CBS’s switch to playing offense coincided with the appointment in 2006 of Quincy Smith as president of CBS Interactive. “I think Quincy is one of the most advanced thinkers in this space,” said David Eun, who was a Time Warner executive before becoming Google’s vice president for strategic partnerships; he now works out of Google’s New York office as their principal negotiator with traditional media companies. Smith’s task, in part, he continued, “is to go back and educate his very smart colleagues that this will not kill their business,” because YouTube is not “a destination” that competes with CBS, but rather another platform. The challenge to media companies is to get “their content to where the audience is.” Eun credits Moonves: “What he’s decided is that he has to change. He needed someone and he empowered him.” Of the geekspeak that gushes from Smith’s mouth, Moonves said, “I understand half of what he’s saying, on a good day! But the important thing is, he understands everything.”
SMITH IS PROUD to be called a geek, though this was not what was expected of him when he entered the world. He was born in December 1970 on Manhattan’s Upper East Side. His father, Jonathan Leslie Smith, became the youngest partner at Lehman Brothers; his mother, Elinor Doolit tle Johnston, was a Bennington College graduate and the editor of Art +
Auction Magazine.
A computer was Quincy’s childhood pet.
He enjoyed a privileged childhood—Collegiate, Phillips Exeter, Yale philosophy major—that suggested a life on Wall Street, or the CIA. His ponytail did not. He cut it, though, for his first job as an analyst for Morgan Stanley’s Capital Markets group, in 1994. But computers and technology were what really inspired him. He moved the next year to the technology group in Menlo Park, under Frank Quattrone. He worked on the 1995 Netscape IPO, going on the road with cofounders Marc Andreessen and Jim Clark, and with CEO James Barksdale. In October 1995, he joined Netscape as their chief deal maker and Wall Street liaison. He helplessly watched as Microsoft bundled the free Internet Explorer browser in with its dominant operating system, weakening Netscape.
Andreessen’s company was profitable, but Netscape was sold to AOL for $4.2 billion in 1999, where the browser lives as the open-source Firefox. Smith left and joined the Barksdale Group to invest in Internet start-ups.
It took just part of his time, and Omid Kordestani, whom he had worked with at Netscape, tried to lure Smith to Google in 1999. He had several interviews, including one with Page and Brin, but was rejected. “I didn’t graduate with a Ph.D.! I didn’t even go to business school,” he said. “The coach”—Bill Campbell—“wanted me to join a couple” of the companies he was advising, but Smith stayed with the Barksdale Group until early 2003, when he joined Allen & Company. “The day I joined,” remembers Smith, “the coach stopped talking to me. He said, ‘I have no respect for investment bankers.’”
For the next three and a half years Smith labored on a number of big deals, including the Google IPO. He was introduced by Andreessen to his future wife, Kat Hantas, who coowned a small Hollywood production company with the woman who was then dating Andreessen. In the summer of 2006, Les Moonves called and Smith began to do advisory work for CBS. Moonves said he wanted to hire a new digital executive to move more au daciously into the digital space. Smith funneled people in to see Moonves. After each interview, he said, “I felt the harpoon.” Moonves wasn’t satisfied with the candidates. He entreated Smith to take the job. The clinching argument came, Smith said, when Moonves told him: “You know, I used to be an actor. One night I was going to a premiere and my agent called and said, ‘Good luck. We’re all in this together.’”
“No we’re not!” Moonves told the agent.
“That’s the line that got me,” said Smith. This was an opportunity to be an actor, not an adviser. “The day I joined CBS,” Smith said, “I got an e-mail from Bill Campbell: ‘Welcome back to work. Now don’t fuck up the quarter!”’
In a sedate company partial to charcoal suits or blazers, Smith called people dude, wore his wavy black hair long and his sideburns down to the bottom of his earlobes, favored loud purple shirts and chinos and shiny Adidas JAM’s that were popular in the hip-hop world. He wanted to move fast, yet knew he had to help bring traditional CBS along gradually, Sumner Redstone included. When CBS budget executives questioned him about how much his proposed digital schemes would cost, he tried to instruct them that they should refer to these not as costs but as “investments.” He recognized the differences between his old friends in the Valley and his new friends at CBS. He said, “Every win in my external world is a loss inside.” He wanted to quarterback a digital offense, yet knew he also had to play defense for the network. “When you’re Google or Facebook you’re all offense,” he said. But he understood that traditional companies have legacies to protect. “In our world you have sixteen reasons not to move too fast.” He credits Moonves for pushing change. “They are letting me do a lot. Are there certain things I’d like to do more? Yes.” He won’t identify these, but he was acutely aware that he had to persuade, not just act.
When he acted he would do so based on a bedrock belief that “the Web is not simply a more efficient video distribution system. The bigger opportunity for the Web is as a new media.” He didn’t believe CBS would ever make “a material amount of our broadcasting dollars from rebroadcasting full episodes” of its programs online. He believed the Web would require CBS to devise fresh forms of programming, to create new and shorter ways of telling stories. He could proudly point to the fact that in its first month as a channel on YouTube, CBS clips got twenty-nine million views, making it the single most watched content on the site. It offered, he thought, great promotional value.
He described his job by recalling a conversation he had with a friend before accepting Moonves’s offer. He repeated the friend’s analysis as if it were his own: “‘Your problem is that traditional media is sitting in a castle. If you ask them to run outside in the middle of the rain of arrows and go down a river and cross a bog to go up a hill to get to what we don’t know is over there, we can’t assure them it is out of arrow range. No promises. Facing that option, traditional media is going to stay in the castle. And what’s going to happen to the castle? Those arrows are going to turn into catapults. You have to do something to escape.’” Smith adds his own coda, a kind of halftime talk to stir his new team: “You can be good in television and radio. But you’re a media guy. Don’t you want to be good online? It’s a new medium. And aren’t you better than those geeks in Mountain View? Right now they’re kicking your ass!”
AS QUINCY SMITH AND CBS were reaching out to Google, Google fitfully tried to assuage traditional media’s concerns. Eric Schmidt blamed Google’s lack of outreach on its newness. “When you’re a small company,” he told
Time,
“you sort of have to do everything yourself, and as you get more established, you begin to realize you’ll never get everything done by yourself.” Google reached an agreement with News Corporation’s MySpace that was similar to the one they had made with AOL. In return for being chosen as MySpace’s search engine, Google guaranteed the social network nine hundred million dollars in revenues over the next several years. YouTube made a series of smaller deals to pull in content from old media, gathering what company officials said at the time was a total of one thousand content partners, including the National Basketball Association, CBS, Sony, The Sundance Channel, and a channel to air the full library of
Charlie Rose.
Before 2006 came to an end, Google tried to send a signal to traditional media that its intentions were honorable. It reached an accord with the Associated Press and three other wire services—the Canadian Press Association, AFP (Agence France-Presse), and the UK Press Association—thus eliminating the possibility of lawsuits dating back to 2004. The agreement allowed Google News to host and carry complete or partial stories as well as pictures from these wire services, and for Google search to link to these wire service stories; in return Google agreed to pay an undisclosed license fee. This was an acknowledgment that a wire service like the AP, whose articles are syndicated to countless newspapers, posed particular problems for Google search. Every time a user did a search, a waterfall of the same AP story appeared from different newspapers, clogging the search results. Google called this “duplicate detection,” and announced that the agreement with the wire services “means we’ll be able to display a better variety of sources with less duplication. Instead of 20 ‘different’ articles (which actually use the same content), we’ll show the definitive original copy and give credit to the original journalist.” Google justified paying a license fee to the AP and other wire services—but not to newspapers—by claiming that since these four news agencies “don’t have a consumer website where they publish their content, they have not been able to benefit from the traffic that Google News drives to other publishers.”
Solving one problem created another, though. More than a few newspapers tried to make the same deal and were rebuffed, said a senior executive at Dow Jones, parent company of the
Wall Street journal’s
Digital Network. “If they’re really about the user, they should want to say, ‘Some sources are better than others.’ We’ve had many conversations with Google. The bottom line from their perspective is that they are not interested. They are about algorithms and links and ‘the wisdom of crowds.’ But is that really best for the user?” And since the
journal
charges for its online edition and is behind a firewall, Google cannot offer full links to
journal
stories as they do with other newspapers.
Amid declining sales, the anxiety of newspapers was inflamed. It was not difficult to incite newspaper owners. The average daily circulation of the largest 770 U.S. newspapers fell 2.8 percent in the first six months of 2006, and 2.5 percent the prior six months. Although online traffic for the top 100 newspapers rose 8 percent in the first half of 2006, and online ad dollars grew even faster, the gains did not compensate for the losses. The rule of thumb is that an online ad brings in at most about one-tenth the revenue as the same ad in the newspaper. There are two reasons for this: readers spend much less time reading a paper online than they do a newspaper, and because ad space is not scarce on the Web, advertisers pay lower rates. A regular newspaper reader of the
New York Times
spends thirty-five minutes each day with the print version, according to Nielsen, while those who read the Times online spend only thirty-seven minutes a month reading it. These figures can be misleading, because they average in the occasional visitors who may spend a minute or less online with those who are online devotees. Nevertheless, there is a wide disparity between online and print newspaper readers. Those who can read the paper online for free help explain the drop in newspaper circulation. And those who spend less time with newspapers have less time to scan the ads, which helps explain the drop in advertising. Advertising in major newspapers, which grew barely 1 percent in 2005, would actually drop 1.7 percent in 2006 and 8 percent in 2007. Coupled with the other dismal facts—the falling value of newspaper stocks and their rising debt load—only added to their agitation.
Inevitably, resentment toward the AP spread among newspapers. The AP is a nonprofit cooperative owned by its fifteen hundred or so newspapers. It employs a staff of about four thousand, and because the AP smartly diversified, a third of its revenues come from selling video and online news to its members. While most of its newspaper constituents struggle, the AP’s revenues grow annually at about 5 percent. The licensing agreement with Google promised to boost these revenues. Unable to share this growth, U.S. newspapers began to petition the AP to lower the fees it charged them. As part of their cost cutting, the
Chicago Tribune-owned
newspapers, along with about 7 percent of the AP’s U.S. newspapers, announced plans to cancel their relationship, a step that, contractually, takes two years.
In the spring of 2007, Rupert Murdoch summoned all his News Corporation newspaper editors and publishers from around the world to a retreat at his ranch in Carmel, California. There they spent a couple of days wrestling with one terrifying question: What is the future of newspapers? Their conclusions, according to Jeremy Philips, the News Corporation executive vice president who prepared the agenda, were bafflingly mixed. The short-term outlook for newspapers promised more declines in advertising, circulation, and classified ad revenues; the long-term prognosis—if the papers could hold on—promised lower costs for printing, paper, and distribution online. “The headline is a paradox,” said Philips. “The macrotrends underlining these businesses have never been stronger. The consumption of news is greater than ever before. And the cost of delivering news is lower than ever before.” He noted that the online version of
The Times
of London and the
New York Times
have ten times the readers as their print editions had. On the other hand, he continued, “The microeconomic trends are problematic. The advertising available has declined because there are more places to advertise. Newspapers have lost control of classified advertising. In addition, the migration to online leads to a revenue gap because the print reader is more valuable today. And young people are reading fewer newspapers. This is a long-term trend.” In a world where online links to content obscure the brand names that produce it, the economic vise tightens faster for small and midsize newspapers as their costs rise and their revenues decline.