Google And Facebook Didn't Kill Newspapers: The Internet Did

Journalism

from the check-the-data dept

There is an infamous chart in media circles. It shows newspaper advertising revenue steadily rising until about the year 2000. A few years later, it drops off a cliff. Superimposed on this chart is the exponential growth of Google and Facebook:

Source: Thomas Baekdal

The obvious implication, at least to those who work in journalism, is that Google and Facebook killed their industry. That’s certainly the conclusion Matt Stoller comes to in a recent op-ed for the New York Times:

The collapse of journalism and democracy in the face of the internet is not inevitable. To save democracy and the free press, we must eliminate Google and Facebook’s control over the information commons. That means decentralizing these markets and splitting information utilities from one another so that search, mapping, YouTube and other Google subsidiaries are separate companies, and Instagram, WhatsApp and Facebook once again compete.

First, it’s important to note that newspaper advertising revenue peaked a few years before the rise of Google (and many years before Facebook). That’s one hint a broader phenomenon is at work. But more generally, Stoller frames the history of advertising and journalism in a fundamentally incorrect way. He argues as if the ad-based business model for local journalism was the natural state of the world — upended only by Facebook’s and Google’s so-called “monopolies.” In reality, print newspapers had a monopoly on local information distribution due to the prevailing technologies of their time. These regional monopolies were slowly eroded by the introduction, first, of radio and then television (see Lorain Journal Co. v. United States). But, ultimately, newspapers were disrupted by the internet.

Source: Matthew Ball

So, why did newspapers have a local monopoly in the first place? Mostly due to the high fixed costs (e.g., printing presses, warehouses, reporters, delivery trucks) and low marginal costs (i.e., paper and ink) of newspaper production and distribution. Therefore, it was very easy for newspapers to dominate the local market with one bundled product, which included everything from political news and opinion to sports and classifieds. The monopoly profits were used to fund, among other things, investigative journalism (which would lose money as a standalone business but provides value and prestige as part of a bundle).

The internet blew this arrangement to pieces. No longer was owning printing presses and delivery trucks sufficient to charge advertisers and readers whatever you wanted. The newspaper was unbundled by many internet companies, large and small. The infographic below shows how different digital services peeled off a piece of the newspaper value proposition:

Source: Haseeb Qureshi

For example, Craigslist, eBay and other free or low-cost digital classified ad services out-competed print classified ads:

Source: Business Insider

Google and Facebook entered the ad market with more efficient self-service platforms for advertisers and quickly gained market share. Stoller attributes their success not to superior efficiency but to anti-competitive acquisitions:

Enabled by a loose merger policy, there was a roll-up of the internet space. From 2004 to 2014, Google spent at least $23 billion buying 145 companies, including the advertising giant DoubleClick. And since 2004, Facebook has spent a similar amount buying 66 companies, including key acquisitions allowing it to attain dominance in mobile social networking. None of these acquisitions were blocked as anti-competitive.

What this merger analysis omits, however, is that the vast majority of these were vertical mergers, meaning the acquired company wasn’t a direct competitor with the acquirer. In other words, Google is not dominant in search today because it engaged in killer acquisitions of rival search engines. Of the 66 Facebook acquisitions, only Instagram is a plausible case of horizontal integration between social media companies (and, even then, Facebook invested heavily post-acquisition).

But Stoller also exaggerates the extent of their market power, calling them “global monopolies sitting astride public discourse.” In 2018, the global ad market was about $540 billion. Google’s revenue from advertising was $116 billion; Facebook’s was $55 billion. That’s a combined 32 percent market share. Not quite a monopoly (or duopoly, technically).

Source: Benedict Evans

And if you expand the market definition to include both advertising and marketing, as Benedict Evans shows in the chart below, then Google and Facebook’s share gets cut in half.

Source: Benedict Evans

Stoller concludes by saying, “Advertising revenue should once again flow to journalism and art.” But even if we break up all the big tech companies, your local newspaper will not magically have a profitable ad business again. The money currently flowing to consolidated Facebook would go to the newly independent Facebook, Instagram, and WhatsApp (or other digital services if you curtail advertising on social media). Internet platforms are simply more efficient at matching advertisers with customers than are traditional newspapers.

If we want to “fix” journalism, it will require a new path forward (i.e., innovative business models). We’ve tried radical protectionism before: In 1970, Nixon signed the Newspaper Preservation Act, which gave newspapers a special carve-out from the antitrust laws. According to the NYT (in 1999!), it had no effect on the end result:

But in the world of 1999, does the loss of a newspaper matter as much as it did in 1970, when the scores of cable channels and hundreds of Web sites did not exist?

The new media landscape and the growing competition for advertising dollars, make it harder for a weak newspaper to survive, and make its survival less urgent, Mr. Lacy believes. ”I’m not sure I’d call the Newspaper Preservation Act a failure,” he said. ”Just a nonsuccess. People back then did not realize that this would not make a difference in the long run.”

It’s possible policymakers could construct another special protection for journalism. But it would entail massive state control of media that no one would be satisfied with. Resurrecting the regional monopolies once enjoyed by local newspapers is both undesirable and unrealistic.

Filed Under: ads, business models, competition, democracy, internet platforms, journalism, matt stoller, trust
Companies: facebook, google