/// Flattering Words From Schmidt, But He Isn’t Going To Save The TV Industry (Guardian)

August 30, 2011  |  Blog

The boss of Google charmed the Edinburgh TV festival but the company’s relationship with the media is complex

Google is the loveable monopolist. It didn’t set out, perhaps, to dominate internet search. Its executives like to remind us we have a choice in search every moment of the day – but somehow, whatever Yahoo-Bing’s attractions, we end up at Google every time. Google structures how we discover, how we learn, how we shop – and it prospers, as does Microsoft or Apple, in the technology-driven, deregulated global economy, getting larger and larger but we don’t seem to mind.

Monopolies used to be a bad idea, but Google’s bosses like to argue there’s no harm to consumers. Its search engine is free, after all; the company constantly innovates (so it should with $8.5bn of profits to play with), and now there are all sorts of other excitements, like Apple-competing Android phones. It hoards our search data, but reckons the information can be useful to help predict things like flu outbreaks and perhaps riots one day – and anyway its executives, such as Eric Schmidt, are charming. Compare and contrast his visit to Edinburgh with James Murdoch’s pugnacious performance in the Scottish capital two years ago.

So Schmidt, when he comes to Britain, wants us to think about other things instead. He worries, rightly, about our lack of software education in schools, about our somewhat excessive regulation of commercial television – particularly at ITV (a company he first came into contact with because of Susan Boyle) – and he wants to be a partner to Britain’s broadcasters. Which is why you can enter the The X Factor via YouTube in 2011, whereas in the Boyle era a row between ITV and YouTube meant there was no advertising income generated on any of the millions of views of I Dreamed A Dream on the Google website.

If only it were that simple, though. Some things Google gets wrong, because Google isn’t always benign. It pays out $500m to US regulators because it carried illegal adverts from Canadian pharmacies cheaper than those in the US. YouTube was, for a long time, a host to all sorts of pirated content – hardly helpful to the creative industries – but Schmidt came to Edinburgh to tell us it now takes about four hours to take down copyright material from YouTube, which he wants to argue is quick enough. Yet there are limits too to his partnership proposals.

Those who may have hoped Schmidt was going to invest Google’s rapidly accrued billions in content, a global YouTube channel to rival the BBC and Sky, were disappointed. The excuse offered was that if the company made a creative contribution all Google would do is “produce a lot of bad sci-fi”, when in truth he should say that spending money on content is expensive and unnecessary. As it is, Google represents the apotheosis of what happened when advertising was decoupled from content. Profits for search, chaos everywhere else.

Nobody should assume that Google’s emergence is anything other than profoundly disruptive for advertiser-funded media. Look at local newspapers, under intense pressure because Google search competes directly with the classified revenues that gave so much extra profit to support regional journalism. Look also at commercial free-to-air television, with Google comfortably overhauling ITV this year – with revenues of about £2.4bn, whereas ITV is expected to struggle back to £1.7bn in 2011. And Google doesn’t generate serious money from video ads yet; when it does, competition for ITV is likely to grow tougher still.

Schmidt was careful to emphasise how much revenue Google generates for partners, although, in fact, the company takes 75% for itself overall, and generates a quarter for them. While a lot of people might enter The X Factor online, that will hardly be enough to turn ITV into an exciting growth story. Don’t forget ITV online revenues were only £16m in the first half of this year, out of an £887m division that makes the lion’s share of its money from 30-second spots. Google, of course, with its TV set-top box, wants to merge television and internet viewing, but sales in the US are slow, and it is not obvious how having Google on your TV benefits a broadcaster financially.

So when he spoke about deregulation, Schmidt had to appear generous. Deregulating would make UK television more competitive internationally, he argued, reading out sentences prepared by former BBC and ITV types eager to fight the battles of the past. He even suggested that ITV, with its near 50% share of TV advertising, should be free of airtime sales regulations. That would certainly stop ITV from causing Google trouble; after all, in the past, Michael Grade was fond of comparing the endless restrictions ITV is saddled with to the global free-for-all that Google has been able to exploit.

No wonder, then, Schmidt ended up talking about Google’s tax contribution. Last year, Google UK Ltd paid just £1.2m of corporation tax, on reported revenues of £240m. Meanwhile, the rest of the last year’s UK revenues were diverted through Ireland, where corporate tax rates are lower than in Britain. Of course Google can’t and should not pay more tax than is legal, as Schmidt pointed out, but something is clearly wrong when a highly profitable company pays so little. So, while there is so much to admire about Google, the reality of its relationship with the media industry (and UK plc as a whole) is more complex: the search engine without which we could no longer live our lives is not the saviour of television. Just a very successful technology company.

By Dan Sabbagh

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