Monday, November 21, 2005
FUTURE/NEWSPAPERS: Is Google Base a mortal threat to newspaper classifieds?
ORIGINAL URL:
http://www.nytimes.com/2005/11/21/business/21carr.html
PUBLISHED: November 21, 2005
Woodward? Google? A Plague Week
By DAVID CARR
The New York Times
LAST week's string of dismal headlines about the newspaper business
eventually began to resemble a multivehicle pileup on the freeway. There
was so much carnage it was difficult for even the most determined
rubbernecker to know where to look.
On Wednesday, Bob Woodward, the man who built his career on protecting a
single Watergate source, became impaled by his efforts to protect another.
Who would have thought that one of the journalists responsible for the
ubiquitous "gate" suffix denoting scandal would end up with it being
attached to his name?
On the same day, Walter Pincus, one of Mr. Woodward's colleagues at The
Washington Post, found himself held in contempt of court for his refusal
to identify his sources in a lawsuit brought by Wen Ho Lee, a scientist
who formerly worked at a government nuclear weapons lab.
And while other reporters may not face jail time or fines, their future
seemed grim as well. The Los Angeles Times announced cuts of 85 newsroom
employees, while The Chicago Tribune said it was cutting 100 jobs across
all departments. Earlier in the week, Knight Ridder got shoved onto the
auction block by investors who had tired of the company's dawdling share
value.
And the worst of it? Those were not the worst of it.
The scariest development for the newspaper industry was the announcement
(on that same Wednesday) that Google, the search engine company that wants
to be the wallpaper of the future, was going live with Google Base, a
user-generated database in which people can upload any old thing they feel
like. Could be a poem about their cat, or their aunt's recipe for cod
fritters with corn relish.
Or, more ominously for the newspaper industry, people could start
uploading advertisements to sell their '97 Toyota Corolla. Craigslist
kicked off the trend, giving readers a free alternative to the local
classified section. If Google Base accelerates the process, the
journalism-school debates over anonymous sourcing and declining audience
may end up seeming quaint.
Google Base reverses the polarity on the company's consumer model. Instead
of simply sending automated crawlers out across the Web in search of
relevant answers to search queries, Google has invited its huge
constituency of users to send and tag information that will be organized
and displayed in relevant categories, all of which sounds like a large toe
into the water of the classified advertising business, estimated to be
worth about $100 billion a year.
This could be a fine thing for consumers, but for newspapers, which owe
about a third of their revenues to classified advertising, it could be
more a spike to the heart than just another nail in the coffin.
LARGE national newspapers like USA Today, The Wall Street Journal and The
New York Times have already absorbed a big hit as advertising categories
like travel and automobiles have moved online. According to estimates
cited by The Associated Press, newspaper advertising revenues will grow
less than 3 percent in the current year while online revenue, much of it
coming from search advertising, will jump by more than 25 percent.
Google Base could take a bigger toll on local and regional newspapers. So
far, those papers have managed to maintain their connection between their
readers and the goods and services in the same market. By allowing its
audience to customize content and post it for free (all the while selling
ads against the audience that information aggregates), Google could all
but wipe out the middle man, which could be your friendly neighborhood
daily paper.
"Many newspapers have had historic monopolies in their respective markets
when it comes to classified ads," said Christa Quarles, an analyst at
Thomas Weisel Partners, a merchant bank in San Francisco. "The local
papers have been fairly insulated from major attack, and this could be the
next big shoe to drop."
The growing competition will certainly be evident if and when Knight
Ridder, with its host of regional and local newspapers, goes up for sale.
Historically, newspapers are valued at 10 to 12 times earnings, which
theoretically would make the company worth as much as $9 billion dollars.
Given Knight Ridder's current market capitalization of $4.18 billion,
Bruce S. Sherman, who heads Private Capital Management and who owns 19
percent of the company, thinks it might be time to sell.
But how liquid are newspapers? Even though they deliver profit margins of
more than 20 percent on an industrywide average, they are viewed as bad
bets for the future and may not bring the dear premium they have in the
past.
Across the board, newspaper stocks are down approximately 20 percent, in
part because the industry, accustomed to cyclical change in its 400-year
history, is now confronted by secular change: audiences are moving online
and taking advertising dollars with them. And they aren't coming back.
Happily, newspapers have been there to great them with Web sites of their
own, but owning consumers online is not quite the same as dropping a
product they pay for on their doorstep. Those eyeballs are worth less, at
least so far, and will not support big local news staffs, let alone
far-flung bureaus.
John Morton, an analyst who has been watching the newspaper industry since
1971, had a hard time remembering a worse period for the business.
"It was a very discouraging week by any measure in a year that has been
discouraging as well," he said. He pointed out that the week before, the
Audit Bureau of Circulations announced that the combined circulation for
newspapers dropped 2.6 percent in the six months ending in September. If
that trend continues, dailies could lose as many as 2.5 million
subscribers next year.
A reader outside the newspaper business might be tempted to say, so what?
New technologies are, by their nature, disruptive and the benefits
generally accrue to consumers. Who can complain about reaching millions -
or perhaps the one person you really need, a buyer - through placing a
free ad?
But if you consider newspapers to be a social and civic good, then some
things are at risk. Google gives consumers e-mail, maps and, in some
locations, wireless service for free. But for Google's news aggregator to
function, somebody has to do the reporting, to make the calls, to ensure
that what we call news is more than a press release hung on the Web.
News robots can't meet with a secret source in an underground garage or
pull back the blankets on a third-rate burglary to reveal a conspiracy at
the highest reaches of government. Tactical and ethical blunders aside,
actual journalists come in handy on occasion.
"Up to this point, the deck chairs have been rearranged," said Jane E.
Kirtley, a professor of journalism at the University of Minnesota. "But
the technology companies have been hustling and innovating in search of ad
revenues. And all of the cutbacks in newspapers are bound to have an
impact on the free flow of information."
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