Google, Newspapers and Advertising

Update: US newspaper quarter ad sales dropped almost 29% and other numbers in the industry are far for looking encouraging. Meanwhile, Google's ad revenue is growing. The discussions between newspapers and Google seem to intensify.

From a recent interview published on FT.com with Eric Schmidt:

FT: In their quest for revenues newspapers have started talking about trying to persuade you, Google, and specifically Google News, to share a little bit more of the revenue, specifically from their stories that appear on Google News. Wouldn’t that be a good idea?

ES: We’ve decided that the value we provide to the partners is the traffic. So we want to provide incredible numbers of users going to their sites, their content, which is why we urge them to make it deeper, stronger and use better tools and so forth. From our perspective, that’s where the real source would be. In our model, and what we’re doing today, the vast majority of the revenue that comes directly from reading newspapers, in fact, goes to them through all these mechanisms. The real issue here is that when people are reading the news online, we’re not monetising it in aggregate, so if we were to transfer money we would be taking money from something unrelated to newspapers and just paying them, which doesn’t seem like a good sustainable model for anybody.

FT: And don’t you think that there is a risk for you, as well, if you fail to find, perhaps, more of a revenue-sharing model, say, with something like Google News? Your sources of news for that service that you provide will just dry up? You risk killing the goose that’s laying the golden egg?

ES: This is the co-dependence that we were talking about earlier. From our perspective, we depend on the production of very, very high-quality content. If the people who are producing that are getting laid off, it’s really a tragedy for both. So we need the high-quality content. There’s a debate in the industry of exactly how to get it but, ultimately, the problem is not us taking money from some other pocket and subsidising it, ultimately the solution is to build products that really are so good that we make enough money from advertising and subscriptions, to a degree, that they make sense and that there’s enough money to pay for the construction of this high-quality content.

Or simply put:

• Google has no plans to share the revenues generated by their aggregation tools with the newspapers
• Google drives traffic.
• Newspapers should look into finding out better ways to monetize the traffic they get from Google.

I'm wondering if Google is not working on some products to be licensed to newspapers for monetizing the traffic sent back to them.

Some stats about the US newspaper industry (I cannot stop wondering when will our local market start learning something from this):

• Newspaper quarter ad sales shrank 28.9% ($2.6bil) (in a year-to-year comparison)
• Print ad sales declined 29.7% to $5.9 billion
• Online sales down 13.4% to $696.3 million
• Classifieds down 42.3% to $1.5 billion
• Ad sales collapse 16.6% to $37.8 billion in 2008. The worst decline ever.
• 2009 revenues will likely come in lower than $30 billion, less than they did in 1987
• Employment advertising shrank 67.4% to $205.4 million
• Real Estate down 45.6% to $336.9 million
• Auto down 43.4% to $332.8 million
• National campaigns down 25.9% to $1.1 billion
• Retail down 23.7% to $3.3 billion
• 'Other' down 16.5% to $587.7 million

Resources:

• Worst quarter for newspapers: Sales dive $2.6B