Thomas C. Rubin: UK Association of Online Publishers

Prepared Remarks by Thomas C. Rubin, Chief Counsel for Intellectual Property Strategy, Microsoft Corp.
“The Change We Need”
UK Association of Online Publishers
London, England
Nov. 20, 2008

TOM RUBIN: Thank you for that kind introduction, and thank you for inviting me to speak at this important conference focused on creating vibrant business models for publishers online.

It was a sad day last month when we read that after 100 years the Christian Science Monitor will cease print publication next April. The Monitor is an esteemed newspaper with particularly distinguished international coverage. It was the first American newspaper to get a reporter behind the lines with the anti-Soviet resistance in Afghanistan in 1979. And during its long history, it has nurtured generations of young foreign correspondents, including Jill Carroll, who you may remember was held hostage in Iraq.

The demise of the Monitor’s print edition is emblematic, of course, of the broader challenges that confront the publishing industry today. The largest news publisher in America, Gannett, laid off 10 percent of its workforce last month. Today the editorial staff of the Los Angeles Times is only half the size it was at the start of this decade. And the stock price of The New York Times right now is well below what it was when I left working at that newspaper over 23 years ago.

It would be one thing if print editions were being replaced with vibrant and profitable online versions. But as we all know, that is just not happening.

Today we are still searching for healthy symbiosis between newspapers and new technology. And symbiosis it must be, for journalism and digital consumption are forevermore inextricably linked. As for that symbiosis, the open question is what form it will take. In biological terms, will the relationship be one of mutualism or of parasitism?

We can begin to answer that question by understanding two basic facts. Media companies are dependent upon technology firms for two things – readership and monetization online. And conversely, technology firms are dependent upon media companies to produce quality content that fuels their own business models online.

Let me underscore quality, because we’ve seen through the two Internet bubbles of the past decade that business models require quality. Many data points from smaller companies could be cited, but let me highlight two from the dominant online player today. Google continues to struggle to find a way to monetize the user-generated, amateur content on YouTube. As entertaining as some of it may be, it has so far proven to be of little commercial value.

Now let’s contrast that with Google News. Put aside, for a moment, the concerns that many have expressed that Google is profiting by using others’ content without permission. Consider just the economics. Google’s vice president of search revealed this summer that Google News, a product that was put together in a weekend and that is run by automated search algorithms, generates $100 million in revenue for its business.  That’s no small sum, especially when one considers the negligible investment and extremely high margins.  What it demonstrates is that quality content does have great value. Only in this case, as has been pointed out, the $100 million is a bonanza enjoyed by Google, not the creators.

Clearly this can’t be the future for publishing. So how do we move forward? To start with, I agree with Arthur Sulzberger of The New York Times when he says that we should reject the “apocalypse now, tomorrow and forever” view of new media. I believe publishers can create viable business models online that sustain the integrity of their trusted brands, maintain a free and competitive marketplace, and continue to nurture the creation of quality content.

Now it’s true, of course, that publishers have been struggling with how to deal with the changes wrought by the digital transition for a long time now – ever since the first multimedia web browser was introduced 15 years ago. But is that really too long a time for creators to still be struggling with building robust new business models?

I don’t think so. It was only 15 years after the introduction of commercial television in the United States in 1941, after all, that television assumed its modern form. That’s about when the first half-hour daytime soap opera debuted, when the first game show achieved a critical mass of viewers, when television news established itself as a regular part of America’s daily news diet, when the first color broadcasts aired, and even when the first practical remote control was invented. So the fact that we are still trying, 15 years after the web first appeared, to address the challenges of building a sustainable online media ecosystem does not trouble me.

While 15 years is too early to call it quits on the newspaper business, it is not too early to think seriously about changing the way we’ve tried to transition the industry to the Internet. In fact, what does worry me is that the prescription some offer for newspapers to survive and thrive hasn’t changed at all in the past 15 years, even though that prescription has not only failed to cure the media’s ills, it has actually made the patient much sicker.

Let me try to explain. Starting back in the early 1990s, some leading Internet pundits espoused the motto “information wants to be free” and implored content owners to simply give away their content and monetize it through secondary means – such as concerts and tee-shirts for musicians and, in the case of media, the promise of a strong income stream by adopting a business model consisting of free and liberal distribution plus online advertising.

And that’s exactly what most newspapers did. By the late 1990s, almost all newspapers put their valuable reporting and exclusive commentary online and allowed it to proliferate, easily accessible and free. They did just as the new model professed and sold advertising to monetize the increased audience they were attracting.

Well, here we are ten years later bombarded almost daily by announcements of newspaper layoffs and closures. The evidence is in, and I think we can safely say that the “information wants to be free” approach not only does not work, actually it has been a disaster for almost all newspapers.

Yet even today, despite being confronted with mountains of evidence of failure, some Internet leaders continue to propose the very same prescription for the future of newspapers. A vice president of Google told publishers earlier this year that they needed to embrace the “ubiquity” of content on the web, and that the survivors will be those that adapt to this new reality. And Wired’s Chris Anderson will soon publish a book called “Free” that argues that businesses of the future can only make money by giving their products away.

But for the media at least, the verdict is in and the time has come to reject these claims once and for all. Tinkering with your current online business models by trying to develop a more organic relationship with readers or by beefing up link journalism (the latest buzzword) may help, but it is not going to fix the current situation. To echo our President-elect Barack Obama, the policies of the past have failed and it is time for a change.

Yes – the newspaper industry has at times been way too slow to embrace the opportunity of the Internet. But the converse is also true: the Internet has failed the newspaper industry. It has not created a stable platform that rewards quality journalism. Media must continue to adapt, but what we now know is that technology must adapt as well.

Now, is this sort of change actually possible? Well, recent history on the Internet has proven that the free content, copyright-be-damned model is not inevitable at all. So, I remain optimistic that change can happen. How could I possibly be optimistic at a time like this? Well, we have seen change positively impact others before on the Internet. Not just once, not twice, but three times.

We all remember the old Napster. When it launched in 1999 with great fanfare, commentators said it was the wave of the future and that the music industry must inevitably bow before this unstoppable technological advance. Think again. Napster and its progeny were found liable for massive copyright infringement, and were forced to shut down.

Though peer-to-peer piracy hasn’t been eradicated, it has been kept in check, and out of those ashes emerged Apple’s iTunes music store, which began to sell digital music files – with permission of the copyright owners – to eager customers. It turned out that most people do not want to steal music – they just want convenient online access to it. And since its launch, iTunes has sold billions of songs and helped move the music industry into the digital age in a more responsible and economically secure fashion. A sign of success came just last week, when Universal Music Group announced that its ability to monetize digital sales is beginning to balance out the loss in CD sales – a very welcome development for the future of music. You see, change can work.

The second time this myth of technological “inevitability” was punctured was with the emergence of YouTube. When it was bought by Google two years ago for $1.6 billion dollars, copyright infringement on the service was rampant. Google and YouTube claimed they had no responsibility to prevent that infringement proactively. It was another example of how creators’ needs took a back seat to the Internet’s “openness.” Well, Viacom and others didn’t buy into the myth and sued YouTube for $1 billion for copyright infringement.

At Microsoft, we watched these events and decided to take a very different approach. We collaborated with a large number of media and technology companies alike to draft a set of principles to promote the responsible growth of user-generated content sites. These User Generated Content Principles aim to foster innovation and encourage user-generated content, while discouraging the proliferation of infringing content on such sites.

These were not just words on paper to us; we implemented filtering to detect and remove infringing content from our own social networking site, Soapbox. And though it never signed onto these industry Principles, YouTube eventually caved and by late last year announced it would use similar technology to try to reduce infringement on its service.

And even more importantly, competitive services offering authorized commercial content like in the United States (and soon here in the UK) launched and showed how online video that respects creators’ rights can thrive. Hulu has quickly become America’s most prominent website for mainstream television shows and, increasingly, movies. Indeed, Michael Arrington of the TechCrunch blog – one of the most vocal YouTube advocates who roundly criticized Hulu on its launch – wrote last month: “I was wrong. Hulu rocks. Despite ridiculous odds, the company was able to pull off a joint venture between two humongous parent media companies and provide users with a compelling, sexy product.” Here again you see, change can happen.

The most recent puncturing of the “inevitability” myth involved the Google Book Search service, which infamously launched a few years ago by scanning books into a digital database without first getting permission from the copyright owners of those books. As with YouTube, Google’s approach attracted the attention of copyright owners, and book publishers and authors eventually sued for copyright infringement. Just last month, Google agreed to settle those claims for $125 million.

As the editor and publisher Peter Osnos recently noted about this settlement: “Google has now conceded, with a very large payment, that information is not free.” The settlement also allows authors and publishers to specify whether and how the digital versions of their books can be displayed, and it establishes a book rights registry to administer those rights and distribute compensation to the copyright owners for the use of their books.

In the book publishing space at least, Google has repudiated the very model of free that it had imposed on authors and publishers, at least for now. As UCLA law professor Doug Lichtman observed the day the settlement was announced: “The only damper to today’s celebration? The worry that Google just created for itself yet another functional monopoly.”

Stepping back, all three of these cases fundamentally altered the “free” models that had been thrust upon the music, video and book publishing industries. To achieve these results, responsible people had to intervene in the spontaneous forces of technological change and the market to ensure a more socially-beneficial deployment of new Internet services. The point here is that we need not simply let technology shape us. We can also shape it. We have seen repeatedly now that change can happen and the situation for those who invest in content can improve.

So, how can we prompt the same kind of change for the benefit of journalism and the newspaper industry?

First of all, we’ve got to stand up for publishing and defend its vital role in our democratic societies. As Arthur Sulzberger of the Times noted: “Trustworthy voices are more important than they have ever been.” And the more that inaccurate information proliferates on the Internet, the more we need such trusted publishers.

Just two months ago, for example, Google News reported that United Airlines filed for bankruptcy. As a result, the company’s stock plunged, and UAL lost one billion dollars in market value. Except that the story wasn’t true at all. Google’s news crawler had simply – and unfortunately – dredged up an old story from 2002 and run it as new. Then a month ago, on a CNN news site called iReport, an 18-year-old wrote a false story that Steve Jobs had a heart attack, sending Apple’s stock into a tailspin. The lesson here is obvious, not just to all of you in this room but to your vast audiences: amateurs and algorithms are no substitute for reporters and editors.

Time and again, readers keep telling us who they trust. In times of crisis especially, they race towards quality journalism. During the great wars and after 9/11, readership of The New York Times soared as people sought trustworthy reporting of not only what happened, but even more important, trustworthy analysis of what it meant.

The latest case in point came two weeks ago on the day Barack Obama was elected President of the United States. Readership of the Times website skyrocketed 29 percent over its previous record. Print copy sales increased by 35 percent.

There is a lesson there. And that is that even with the creative diversity of bloggers and other voices that greatly enrich our new media ecosystem – whose own business models, parenthetically, are very much in doubt – they cannot replace quality journalism and investigative reporting. The trust that publications have built with their readers must never, ever be lost, or our societies will be in peril.

So let me propose three irreplaceable principles for building a more viable and sustainable media ecosystem for the Internet age. Let’s call these the “Three Cs” – and they are copyright, competition and collaboration.

First, publishers and editors must be able to maintain appropriate control of their own branded content and the experience of their readers, and not cede those to search engines or aggregators. Second, the online publishing business must remain free and competitive, with plenty of room for new creators to emerge, and with no single entity – be it a publisher or a technology company – able to gain a chokehold over revenue streams or reader experiences. And third, publishers and technology companies must collaborate to ensure that the great promise of our digital age is realized in ways that preserve and enhance the quality journalism that free societies depend upon.

Now when I say copyright, I mean first of all that we must consciously act to defend copyright as an essential precondition for sustaining a healthy publishing ecosystem. Copyright is an irreplaceable incentive for the creation of quality content, and it must absolutely be preserved.

Of course, we must adapt copyright to fit the needs and openness of the Internet. To unleash the full potential of the digital age, we should ensure that fair use remains sufficiently flexible, promote easier content licensing across borders, embrace projects like Creative Commons for those who choose to use it, and not over-enforce our copyrights. Intellectual property must be an enabler of business models in our new economy, and not an inhibitor.

But when we speak of copyright, we must also ensure that publishers can maintain appropriate control of their branded content and can offer a wide range of experiences to their readers. One interesting development is ACAP, the Automated Content Access Protocol effort started by European publishers to create more flexible means of offering content online. To the extent ACAP can develop into an enabler of content flow like Creative Commons and not become an inhibitor like some failed experiments with digital rights management, it has the potential to be an important element of more vibrant business models for publishers in the future.

Whether the solution is ACAP or some other method, web sites currently are forced to communicate with search engines using robots.txt, a technical protocol developed 15 years ago without any understanding of how the business needs of newspapers and other web publishers would develop. Using that 1993-era technology to run today’s websites is like putting a Fiat engine in a Ferrari. You guessed it – it’s time for a change.

The key to the game is to build a loyal audience, which makes the rampant misuse of valuable copyrights and the dilution of trusted brands online today so harmful to publishers.

That’s precisely why newspapers have objected to Google News aggregation sites. And why commercial publishers have opposed the search-within-a-site feature that allows users to search a publisher’s site from within Google’s own pages – where Google controls the experience, supplies the ads and reaps the economic rewards. And why some publishers have raised concerns that a feature called “First Click Free” strengthens Google’s hold as gatekeeper to their content by dictating how they must interact with their audience.

Similarly, publishers today are faced with rampant infringement of their content and brands on rouge websites and splogs, as documented in a study released last week by the company Attributor. Publishers can reassert themselves and prevent such siphoning away of audiences, and revenue, by stopping this abuse and cutting off the economic engines that make it possible – namely ad networks that fuel the infringement on those sites.

Publishers’ success online is dependent upon their ability to make their own decisions about how to drive revenue by building their brands and making their content available, including for free. As ailing publishers have said, those critical decisions must be theirs to make and not be forced upon them by others.

Which brings us to the second of my “Three Cs” – preserving free competition and the economic independence of publishers.

I do appreciate the irony here, but the fact is that we at Microsoft are qualified to talk about this topic. We’ve learned a great deal from the antitrust issues in the United States and here in Europe, and have evolved a business model based on collaboration with many diverse parties across our ecosystems. A key lesson for us was that collaboration offers a far better road to sustainability and success than a go-it-alone market strategy.

Now, publishers’ success is dependent upon the existence of a healthy and competitive online environment that provides the broadest possible opportunities for publishers and advertisers alike. Yet the online environment today is not particularly hospitable in this regard. As the World Association of Newspapers wrote a few weeks ago in a communiqué opposing the Google-Yahoo deal: “Google’s ever-tightening grip on internet traffic, its unbridled use of online content, and its dominance in online advertising poses a very real threat to the continued viability of the independent content generation industry.”

The threat of an anti-trust suit from the U.S. Department of Justice did force Google to abandon that particular plan. As a Washington Post editorial earlier this week stated: “Justice was right to be concerned – as were legions of advertisers that rely on the search engines and that would almost certainly have faced higher prices.” Not to mention publishers. As WAN has stated, what publishers need is more competition, not less, if they are to develop viable new business models and creative new forms of content while maintaining their independent voices.

Which brings us to the third pillar of a new publishing ecosystem: collaboration. This isn’t just wishful thinking. We have seen how, when challenged, Napster’s scorched-earth approach to copyright was rejected in favor of the iTunes model of providing convenient online access to consumers at fair prices. We have seen media and technology companies work together to promote business practices that encourage non-infringing user-generated content. And we have seen that, when challenged, Google must respect authors’ and book publishers’ rights.

The crisis in media today calls for collaborative solutions between the newspaper and technology industries, which is why Microsoft will continue to invest in our strong relationships with publishers here in Europe, in America and around the world.

Collaboration requires a degree of common understanding, and on that score I think the future is bright – for us and for you. Newspapers have begun to embrace new technology and to respond to the changing social norms and consumption patterns brought about by the Internet. And we have become more mindful of the consequences of the deployment of our innovations.

In closing, don’t let anyone tell you that the choice is between Luddite resistance to new technology and passive acquiescence to the destruction of your industry. In other words, quality content is of great value and it is time to reclaim what is yours. The stakes here are high. Remember that, in a very real sense, we are all in this together as stewards of our cultural future. So let’s finally turn the page on a failed model that has not worked for reporters and editors and publishers. Let’s instead work together to build a model that works for newspapers and technology alike – and that sustains and enriches the free and vibrant media that our free societies require.

Thank you.