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Google versus the rest

Source : BUSINESS_STANDARD
Last Updated: Mon, Feb 25, 2013 20:01 hrs
Google's doodles

The face-off between Free, an internet service provider (ISP) in France, and Google is an interesting flashpoint in the evolution of digital media. Free blocked advertisements on Google and demanded a revenue share. Its contention was that YouTube and other bandwidth-guzzling services from Google create the need for more investments in pipes, servers and other hardware and software. But the firms gaining from this investment, namely Google or other aggregators, do not share the increased revenues they get as a result.

There are several arguments against this. You could argue that Free is an ISP and so it gets its money from subscribers. Why, then, should Google or Yahoo or any other aggregator give it a revenue share? Then there is the principle of Net neutrality, or the idea that an ISP should treat all data packets passing through its pipes equally.

This is where our perceptions about the media market and its economics start coming undone, because the permutations and combinations are simply too many. The business dynamics on revenues, costs and sharing differ by market, by media and by precedent. Therefore, it is impossible to make snap judgements on what "should" happen.

Take France, for instance. Unlike the US, France is a highly competitive market where several ISPs compete for every subscriber. So internet access is sold at throwaway prices " roughly Rs 2,000 a month against Rs 2,800 in, say, the US. This makes putting money into more pipes and servers difficult. Hence the argument that content owners and aggregators who gain from these fattened pipes should share revenues with ISPs.

Free's demand is not as unusual as it seems. Think about it. In any media segment there are two key players: distributors (ISPs) and aggregators/content publishers.

Newspapers aggregate everything such as sports, political and environmental news. This is sold to readers through the Net or physically through a distribution network that is paid a commission. Television channels source programming from different production firms and package it with advertisements. Cable and direct-to-home (DTH) operators then sell the channels and share the revenue with broadcasters. In the case of films, all theatre owners get a huge share of the revenue that film companies make.

In most of these cases, a bulk of the pay revenue collected by distributors is shared in different proportions. For instance, in TV, 70 per cent of the pay revenues worldwide go to broadcasters. Ditto for print. In some cases, such as in the US TV market, broadcasters share advertisement revenues by giving cable operators a certain amount of local advertisement time.

Going by the examples above, is there then a case for Free to pay Google instead of vice versa? It doesn't seem so. In the Free versus Google case, there is just one huge channel called Google. (Ignore Facebook and Twitter for a moment.)

Unlike, say, Disney, Google doesn't produce a single video or article or comment. It simply links you to all there is in the world from mainstream print, TV, online, music or other media brands. It is like Disney, a brand that aggregates content, but from across media, instead of just one newspaper or channel. More importantly, it has a monopoly share of the search market. Nine out of 10 people think of Google as their gateway to the internet. For them the internet is Google. So Free cannot drop Google from its pipes, unlike a DTH or cable operator that can drop a channel if the revenue share is not great.

While distributors such as Free could have a bone to pick with Google, content owners are angrier. Globally, newspapers and television companies are at loggerheads with Google to get their fair share of revenues. Any television channel head or production house will tell you how frustrating it is to be popular on YouTube and yet not make any money from it.

Last week Google signed a deal with the French government. It will pay ^60 million to set up a fund to help French publishers develop their digital businesses. Is that the beginning of some new sort of revenue sharing between content publishers and aggregators? Will it end for good the whole debate on online aggregators, especially Google, getting a free ride from both the firms that produce content and the ones that carry it on their pipelines?

Here is a third possibility. Like in all markets with one large monopoly, the big guy may walk away with it all.



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