FTC workshop: How Will Journalism Survive the Internet Age?

Audiocast and some materials on the FTC website. There's a whole other day I won't be attending, but this morning was certainly interesting.

Jon Leibowitz, Chairman, Federal Trade Commission, earlier speech on “Creative Destruction” or Just “Destruction”? Sadly, I missed his intro because the published times were at variance with the actual start time!

Newspaper Economics, Online and Offline

Hal R. Varian, Chief Economist, Google; Professor, University of California, Berkeley

What we all know: decline in circulation, despite increase in revenue per subscriber. New sources: 26% of Americans get news on their mobile phones, 43% of those under 50. 80% get news from emailed links—very popular distribution mechanism.

Online page views of news are only 3% of total news page views (total on and offline), and less than 1% of time online is at newspaper sites; people spend less time on news online than they do when they read physical newspapers. Still, it’s very popular to access news online, 3^rd most popular online activity (following email and search). So, a paradox: it’s popular but people don’t spend much time on it. They’re accessing news during the day, and searching more on the weekend. So to increase value, need to turn it back into a leisure-time activity.

Value of clicks: search engines drive 35-40% of traffic to online news sites, which means—if you assume about equal monetization—that search engines are driving 35-40% of revenue, though online news revenue is only 5% of total revenue. We can classify the kinds of searches that drive people to online news sites. Turns out: sports, news/current events, and local. But the money is in travel, health, shopping, consumer electronics. Hard to monetize the categories where newspapers do well. Same as the offline world: news, narrowly defined, is relatively hard to monetize. Newspapers have never made money from news. Cross-subsidization is not working as well because it’s hard to do ad targeting for pure news: what do you put next to “Bombing in Baghdad”? And ad revenues for newspapers have had about 20% general merchandise, 14% financial, and other smaller things—not the kinds of things that people are making money on online.

Newspapers are valuable, but can you charge for them? He’s not sure. The weather isn’t unique.

Conclusion: newspaper ad revenue is where it was in 1982 in inflation adjusted dollars, though number of readers has dropped dramatically for print circulation. Cable TV has the largest increase in ad revenue since 1995, not the internet.

What can be done: increase people’s engagement. Experimentation! He thinks it’s promising to link news during the day—brief, occasional—to bigger engagement by shifting some access to leisure time. Living Stories: string together all items about a particular story. Starred Stories: you can follow what happens in a story. Fast Flip? Not clear what this was.

He’s a fan of new devices: tablets may make a big difference because of ergonomics of accessing news. At the end of the day, people don’t want to sit and do the same things as at work, but may want to sit in easy chair. Merger of TV-radio-magazine-newspaper experience. Emotions of video can be frustrating for lack of depth; newspaper allows depth but not emotional involvement; perhaps they can be combined.

Newspapers should better exploit the info they have. In many cases the site is seen as something for the techies, but there’s hugely valuable information in web logs both from editorial and marketing points of view. What do people come back to? Where do they spend the most time?

The State of Advertising

Bob Garfield, Author, The Chaos Scenario; co-host, NPR’s On the Media

NBC is doomed except as a cable channel: tech and simple economics undermine TV’s business model. All TV, and all newspapers, and all magazines, radio, Hollywood, what’s left of the record business, are in big trouble, along with the advertising industry and 1000 leading national advertisers. The collapse of barriers to entry has unleashed competitors, and high production quality isn’t enough to pose a sufficient barrier, especially as the studios cut production quality to save on pennies.

95% of music downloads were unlawful, even as Apple sold 3 billion songs. The same is happening to movies and TV; Star Trek was downloaded so many times that it siphoned off $100 million in box office (um, I simply do not believe this, given the lack of 1-to-1 substitution). Google profits from snippets of others’ content. Between 50-75% of DVR owners fast forward through commercials. Why? If Madison Avenue firms think that people love their ads, they’re tragically mistaken. People have put up with ads in exchange for free/subsidized content. Yes, some are funny and some worm into our hearts, but to most people all ads are spam, proved by what happened as soon as tech allowed us to skip them.

Supply and demand: ad supply is great; the price any advertiser can fetch for any ad anywhere is reduced, especially online. On display ads, newspapers are competing with bloggers, and on classified they’re competing with free.

If advertisers won’t pay, and users won’t pay, then: the revolution will not be monetized. It was nice while it lasted, when advertisers subsidized free/cheap content for audiences, but it was an accident of history. In the past couple of years, 900 magazines have disappeared; 86,000 employees of periodical industries have lost jobs. Cable is in no better position in the long run. Vulnerable to TiVo, and suffering from autoimmune disease: cable also brings in broadband, which allows users to get the same programming.

When mass goes away, the ad agency business model does too—it made big profits from big campaigns.

People are sticking it to the man: but traditional news organizations are the man. We are the dictators, the establishment, the elite.

Current Copyright Issues in Journalism

James Boyle, Duke Law School

Varian’s presentation makes clear that it’s not illicit uses of news that are the problem. Disintermediation, etc. mean that even perfect enforcement wouldn’t change the financial situation of news. The issue of how to pay for investigative journalism won’t be solved by tweaking copyright law.

Yochai Benkler, Harvard Law School

We’re looking at an industry that’s used to monopoly rents. 95% of cities are single-newspaper towns. But people can get news from other sources now. Classifieds are also a key factor. So what are we willing to give up? Are we willing to give up the idea of national and global sources of news as a part of the local paper, reading the NYT no matter where you are? Are we going to try to give the rents back to papers, and if so how?

Kenneth A. Richieri, Senior Vice President and General Counsel, The New York Times Company

Copyright may not have caused this situation, but to support investment one needs the ability to monetize it, and one can’t do that if the entire work product can be taken instantaneously.

Bruce W. Sanford, Partner, Baker Hostetler

FTC should issue a report with factfinding. In one 30-day period, 75,000 unlicensed sites showed US newspaper content, with 112,000 full copies of newspaper content unauthorized. The amount of unauthorized usage is staggering. Copyright-type protection, such as the type England is considering, is what we ought to do to protect journalistic content. (These two sentences don’t match up. If copying full articles is the problem, then it’s an enforcement issue, not an expanded rights issue. If what you really want is to pick some deeper pockets who aren’t engaging in full copying, then say so.)

James Marcovitz, Senior Vice President and Deputy General Counsel, News Corp.

Consumers are reading the news differently now. We need laws alongside copyright to encourage investment.

Laura Malone, Associate General Counsel, Intellectual Property, The Associated Press

Nobody thinks copyright caused the problem. But it’s one remedy we have to protect valuable content. AP stories are distributed to many customers, and many are illicitly used as well. A member will ask: “why am I paying dues when the guy across the street is copying and pasting?”

Boyle: The call for factfinding is good. If you compared Varian to Garfield, Garfield was more entertaining because it was about half purely factually wrong. “You can’t compete with free.” Obviously: look at the bottled water industry. Yes, there are illicit copies of newspapers. And it’s already illegal, with powerful remedies. Also, you can’t confuse the number of illicit copies with economic harm; downloads do not represent one-for-one someone who would have paid $8.50. Calls out that $100 million figure same as I did; blockbusters still exist.

How much of this is not already illegal, and how much that isn’t illegal should be? His answers: Hardly anything, and not at all.

Moderator: what about news aggregators/headlines/links: is that a problem? Does IP have any role to play?

Sanford: With aggregators—you have to identify a specific activity. Some are clearly infringing, and others have a fair use defense. What happens when you litigate: plaintiffs tend to bring strong cases and win; some aggregators go down the tubes. That’s a near certainty if the status quo continues. Some aggregators may beat the rap, leading to a chaos of decisions that are difficult to apply consistently. At that point, it’s in everyone’s interest to agree on some sort of rules of the road. (I really want to hear Jessica Litman talk about this narrative.) This needs to be done before we go down the road of judicial decisions. (Because Heaven forfend we might have a court interpret a statute!)

Moderator: Why haven’t we seen more of these cases?

Sanford: It’s a matter of business deals. Players are talking deals in the market. There will be litigation—people who feel they have strong fair use cases, and copyright owners who feel there’s no fair use. May or may not be good for fair use, because fair use hasn’t been very robust in the digital age—not really tested in a digital world. That’s why it’s time for a legislative response. (Again, this is a fascinating narrative, skipping over among other things a whole line of online fair use cases centering around search engines.) Doug Lichtman’s expert report found that there really was a lot of subtraction of value. (No disrespect intended, but as I recall Prof. Lichtman teaches law, not the economics of journalism.)

Benkler: Information is an output and an input. When you decide how to allocate value to one party, you’re increasing the price for another. So when there is a wide new set of models, some no-cost and low-cost, the risk of introducing a proprietary-like right as a solution vastly outweighs whatever discrete advantages might exist. The people around the table agreed that copyright wasn’t the problem. So how precise a hammer do you want? We could say “let’s tax internet access to pay for music and movies.” There’s no bigger reason not to say “let’s tax internet access to subsidize newspapers,” as compared to “let’s introduce a right that’s not justified on its own merits to subsidize newspapers.” We know IP rights ratchet up over time as concentrated interests mobilize to deepen that right; it’s a volatile right that looks at the internet as a threat in order to preserve an existing 20^th-c. business model.

You’re not the first industry to come up against this. Search engines: linking is perfectly fine. We know that wholesale copying is not fine. So maybe at the margin we’ll have some wrongly decided cases. But the solution space is ambiguous and problematic. Information, when it’s controlled, undermines and increases the cost of information production.

Moderator: are you confident in the courts to get us into the right place?

Benkler: No, he’s not thrilled with the development of fair use doctrine, but it’s relatively susceptible to manipulation by local conditions (identity of plaintiff and defendant), but the baseline copyright law tilts against many gray-area practices. Fair use is uncertain (but killing it won’t make a difference to newspaper revenue). The solution is not a government-created new right. We have a baseline; there will be battles in the market and the courts. There’s enough money on both sides to suggest that litigation won’t clearly go in one direction or another. New business models emerge: some commercial, some nonprofit, some hyperlocal, some by dedicated journalists willing to live with lower returns, the rise of party presses in the large-scale blogs. We don’t in fact have a problem of “putting cars on the information superhighway,” as we were warned would happen without massive increases in copyright protection in the early days of the internet.

The industry is used to extremely high rents and is looking for intervention to create barriers to entry. The simplest solution: do nothing to constrain information. Make government data more available; invest some in government subsidies; allow new nonprofit models; teach journalists to be their own small-scale business operators. Any of that would be better than a new right making it more expensive for new business models to transmit information.

Richieri: Looking at headlines/links: most of our sites sponsor RSS feeds. We are in a net that’s interconnected. Any vibrant news/info site will have to participate. The word aggregator is too broad, covering a variety of sins and non-sins. People need to focus on specifics. Some people use these tools to create substitutability—you know it when you see it. Garfield was right that bloggers have access to everyone—if they copy the NYT, they aren’t doing anything the NYT isn’t also already doing; they aren’t adding value.

Moderator: Is substitutability the touchstone?

Richieri: know it when you see it. A headline with a clean link back not interrupted by an ad, that’s perfectly fine and everyone benefits. Once content is used in ways that don’t violate copyright but that create an audience for a site, that’s a substitutability issue. (!)

Marcovitz: RSS feeds are permission-based. We’d like to see a permission-based economy, where we can set the value for our content and people come to us to seek permission to use it. (This is pretty much an exact quote, though I might have gotten a preposition wrong.) We want to set the terms of use. (And this is why there are people who oppose you.)

Malone: What we’re talking about is news aggregation sites where they take headline and lede, which if well-written can be the heart of the story. The way people consume their news is to look at the top 2 things, read quickly, and not click through to the original source—they got what they need in the headline. That is supplanting the NYT and the Washington Post. (I’m now kind of surprised they allow me to read the front page in the newspaper box without putting in my coins.) We get to set the parameters by which people publish our stuff. We will license them easily and not expensively. But people shouldn’t do it for free just because they can.

Boyle: Legal clarity might be useful: Fair use is perhaps the least important limit on copyright. The most important limit, which the AP and newspapers use all the time, is idea/expression and fact/expression dichotomy. This is necessary to allow newspapers to do their business (not to mention the First Amendment). Facts and ideas go immediately into the public domain, and that’s what’s on the table here. Return on investment is important as a business matter, but sweat of the brow is foreign to copyright, and the Supreme Court said even unconstitutional. So let’s focus on the kinds of uses interfering with monetization. Take the use by aggregators: Google News v. splog that scrapes everything are different. With headlines and ledes, you’re getting close to merger: there are very few ways of expressing all the facts, which means there’s no copyright at all. Problematic in ways that should deeply worry news companies.

If you really don’t want to be aggregated, use robots.txt. But no, we want to be indexed! We want to make you pay for permission to link through to the story. But copyright doesn’t do that now and it would have bad unintended consequences if it did. Economics: If you genuinely want to charge for something for which there are substitutes, price goes down to marginal cost, and that’s a problem because investigative journalism is expensive and difficult. A new legal right is the wrong tool and a massive distraction from the real problem.

Richieri: The ability of a site to determine whether or not it’s going to be aggregated by robots.txt is good, but no law requires sites to use robots.txt. Many aggregators, particularly in mobile world, present themselves as an iPhone and are really aggregating hundreds of thousands/millions of pages. Why not require an aggregator who wants to index to present itself in a technologically cohesive way so that the site can opt out? A permission based system ought to be fine. And many sites may choose to be indexed.

Marcovitz: Look at hot news doctrine; robots.txt and other technological solutions. A more detailed standard—it’s really about developing a permissions-based system, using different tools to fight different forms of aggregation.

Moderator: opt-out v. opt-in: robots.txt is opt-out.

Marcovitz: It’s only opt-out now because there’s no rule that you have to abide by these instructions. We need to shift to permission-based instead of opt-out-based.

Sanford: Federal law of unfair competition might be more appropriate than copyright to deal with unfair appropriation of value. Feist was legislative interpretation, not constitutional interpretation, and said that Congress didn’t intend to extend protection to sweat of the brow. (Look, you can disagree with O’Connor; I might. But that’s not what Feist said.) Phone books are different from newspapers, and we could get a new rule for copyright that does extend to some recognition of protecting effort underlying expression, as Europe is exploring.

Moderator: anything you’d like to see with fair use?

Sanford: It’s in everyone’s interest to come to some resolution about uses and abuses of journalistic content in a marketplace solution. Legislation is difficult and takes a long time; not suited for speedy solutions. But if that has to take place to create leverage for marketplace solutions, then maybe it should take place. (Interesting conception of what counts as a marketplace solution—I totally agree, by the way; it makes no sense to talk about a market without talking about the state that structures the background conditions of the market.)

Boyle: calls Sanford out on Feist, with appropriate quote using the word “constitutional.” What did we do before handheld devices?

Benkler: the beguiling idea of permissions for everyone—when a NYT reporter reads three Spanish newspapers and puts together a reaction, should we require permission? When a NYT reporter listens to a discussion and draws conclusions, should we require permission? Brandeis and Holmes, our First Amendment heroes, didn’t like the result in INS v. AP, which was about punishing Wm. Hearst for his stance on the war: the authorities blocked him from gathering news, and then the Court allowed him to be enjoined. Facts are as free as the air for common use. You don’t need permission to breathe.

Moderator: What about the hot news doctrine?

Boyle: limited use now, because only a state right. Used concomitantly with a copyright claim to deal with “framing” content. No one would consider it important now, except as extra boilerplate for a threat.

Malone: Disagrees! INS v. AP was endorsed in Motorola, and AP used it against All Headline News; judge refused to throw it out on a motion to dismiss. Hot news protects news organizations who send reporters out at a cost in money and in lives. Free riding occurs, by direct competitors who strip off AP credit. This is a disincentive to AP funding reporting.

Moderator: but hot news is pretty limited: free riding must threaten the existence of the product itself. Does that reach far enough?

Malone: if there’s going to be federalization, it has to be very narrowly drafted, and protect many kinds of behavior, the way Motorola does.

Benkler: the narrowness of the doctrine is federalized: Motorola is a preemption case. How far can you go without conflicting with copyright? Particularly the element that the behavior has to threaten the existence of the product is a result of copyright preemption. Remember database protection debate of the 90s? A lot of work on the constitutional constraints placed on Congress’s use of commerce clause power to end run around exclusive rights clause. It’s not at all clear that there is an ability to expand the right federally, even before you get to the First Amendment questions. It’s very different to protect expression v. prohibit a person from using his/her own words to describe a true fact. The news organizations are arguing that the government, in the public interest, can bar someone from reporting a true fact because that will undermine a global public interest concern in supporting news.

Boyle: looks at how wrong his own predictions have been about tech in the past: how do encyclopedias get put together? Hard to have predicted Wikipedia. The key here is the term permissions-based. At the beginning of the WWW, it was open whether linking would be permissions-based; some people thought that links ought to require permission. If we’d been debating that question in this room at that time, we’d say: “it won’t be that hard to get permission—just ask. There aren’t that many information sources, after all.” All that would have prevented was the web, but the people in this room wouldn’t care because they wouldn’t ever have known/imagined it. All the bad and all the good—we would have gotten it dramatically wrong.

Humility should be a guiding principle, and a major change like “permissions-based” would be tragic. We have criteria for least harmful interventions: acknowledge you’re likely to be wrong about the future/promise of the technology. E.g., Jack Valenti and his comparison of the VCR to the Boston Strangler. The DMCA ends up being used by people who make toner cartridges and garage door openers: no matter how precisely we craft the right, people are going to make unintended uses of it.

Moderator: talk about legislative proposals for hot news. Is preemption a problem/do we need statutory clarification? Should hot news be federalized?

Malone: AP relies on it state-by-state, but being in NY is a help. The reason for federalizing it is so that there’s some guidance from state to state. But she isn’t worried about preemption currently.

Sanford: It’s useful to talk about federalization, though preemption isn’t a huge deal; the key is fair and reasonable compensation for content providers and moving to a permission-based economy. Newspapers don’t have an audience problem, they have a revenue problem. Legislation should be designed to address how we can adjust laws in an era where journalism needs more funding. There’s no silver bullet to solve the revenue problems, but it can make a material incremental contribution.

Boyle: Look at the full range of possible interventions and weigh costs and benefits. There is a persistent mistake that “this stuff is ours” and so we want to protect our existing rights. But of course if that’s true, then existing law is sufficient. If you want new rights, look at the costs of intervention v. the very uncertain benefits. Boyle is himself a net loser from the new economy, but we shouldn’t make the mistake of conflating a currently useful way of delivering a social service with the service itself. The companies that sold whale oil for illumination were good at providing illumination, but we shouldn’t have allowed them to put electric companies out of business. Hot news is deeply problematic; much of what newspapers do with each other’s work—copying facts and repackaging, usually with credit to the first to break the story--is troubling from a pure doctrinal perspective, but would never be sued over. And in fact we can look at those practices to show that copying facts doesn’t threaten the existence of the enterprise. Between traditional newspapers, there’s a gentleman’s agreement, but with new entrants, the rights get invoked in more extreme and problematic ways.

Enforce current law, ok, but we know what happens to IP rights when federalized—let’s just broaden it a little bit, for real estate prices, or your own favorite special interest. Newspapers are good poster children, with genuine concerns about survival and a social utility they provide, but opening the box is a bad idea.

Richieri: There are entities that are only one-way streets, existing to report on what the Times is reporting.

Moderator: where the user is rewriting the content, are there other tools than hot news?

Marcovitz: You look at copyright and hot news.

Benkler: advantage of FTC factfinding is that you’re not limited, like courts, to looking at hand-picked defendants. To describe the day of a true journalist as one involving only 3-month trips to the hills of Afghanistan, whereas everyone online just copies from the AP, profoundly misstates and mischaracterizes the news ecosystem. The implication that the problem is the equivalent of a copyist/spammer is wrong. Go back to unintended/unspoken consequences. Look at Wikipedia, Yelp, and many other models. Ecosystem includes all sorts of players. When you emphasize a particularly unattractive player, you understate the negative implications for all of the other places where you’re, e.g., seeing the emergence of commercial and noncommercial party presses; research centers suddenly not just delivering one paper once in a while, but blogs that are sources for more sophisticated journalism. All of these things would have to move from assuming they could report facts from needing to have special relationships with other sources. This is bad for the web. Systemic effects: given all of the players, the cost to these other models would increase when you try to solve the problem of the unattractive defendant.

Boyle: right now we don’t understand the most unattractive things about the hot news doctrine because the AP does care about the First Amendment. Remember the guy with the ACORN story—highly politically motivated. Not repeat players. With a hot news doctrine in place, this guy can claim the right to control the reporting—not willing to allow the NYT to report the facts. The legal club at least allows him to slow down the reporting, in a situation where time is of the essence. The people enforcing hot news now are generally interested in reporting in a large-scale system; but the AP’s commitment—which Boyle does not doubt—to enforcing a hot news right in the correct way does not mean that others with access to the same right, with different structural positions and incentives, will behave well.

Moderator: what now?

Sanford: Elephant in the room is Google Book Search. A marketplace solution may be reached with the search engine—and that’s the same attempt here.

Moderator: Doesn’t the idea of marketplace solution rest on an underlying IP right?

Sanford: Yes. The question is whether repeated copying allows a fair use defense, depending on the facts of the case. Commercialization and substitutability of the use are key. Could be resolved by English approach of legislation. Legislation is difficult, but can still be worthwhile.

Moderator: how can rights backfire?

Boyle: Rights of landowners to control whether airplanes could fly high above would have been disastrous, as was quickly realized. Opt-in for linking or indexing would be equally disastrous; opt-in has worked pretty well. Caching is more complicated. When a “cache” is merely a substitute, that’s a weaker fair use argument. But recall unintended consequences: don’t give control over the tech of the web to a certain set of content providers, to the detriment of society. Thank goodness we didn’t legislate on this early. As soon as you start saying property rights exist unless specifically waived, you change the fundamentals of the web. What robots.txt does, however, should be up for debate and reform. Let’s do experimentation with business models rather than legal change—this is not the time to drop a new crystal into the supersatuated solution we have.