>By KEVIN J. DELANEY, Wall Street Journal August 14, 2006; Page B1
Google Inc. drew the ire of media and entertainment companies last year with audacious moves to search new information such as video and books. Now, in a reversal of those missteps, the Internet giant is bringing some of the biggest traditional content owners into its camp and sharing revenue with them.
Last Monday, the Mountain View, Calif., company announced a deal to distribute video from Viacom Inc.'s MTV Networks on the Web and a separate agreement with News Corp.'s Fox Interactive Media division to provide it with search technology and broker advertising. Google has pledged $900 million in minimum payments to Fox under the tie-up. Google also recently said it would license content from the Associated Press news agency as part of a new, unspecified service. And Google has said there are likely more such deals to come.
Google's improved relationships with media and entertainment companies reflects the confidence those companies have gained in online distribution in the past year, amid rapid growth in Americans' consumption of Web video and other Internet content.
But just as importantly, it illustrates a coming of age in Google's approach to the owners of content it wants to search. One key development: Google has recruited executives from the media and entertainment industries in the past year to negotiate with those companies. Led by David Eun, a Time Warner Inc. and NBC alum who joined Google in February, these teams are prowling for deals and courting potential content partners with visits to Google's Silicon Valley headquarters.
Now "we can approach them (the media and entertainment firms) in a way that we can actually do business together and not screw things up," said Google Chief Executive Eric Schmidt at a press conference Wednesday.
Making such tie-ups work is crucial to Google's long-term advertising revenue growth, providing the company with additional places to display lucrative ads, such as alongside video clips. It's also key to Google's mission of letting consumers search the world's information. For years, individuals could access billions of Web pages through Google, which the company indexed without their owners' explicit permission. Now the company is trying to extend that search to diverse sets of commercial information, including movies and books.
Google alienated some content owners as it intensified such efforts in 2005, and those concerns haven't totally subsided. Separate lawsuits filed last year by five major book publishers, an authors' trade association and the Agence France Presse news service alleging that Google is abusing their copyrights are still pending. Some content owners, wary of Google's power, are lining up with smaller advertising and distribution networks.
"The biggest challenge is explaining to them we're friend and not foe," says Mr. Eun, 39 years old, Google's vice president of content partnerships.
In one miscue, Google in late 2004 recorded TV programs on its computers with the intention of letting consumers do some limited searches of them. It did so without TV companies' permission, and only notified some of them days before the service's January 2005 launch. Executives at CBS and Warner Bros. television, a unit of Time Warner Inc., were among those who asked Google to back off, citing possible copyright violations.
Google "didn't show proper respect for us as potential partners," said Larry Kramer, president of digital media at CBS, last year. (CBS in January announced a deal to distribute episodes of several shows, including "CSI" and "Survivor," through Google Video. "We're quite happy with them," Mr. Kramer says now. "They have more people who have taken more time to understand the business of their partners.")
Google's program to digitize millions of books in university and public libraries, launched in late 2004, also triggered the lawsuits last year from publishers and authors. Those groups objected to Google's scanning of copyrighted works without permission. Google was "freeloading on the talent and property of authors and publishers," the Association of American Publishers trade group said in an October statement.
Google executives say they never intended to own content themselves or steamroll the owners of information.
Despite these missteps, partnerships with Google remained attractive to media and entertainment firms because of its reach to consumers and the numerous advertisers buying online ads through its system. Google has far outpaced Yahoo Inc. and other rivals in maximizing the revenue it generates each time it displays a search ad, partly by showing ads more likely to appeal to users based on how the ads performed in the past. That efficiency and its broad reach on the Web allow it to promise more money to content owners, with whom it shares the majority of revenue from ads its brokers. In December, Google beat out Microsoft Corp. for a search advertising and technology pact with Time Warner's AOL unit that included Google's paying $1 billion for a stake in AOL.
Importantly, Google has worked on offering commercial content free to consumers online financed by advertising, a model with high usage and remuneration potential. In one experiment, it provided free ad-supported access to full-length commercial videos consumers usually need to pay for, ranging from old cartoons to the Charlie Rose Show. Major content owners are growing more comfortable with such ad-supported distribution online.
Now Mr. Eun, a Harvard law school graduate who worked on Internet deals at NBC in the 1990s and more recently helped oversee Time Warner's Media and Communications Group, has launched a partnership offensive. He says his team is signing hundreds of content deals each quarter in the areas of video, books and other print publications, and local content such as maps and guides.
Mr. Eun uses his Old Media pedigree to reassure traditional media and entertainment companies. Specialized deal teams identify potential partners and bring them to Google's headquarters to meet with staff who explain how the company's business works.
In MTV's case, discussions leading to last week's deal got started after Michael Wolf, President and Chief Operating Officer of MTV Networks, contacted Mr. Schmidt earlier this year. Mr. Schmidt handed off the negotiations to Mr. Eun's group, which brought MTV's team to Google's headquarters for a daylong meeting. "Throughout the discussions we've had with Google they've been respectful of our brand, respectful of our content," says Mr.Wolf.
While Mr. Eun declines to specify his team's size, Google earlier this year hired executive recruiters Spencer Stuart to find two additional executives to report to him, says a person familiar with the matter. One executive is to focus on working with premium content providers such as TV networks and movie studios, and the other with owners of archival TV, radio and training film footage, this person says. Google recently filled the spots with Yahoo and NBC Universal alums, the person says.
In the books area, Google says it has recently recruited individuals from publishers Random House Inc., Reed Elsevier and Farrar, Straus and Giroux to cut deals and work with the publishers. Google last year also set up an advisory council of about a dozen senior publishing industry executives, with whom it meets roughly once a quarter. The company previews upcoming changes to its book search service with the group, and solicits their concerns.
"We see that they've listened and they've done what we've been talking about," says Gordon Tibbitts, U.S. President at scholarly publisher Blackwell Publishing Ltd. of Oxford.
Still, critics haven't gone away. "Everybody needs to be careful when dealing with somebody who has a different point of view from the mainstream" on copyright, says Joshua Kaufman, a lawyer representing the AFP in its suit against Google. Scott Bailey, a general manager for business operations at Time Warner's Turner Sports New Media unit, for one, says he wonders whether Google services will undermine some content owners' own. "There's a fine line between competitors and partners," Mr. Bailey says.
--Joann S. Lublin contributed to this article.
Write to Kevin J. Delaney at kevin.delaney@wsj.com
