The Google Content Fund

It’s ironic that a company founded in Atlanta wound up breaking journalism.

Doubleclick was launched in early 1995, in Atlanta, but moved to New York shortly thereafter. It was bought by Google a decade later.

Doubleclick sold ads based on intrinsic targeting. The system used cookies to learn things about you, then buyers took out ads aimed directly at what you were doing. This led to things like a mother being offered cookie recipes at a gun site, or a gun owner being shown a magnum when he’s looking into champagne vacations.

These kinds of ads are intrusive. They invite blocking. They’re irrelevant to where your head is right now and their performance is thus very, very poor. But this doesn’t matter to an advertiser who can buy 100 such ads for what a specific web site on, say, guns might ask for a single impression. They get it back on volume.

A gun ad on a gun site is an example of extrinsic targeting. The ad is shown based on the lifestyle, industry, or place the content serves. The content and the ad are aimed at the same head space. The ad is more effective. But it is not 100 times more effective than the ad that is intrinsically targeted. And even if it is close, the intrinsic targeter believes they’re getting “brand awareness,” thus goodwill the next time the victim (uh, reader) sees a related ad or story.

Journalism was built by extrinsic targeting. You could tell a car dealer in Atlanta that X number of cars who saw his newspaper ad would pass by his place of business each day, which would result in Y additional sales, money that more than paid for the ad. The newspaper had data to illustrate this point.

By pushing intrinsic targeting Google, and those who have copied it, have denied content the money it needs to create more content.

Content producers first tried to deal with the deterioration of ad rates caused by intrinsic targeting by increasing the number of ad spaces they carried. But this did not work. Then they tried new types of highly-intrusive formats, like video ads that you couldn’t stop playing, or delays between clicking and actually getting to see any content. These techniques don’t work either, and for the same reason. Neither will threatening people who might use ad blockers. The problem is that the ad is irrelevant to what is on the reader’s mind. Once The Huffington Post found they could get more clicks on a story, by offering opinions and reader feedback, than The New York Times could get for the same story, it was all over.

I’m not saying old-fashioned newspaper ads were not a bother, but there was a reason people paid big money for the Sunday paper, and it wasn’t just about the funnies. The Sunday paper had a lot of ads. It weighed several pounds. It cost more to get those several pounds onto your doorstep (or through a newsstand) than it did the daily paper. People were actually paying more to see more ads.

Now that Google has destroyed the content industries, however, Google has a problem. The stock has gone flat, and it’s down for all of 2016. Growth has slowed, and margins are down. The stock is still selling for nearly twice the market averages, almost 32 times last year’s earnings, but when fashions change it’s going to plunge. Selling off money-losing divisions like the robot company formerly called Boston Dynamics won’t solve the problem. Neither will trying to pay people to hold the stock, which is what Apple started doing under Tim Cook. (Apple now sells for 12 times last year’s earnings.)

Google has to start spending money on content.

There are three ways this can go. Google can help get ad rates back up, raising the price for its intrinsic targeting and creating programs that sell ads based on their content. Google can become a content company. Or Google can invest in content producers.

This will be difficult, because Pandora’s Box is already open. Lots of other companies, like Facebook, can now sell intrinsic targeting, and they can actually do it better, because people rather than companies are creating Facebook’s content. Facebook is even getting ahead of it with things like Facebook Live, which turns content into an event that can draw a sufficient audience to make intrinsic targeting work. As a result, investors are now willing to pay more than twice as much for Facebook’s earnings as Google’s.

The problem with Google becoming a content company is that Google becomes responsible for the content. Not just legally responsible, but financially. Google has to figure out what people want, and find a way to give it to them. Machines can’t do this. Algorithms can’t do this. Only people know people. The model just doesn’t scale the way Google would want.

The third route is for Google to help fund content. You put together equity, you crowdsource debt, and you write into the contracts a way to get Google’s money out. This is a much better deal than record companies or managers offer now. Equity deals are made for copyright and distribution rights that never revert. Debt is held by managers who control the artists. This sort of thing has been going on for a century. It’s why the old Hollywood studios were owned by movie theater chains, and why so many artists died broke while the record labels prospered.

Defining up-front how artists will get their content back would bring an enormous rush of content Google’s way. It would change the content creation game, tilting the field toward artists decisively. This would also benefit Google, by allowing a continual recycling of its content investment and, as a result, the creation of more content.

The risk is that Google gets stuck with a lot of content that can’t make up its costs, but hopefully Google will decide where to invest with professional help, and over time this should mean fewer losing investments. Google could also sell rights to content that didn’t make back its investment. That would be a business. Even the losers are a small price to pay for the general increase in content generated by the new model.

How will this work for journalism? Well, documentaries are journalism. News organizations can seek funding for projects just as singers and movie directors can. Publishers who don’t take advantage will quickly find their best people leave.

Corporate investments for movies and TV shows can be applied to publications that seek defined audiences. Just as a movie may not pay off for three years, so too with a publication.

Google will want to get its money out and get out of the way because it won’t want to deal with the non-economic risks of owning content. Is the content good? Is it controversial? Those are questions for publishers, and producers, not for Google. Having a defined way to get out of the way will help it reduce those risks.

Doing this with publishers will also increase Google’s incentive to work on making defined audiences profitable again. In the end, that’s what has to happen, for Google to continue to prosper. Google, and the other companies that have digitized the world’s markets, have to find ways to create new jobs for those who aren’t engineers or dot-com entrepreneurs, for their own political survival.