Google and Facebook have decimated newspaper ad revenues. A lawsuit aims to change that.

GBH News illustration by Brendan Lynch

Previously published at GBH News.

One afternoon in early 2016, I arrived at The Boston Globe’s former headquarters in Dorchester to talk with John Henry about the state of his newspaper. Before we could begin, though, he wanted to talk about something that was bugging him.

Google, it seemed, had started slapping the word “subscription” on Globe content when it came up in searches, even though few people were likely to run into what was then a relatively porous paywall. It took months to straighten out, he complained — costing the Globe readers and, therefore, advertising revenue.

Henry’s lament illustrates the complicated relationship publishers have long had with Google. On the one hand, they complain bitterly that the dominant search engine is repurposing their journalism without paying for it. On the other hand, they depend on the clicks that Google sends their way.

Now matters may be coming to a head.

Under pressure from the Australian government, Google and Facebook have agreed to start paying for the content they repackage, MediaPost reports.

In the U.S., the News Media Alliance, which represents newspaper publishers, has long sought an exemption from antitrust law so that they could attempt to negotiate a compensation package with the two companies. There are signs that Congress may finally pass legislation to let them try.

And now, a chain of newspapers in West Virginia has filed a lawsuit charging that Google and Facebook violated antitrust laws by forming an alliance aimed at perpetuating their monopoly on digital advertising.

In order to understand exactly what the two companies — especially Google — have done to harm the news business, you need to consider two different but related practices.

First there is the matter of grabbing content, which, as Henry’s complaint shows, is convoluted: Publishers can’t live with Google and can’t live without it. Years ago, before the Google-Facebook lockdown on ad revenue was even on the horizon, publishers would argue that Google should pay them. Google would counter that it was driving traffic to news sites, thus increasing the value of advertising on those sites. There was some logic to Google’s argument, though somehow it never worked out in favor of the publishers.

The problem in recent years is that Google acquired a number of advertising businesses and now controls not just search but also the advertising associated with search. Through the use of an automated auction system, the price of digital ads is being driven ever lower, making it all but worthless. As Nicco Mele, a former deputy publisher of the Los Angeles Times, explained several years ago, a full-page weekday ad in the paper that cost $50,000 had given way to Google ads on its website that brought in less than $20 to reach the same number of readers.

“To a large extent, Facebook and Google are sucking up revenue that publishers of content should be receiving,” Mele told an audience at Harvard.

It’s the ever-shrinking value of digital advertising that’s being targeted in the West Virginia lawsuit, brought by HD Media. The small chain owns seven newspapers, most notably the Charleston Gazette-Mail and The Herald-Dispatch of Huntington. Paul Farrell, the lawyer who represents the papers, told the trade magazine Editor & Publisher that Google is leveraging its control of two entirely different businesses in order to monopolize ad revenues and squeeze out anyone else.

“They have completely monetized and commercialized their search engine, and what they’ve also done is create an advertising marketplace in which they represent and profit from the buyers and the sellers, while also owning the exchange,” Farrell was quoted as saying. “Google is the broker for the buyer and gets a commission. Google is the broker for the seller and gets a commission. Google owns, operates and sets the rules for the ad exchange. And they are also in the market themselves.”

So where does Facebook fit in? According to a lawsuit filed by several state attorneys general that was reported by The Wall Street Journal, Google and Facebook are colluding through an agreement that Google has code-named Jedi Blue. The AGs contend that Google provides Facebook with special considerations so that Facebook won’t set up a competing ad network. (Google and Facebook have denied any wrongdoing, and, in the E&P story, Google reiterated that stance with regard to the HD Media suit.)

For Google, it’s a perfect closed environment: It holds a near-monopoly on search and the programmatic advertising system through which most ads show up on news websites. And it has an agreement with Facebook aimed at staving off competition.

As Washington Post media columnist Margaret Sullivan observed, the collapse of advertising is what has led to the closure of more than 2,000 newspapers over the past 16 years — as well as the shrinkage of surviving papers like the Gazette-Mail, which won a Pulitzer Prize for its coverage of the opioid crisis in 2017.

Back when newspapers were manufactured out of dead trees, advertising was responsible for about 80% of revenue. Once they started moving online, that revenue stream was decimated, first by Craigslist, a mostly free service that scooped up nearly all the classified ads, and then by Google and Facebook.

Ironically, Craigslist founder Craig Newmark today directs much of his considerable philanthropy to the news business, and Google and Facebook spend quite a bit on various journalism initiatives as well. But whereas Newmark’s only sin was to build a better mousetrap, Google and Facebook’s dominance has more in common with the robber barons of the Gilded Age. It’s time that someone brought them to heel.

At least some newspapers have come up with a formula for overcoming the digital-advertising debacle. The New York Times, The Washington Post, The Wall Street Journal and, yes, John Henry’s Boston Globe have all reinvented themselves as successful enterprises by reducing their reliance on ads in favor of digital subscriptions.

But it’s far from clear whether that will work for local and most regional papers, and even those that are doing well run the risk of becoming overreliant on one source. A reliable stream of ad revenue, freed from the depredations of Big Tech, would go a long way toward revitalizing journalism.