The chief executive of British broadcaster Channel 4 says that Google should pay for the material that it uses and invest in production. His counterpart at ITV has already branded Google a parasite. Revenues and profits at Google continue to rise above analyst forecasts in the face of recession. Rather than concentrating on enhancing their own commercial models, legacy broadcasters are simply complaining that it is unfair.
Andy Duncan, the chief executive of Channel 4, was previously director of marketing at the BBC and started out marketing margarine for Unilever. He observes that Google takes more advertising revenue out of the United Kingdom than ITV makes and it is not regulated. Google revenues in the UK overtook those of Channel 4 back in 2006.
“It isn’t fair that it’s not reinvesting that back into content and independent film production companies in the UK,” he told the industry weekly magazine Broadcast. “Google should pay for content that it uses. The burden of responsibility should be on it to identify the people whose content it is using and make sure they are being paid for it, rather than expecting other people to point it out.”
In response, Google said that “YouTube is a free platform for the creative industries to share their content with a global audience and has helped spawn a new generation of talent”. It added that “Google and YouTube are committed to copyright enforcement, taking measures to discourage users from posting copyrighted material and using industry-leading technology such as VideoID to help content owners identify and monetise their material.”
In a recorded interview shown at the IBC trade show in Amsterdam last month, Michael Grade, the chief executive of ITV and former chairman of the BBC, called companies like YouTube parasites.
“The day that Google or Joost or any of these people start investing £1bn a year in UK content is the day I’ll start to be worried,” he said. “They’re all parasites. They just live off our content. As long as we can create the content, the content is the keys to the castle for us going forward.”
The insistence that companies like Google should invest in production fails to appreciate that their value lies in providing a highly efficient mechanism for bringing audiences to advertisers. Instead of appealing to them to invest in production, commercial broadcasters might be better advised to work out how to improve their own advertising platforms, and how to work with companies like Google.
Loss of imagination
Rather than investing in research and development for new forms of advertising, ITV is closing its Imagine division of around a dozen staff as part of a plan to lose 1,000 jobs to cut costs. ITV Imagine was launched two years ago to investigate different media platforms, create new formats and provide consultancy services to agency and advertising partners.
When the ITV Imagine unit was established in November 2006, ITV commercial director Ian McCulloch said that “Teams like this are integral parts of some of the most successful creative industries in the world and, at a time where technology and trends are changing more rapidly than ever before, Imagine is an essential component of ITV’s growth strategy.”
He said at the time that “Imagine’s job is to harness the huge creative talent within ITV and unite it with the best experts, visionaries and technologies to come up with the most innovative business ideas for ITV.” It seems that they did not come up with a realistic solution to the problems faced by broadcasters such as ITV.
Google improves search results
Google meanwhile reported results for the third quarter above the expectations of many analysts, so far resistant to economic slowdown. “The measurability and return on investment of search-based advertising remain key assets for Google,” said chief executive Eric Schmidt.
Google reported revenues of $5.54 billion for the quarter ended September 30, 2008, an increase of 31% compared to the third quarter of 2007 and an increase of 3% compared to the second quarter of 2008. Net income for last three months was $1.35 billion.
Just over half of Google revenue was from outside the United States. Revenues from the United Kingdom were $776 million, representing 14% of revenue in the quarter.
In comparison, in the first six months of 2008 ITV reported revenues of £1,031 million, of which just £17 million was from online.
In the same period, Google revenues in the UK reached $1,577 million, around £990 million, considerably more than the net advertising revenue of ITV, which was £723 million.
In other words, Google received more than 40 times more from online advertising than the biggest commercial broadcaster raised in online revenues.
Google was launched exactly ten years ago. The Google Ad words model was launched exactly eight years ago. YouTube was launched less than four years ago and was acquired by Google two years ago. YouTube currently loses money. The majority of Google revenues come from online search advertising.