For more than a century, the advertising industry had followed the saying attributed to department store magnate John Wanamaker: “Half the money I spend on advertising is wasted; the problem is that I don’t know which half. Internet advertising deflated the wisdom of Wanamaker by showing which half was wasted. Web advertisers could finally measure the success of their campaigns and refine where to advertise next. The web also proved to be a boon for advertisers, as advertising performance got better and cheaper: total advertising as a percentage of GDP fell by 25% between the 1990s and the 2000s. Google has also created new places to advertise, such as on games and on smartphones. Benedict Evans, another analyst, argues that between two-thirds and three-quarters of Google and Facebook’s ad business came from companies that had placed no print ads outside of the Yellow Pages.

Although Klobuchar’s bill does not use the word “reparations”, it proceeds as if Google and Facebook are injuring the news industry by taking something that is rightfully theirs and should pay annual damages. . We can agree that Google makes money from headlines and news snippets – an independent analyst puts it at $1 billion a year, while the news industry trade group instead puts it at $4.7 billion. But as the writer Frédéric Filloux said, this is how the market works: better and cheaper products replace what came before. In the Google and Facebook examples, the two companies did two things. First, they have almost completely separated advertising from editorial or entertainment content, making web ads more like billboards than newspapers. Second, they transformed advertising from a wasteful, bullshit business that ran campaigns in newspapers, on TV, and on billboards with almost no return on effectiveness, into an effective, targeted business whose success could be measured instantly. The analogy isn’t perfect, but what Google and Facebook have done to the advertising industry has been transformative, similar to what digital cameras did to Kodak and personal computers to typewriters. . The newspaper industry had the resources to create something like Google or Facebook, but didn’t. The blame for missing what was to come should rest with the news industry, not Google or Facebook. The news industry has never had an inherent right to advertising dollars. To imagine that they deserve any form of redress because technology has moved them into the advertising market is laughable.

The newsies can mourn their losses all they want, but Google and Facebook owe them nothing. Supporting the information sector is a laudable goal. But sending the bill to Google and Facebook is simply unfair.


Don’t miss Bill Grueskinof the excellent report earlier this year on the workings of the Australian system. He takes a more sympathetic stance on the arrangement while noting the flaws. Send grants to [email protected]. No new email alert subscriptions are honored at this time. My Twitter feed think my murderer RSS the food competes unfairly with it.

About Christopher Easley

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