The Death of Distance

You may have seen the news that if you read an interesting article in the Australian press, you cannot share it with your friends on Facebook. Say what?

Cable TV

Let's start with a bit of history. There is probably some similar story to this based on railroads but I'm going to start with cable television. Before there was internet, there was cable television. Yes, I know lots of us get our internet service via our cable (Comcast, for example) but that is completely different. The cable is actually frequency multiplexed and divided into channels. Today, some of those channels still provide TV service (NBC, HBO, the Food Network, and so on). Some are used to provide internet service using TCP/IP. But that is recent. When cable got going, there were only TV channels.

One big issue was what to do about "local" TV. Local TV was so-called since it was limited to a region that could be reached by the TV transmitter. Even if you lived in San Francisco and wanted to watch a Los Angeles channel, you could not since your antenna was too far from the LA transmitter. People who grew up in that era like to say that you could only watch three channels. They were CBS, NBC, ABC. That's not actually correct, you could watch just the three local affiliates of those networks. The affiliates were supported by advertising, so in some sense the more viewers the more money. However, the reality was that the NBC affiliate in LA was 95% the same as the local affiliate in San Francisco, carrying the same shows.

When cable started, it just picked an affiliate for each of the three networks and used that. So if you got cable in San Francisco, you might get the LA affiliate of NBC. Yes, you got the wrong sports teams, but there were cables for sports (ESPN started in 1979) so who cared. You got the wrong weather, but there was a channel for that (the Weather Channel started in 1982). It was the start of the death of distance, since it made no real sense for there to be hundreds of stations all over the US producing essentially the same product, when cable could deliver just one of them to everyone.

However, if you were the San Francisco affiliate, then this was not good. As cable spread, your audience was getting vacuumed up and you were going to go out of business if everyone in San Francisco watched an LA channel. You would really like cable channels in San Francisco to carry you and not the LA affiliate. This had huge value to you, and so the obvious thing to do would be to pay the cable channel to carry your signal so that you got lots of viewers and so lots of money. But what actually happened is that the politicians got involved. Getting things completely backwards, they decreed that cable had to pay for local TV channels. The obvious reaction from cable was to say "Fine, we won't bother then, we don't make money on local channels". So politicians said "no, you have to carry them and you have to pay for them". This is basically the situation on cable TV today.

Except streaming has killed distance even more. If you want to watch your favorite TV program, it is probably on Hulu or Netflix.

Internet and News

Fast forward a few decades, and this time it is the newspapers thart are dying. It makes no sense for literally thousands of newspapers to produce essentially the same product in the internet era. Everyone should just read the New York Times, or the London Times. Only a handful of news organizations have the scale to go national (or even global) and make money on a subscription wall. All the other papers depend on getting some eyeballs and showing those eyeballs ads, since if they put up a subscription paywall, those eyeballs will go away.

Much of those eyeballs actually find the stories of interest through search engines (primarily Google of course) or people sharing them on social media. Let's just say Google for now. Google makes a lot of money from advertising, a lot more than the newspapers, so as with TV affiliates before, they ran to the politicians. A few countries introduced legislation a few years ago. Spain decreed that Google had to pay to link to stories in Spanish newspapers. So Google said "fine, we won't". The news organizations lost all their eyeballs, and the politicians repealed the law. In Germany, the law was that news organizations could charge for being linked to, and again Google said "fine, we'll only link to you if you don't."

The reality is that the newspapers are dying (like the TV affiliates) because they don't really have a business model. Google makes a lot of money, but it makes zero from news. You might not have noticed but it doesn't serve any ads on Google News. The reason? Advertisers don't like to advertise against news since their new soda or car model might end up on the same screen as something horrible like a plane crash or a riot. Of course, the news sites do have ads, but they make very little money.

Plus advertisers want targeted advertising. The reason the press makes little money (and Google makes a lot) is that newspapers don't have the scale to do targeted advertising. But Google does. Here's an example of how targeted advertising works.

When my son worked for Zynga, he was doing player acquisition for one of its games that was some sort of medieval army fighting game. Yeah, a long way from Zynga's normal offering of things like Farmville (which, by the way, shut down on New Year's Eve just a couple of months ago). He had a multi-million dollar per month budget. He spent almost all of it with Facebook since everyone else's targeting was terrible at that time. "I've never seen an ad for your game," I said to him once. He pointed out that the reason was that the targeting was good and I wasn't the target demographic. The targeted advertising worked so well that if my son spent $1M on a particular day, he would expect an increase in revenue from new players of over $2M...just two weeks later. His CFO came to him and asked if he could spend more! This is not normal CFO behavior.

So the situation today is that if you want to find "all the people in San Jose who are 20-30 and are about to buy a new smartphone" then there is no point in asking the San Jose Mercury News — they haven't a clue. But Google and Facebook do. Twitter and Amazon too, in some domains. Apple, maybe even LinkedIn. So if you are selling smartphones, where do you focus your advertising?

Australia

The Australian press is in the same boat as the rest of the news organizations and went to their politicians. The politicians' solution is again that Google and Facebook (but only Google and Facebook) should pay for linking to articles in the Australian press (but only the press). They then mandated that they could not refuse to link to articles. I think there is a lot of confusion: when people say "Facebook is linking to articles in the press" I think they assume that Facebook is sucking up all the articles and the associated advertising revenue, and republishing them. But actually, it is users of Facebook who see a great article in the Australian press and decide to share it with their friends. The Australian politicians went further and said that even if it was someone in Germany sharing an article with someone in France, then Facebook had to pay the owner.

There is meant to be a big negotiation about the payment amounts, but just like the situation with cable TV (and with the story of Spain and Germany) the price should be negative. The news organization should be paying Google and Facebook for driving traffic their way so that they can monetize it. The fact is that they cannot monetize it effectively, which is their real problem.

So last week Facebook walked. The situation is presumably fluid, but as I write this, you cannot share an article from an Australian newspaper, even outside Australia. Facebook won't let you. And by "you" I mean every user of Facebook in every country in the world. Facebook is taking the strong position that linking to something on the internet does not require permission or a fee.

I read one open letter pointing out that links are like references and citations in academic papers. If anyone is going to pay for the "citation" it should be the author of the original paper, since publications and citations are what is required for tenure.

Google made some sort of deal that I don't understand to create some sort of news portal and pay a lot of money. Other commentators regard it as just bowing to blackmail to keep its main search business able to link freely, and thus not break its search engine. Of course, if I was the press in any other country, I'd want the same deal. I'm sure the lights are burning late at the European Union already.

I've pointed out before that if a newspaper (or any other website) doesn't want to be linked to from Google then it just has to edit the file that Google's crawlers use. The Facebook case is a bit more complicated since it is users that copy the link, but if Australian newspapers don't want to share a snippet of the article, they don't have to feed it to Facebook. Actually, they are all desperate to be linked from Google and Facebook, but they are not making enough money, which is the real problem.

Since I left Britain, there is an Australian soap opera that has become popular, called Neighbours. I just looked on Wikipedia and it is still going, up to 8,562 episodes (it started in 1985). This Australian soap opera over linking still has many episodes to run, too.

Big Picture

There is a real problem about how news is going to get paid for in the future, otherwise, nobody will produce the news that everyone else requires to make money commenting on. The current business models are broken since the press can't make money with advertising, most of them are too small to have an effective subscription model, and their traditional readership is aging out. But this is not the right way to do it.

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