Sam Zell is Crazy, Crazy Like a Fox

Posted on April 10, 2007

For all of those who haven’t read or heard of the Sam Zell (the new owner of Tribune Corp.) comment on Google and newspapers here is the quote:

“If all of the newspapers in America did not allow Google to steal their content, how profitable would Google be?”

You can read the full Washington Post article if you’d like as well to get more of a background on the situation.

As you can imagine Zell’s comment generated a lot of negative reaction from a lot of smart people like Jason Calcanis. I was almost quick to dismiss Zell as well. Sure, he now owns the Tribune Company but he’s a media and newspaper newbie. What does he know? Well, I wonder if he may know more than we all think he does.

After watching the Frontline documentary series News War I was compelled to write a piece on the state of the newspaper business which I am sure some of you read (I know it was super long so I don’t blame you if you didn’t slog through it - basic gist: public ownership of newspapers might not be the way to go if we want to retain the hard news we all need). Soon after writing that post I read the Valleywag piece defending Sam Zell and was reminded of the quotes I used from Google CEO Eric Schmidt the most pertinent of the quotes being:

“We’re [Google] in fact critically dependent upon the success of these newspapers so anything that screws up their economics, that causes them to get rid of reporters, is a really bad thing. The fact of the matter is that the consumption of news is up but the way in which people consume news has changed and its affected newspapers, in a business sense, pretty negatively.” (from Frontline’s News War program)

After reading that I am sure you’re thinking Zell might not be as crazy as everyone made him out to be. The Google CEO himself has publicly stated that Google is dependent on newspapers and the content they create afterall. But where is the connection?

Most people immediately thought of Google News when Zell’s comment popped up and were quick to point out that Google News is a pro bono venture (i.e. they don’t put ad sense around it) and, on top of that, doesn’t show the full content of the articles. That is true but there is more to the story than just Google News. Google makes money from contextual ads, as most people know, but it seems that a lot of folks forgot where those ads are placed - that is they are places around content.

Search results are one place Google puts their ads and a lot of times the top search results for current (and not current) news are newspaper articles which makes sense seeing that newspapers are a trusted and quality source (yes, I know they have had issues but fact checking works most of the time - I hope). Without those articles the Google results may not be as useful. However, I think the big money lies in the derivative works and conversations started by major newspaper coverage.

The blogosphere is a great example of this. A lot of media in the blogosphere is generated in response to or in order to talk about news that was originally reported by newspapers (heck, this post is a prime example). So what? Well, a lot of those blogs run ad sense ads which make Google money. If the bloggers, myself included, don’t have the newspapers to do the original reporting then they won’t be able to write as much and generate as much ad revenue for both themselves and for Google.

In the end of the day Google is an ad provider that works mainly with content driven sites. Because of that fact Google is dependent on the original reporting done by the newspapers. If all newspapers suddenly took their content away, or even worse, stopped producing their original reporting, things would be much different for Google and for all of us (until of course someone else picked up the ball on original reporting which would no doubt happen).