Journalisms Ill-Fated War Against Tech

There are good reasons to divest the networks supply ad tech from their creators, but saving journalism isn't one of them

News publications suing tech is back in the news. Gannett Media, who owns USA Today as well as another 500+ digital and 200+ print news outlets, is suing Google for allegedly monopolizing the Ad Tech ecosystem and “rigging bids” in its favor. The other concurrently large claim is from the DOJ suit against Google is more about Google’s history in “neutralizing or eliminating ad tech competitors through acquisitions…[and forcing] publishers and advertisers to use its products; and thwarting the ability to use competing products” thereby driving market consolidation of GMP tools.

The center of these complaints is that too much market power is consolidated into the hands of big ad tech players, especially Google and Facebook, who apparently use high costs of ads bids and anti-news algorithms to hurt the journalism industry. The DOJ lawsuit outlines that “Fewer advertising dollars reach website publishers — because of higher ad tech fees and less efficient advertising matches — meaning those publishers have fewer resources to create content for internet users.” DOJ clearly believes that this market consolidation is the reason that fees can “average 30%” of transaction costs.

DOJ believes that Google should not have the ability to so narrowly control levers to both the supply side and buy side of the equation. Fair enough, algorithmic trickery has been a constant thorn in big tech from Facebook increasing weight on ‘angry’ emoji faces to drive engagement to Google being accused of scraping user data to power its AI models. Holding the keys to both sides of the ads kingdom can create some sketchy overlaps.

That said, the model arguably favors journalism more than disfavors it. Groups like the National Association of Broadcasters (NAB) put out a press release agreeing with the DOJ move, complaining that Newscasters, especially local journalists, must “provide their content to these platforms under take it or leave it terms.” The only alternative to engagement driven algorithms would be to weight them towards a different goal, e.g. algorithmic favoritism of specific publishers over others. Google and Facebook already are playing that game, pledging $600M to support local news and establishing News-specific sections in their UI. But as lawsuits continue to pile up, users are shifting behaviors to other platforms like TikTok that will never change their global userbase UI to fit the standards of local US news media.

Rather than a complaint with Google and Facebook, journalisms complaint is with the digital ads industry. News organizations are fed up that their model – in which classified ads acted as the only method for small businesses to advertise effectively – was outcompeted by digital ads, and so they lost their monopoly on eyeballs that they feel is their Right. Local News is absolutely a public good, and estimates to create a nationally-working news organization that reports at the local level would cost somewhere between 750M and 1.75B according to one source. Journalists are trying to extract these costs from big tech rather than fund themselves, which led to a huge clash in Canada as Facebook simply stopped posting news altogether rather than comply. In response, Canada’s government stopped posting digital ads, the single most effective tool to reach constituents en-masse.

This is an example of the double-edged sword that journalism is dealing with. Rather than trying to figure out a new model – public funding, private grants, more niche content, etc – journalists are trying to extract value from the new industry that out competed their business model. Divesting programmatic exchanges from Google and/or Facebook may help some with some competitive aspects of the digital ads market, but the idea that it would help reduce material costs to journalists is absurd. If anything, divesting programmatic ads from big tech will only further hurt local news sites. Whether or not they should be forced to divest for market power reasons is another question, but it has little to do with the problems with modern journalism. 

Outside Search, the two biggest products that Google is accused of monopolizing are YouTube and the Ad Exchange DV360 inside GMP that gets exclusive rights to place ad content on YouTube. Both systems were not profitable until 2015, and today is growing at ~1% annually with such a large base of 2B+ logged-in users. It’s extremely costly to run an algorithmic ads business. It was an open secret at Google that the least profitable part of the ads ecosystem was the network itself. Google does not disclose GMP-specific costs and revenues, but it would be surprising if divesting the GMP stack from Google, or Ads Manager from Facebook would materially lower the CPMs and CPCs that News agencies are paying for content. 

A company dedicated to simply running the ads auction would act similarly to a stock exchange like the NASDAQ, which made $6.2B last year with total costs of $2.3B. Trading fees, listing fees, market data fees, corporate consulting services, etc are all overlaps between the ads market and the stock market. The fees that NASDAQ charges traders, however, have to prop up the entire company, and anyone who has a brokerage account winces a little bit when you see the transaction fee costs on any imminent trade added to the subtotal.

On the other hand Google and Facebook arguably subsidize their transaction fees with revenue from a far wider base (2-3B MAU) than NASDAQs couple hundred million users. If you divest programmatic into its own exchange network, then the transaction fees are almost all the company will have revenue-wise to keep themselves afloat.

Here’s the simple math I’m seeing — Today, Google takes about $0.13 per $1 spent in fees. In comparison, the Trade Desk, the most successful and fastest growing self-sustaining exchange, earned $1.2B off of $6.2B platform spend, or about $0.19 per dollar, almost 50% more than Google for the most successful stand-alone DSP in the world. Without other business units and other ad platforms to juice revenues, independent groups like the Trade Desk have to increase margins where they can – in ad delivery fees, just like the stock exchanges learned how to do. The smaller the network, the higher the fees.

Fees for middlemen are a frustrating part of life, but in fairness journalism served the same model as middlemen of information with conduits to global news ecosystems. Being out-competed for that part of the business leaves a smaller, but still viable model. It just cannot be the same as what came before.

There are absolutely market-shaping reasons to split programmatic ad offerings away from Google, just as there are reasons to try to stop Amazon from favoring its own products on its site. Controlling two sides of one market is always a dangerous economic game. But the idea that these social-wide questions will have immediate & material impacts to the revenue of journalists, who’s chief complaint is that they have to spend dollars on Ads to drive users to their site, is unfounded and unlikely to work. Digital Ad dollars are already moving away from Google and Facebook, down from their high-water mark 5-6 years ago, with Google losing 11% of its market share since 2016. Even if News orgs like Gannett win everything they want, targeting these companies will be meaningless, and will provide almost no respite as digital ads competitors like TikTok and Amazon. As new faces rise up, as well as integrated 1P systems like Target or Disney building out competing closed-loop ecosystems, the outcome of a decade of legal newsroom wrangling will create a future that will send a grand total of zero traffic directly to news sites.

At the same time all of these lawsuits are being pursued Gannett is in financial freefall, laying off over 600 workers, heavily reducing benefits, and rapidly bleeding senior executives. If we want a thriving news ecosystem in America, there are many ways to get there – from local funding, to nationally syndicated non-profits, to Jeff Bezos superclones – but the idea that divesting Google and/or Facebook from their ad exchanges will help requires a bit more independent investigation. Instead, it looks like it will get worse before it gets better for the News industry.