Google Used Influence, Ultimatum to Cut California News Deal

(Bloomberg) — Google was negotiating to spend $110 million to support California’s struggling journalism industry, but the search giant had a demand: taxpayers would need to contribute tens of millions of dollars as well.

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State Assemblywoman Buffy Wicks, the Oakland Democrat discussing a deal with Google, called California Governor Gavin Newsom’s office to secure his support for $70 million from taxpayers, even as the state faced a challenging budget deficit. The pact that Google, the governor and Wicks settled on in late August was a handshake agreement, according to Wicks’ staff. Weeks later, while there is now a written framework for the deal, some of the key provisions have yet to be worked out.

“This framework represents the most impactful deal we could reach amid the current political reality,” Wicks said in a statement. “And it is just the beginning — I view it as the floor, not the ceiling, and am hopeful about our efforts to support California journalists.”

While the main outline of the deal has been known since shortly after Wicks and Google announced it in August, what hasn’t previously been reported is the company’s willingness to walk away from an agreement unless the state contributed money. Google insisted on taxpayer funding to set a precedent that it could use in talks with other states seeking similar deals. Also, the University of California at Berkeley’s surprise at being named a potential administrator of a new journalism fund that would be created by the pact and the discussions with the University of Southern California to take on that role also haven’t previously been reported.

The agreement fell far short of aggressive legislation proposed by Wicks and another lawmaker who sought to charge Alphabet Inc.’s Google hundreds of millions of dollars every year to support the news industry in California. After private negotiations that excluded some of the state’s largest media companies, the deal helped Google avoid a costly outcome that would have provided a template for lawmakers around the country considering what Silicon Valley owes media companies — especially as progress in artificial intelligence may cost more media jobs, according to almost a dozen people familiar with the talks who asked not to be named because of the nature of the discussions.

Wicks, Google and the governor have touted the deal, but many in California’s journalism industry criticized the state for failing to extract more money from the tech giant, squandering a chance to keep local news thriving. Others say the influx of cash is the best journalists could have hoped for in a fight with one of the world’s five most-valuable companies, which had signaled its willingness to cut off local news access to 40 million Californians.

“I don’t believe the tech companies owe us something because they came up with better technology that killed newspaper advertising,” said Neil Chase, chief executive officer of California news nonprofit CalMatters. “We wish this had gotten us more money, but why would you turn down the money it did get? That’s going to help me pay my reporters next year.”

The US newspaper industry has been in decline for decades as its traditional advertising deserted to digital sites. At the same time, Google and Facebook were among the internet companies that pulled in news stories for free for users and sold advertising around those stories. In the face of dwindling revenue, more than 2,900 newspapers — almost all local weeklies — have closed since 2005, according to a report from Northwestern University’s Medill School of Journalism.

Lawmakers and philanthropic organizations have pushed to find ways to support local journalism, arguing it’s vital for an informed citizenry in a thriving democracy. But parties are deeply divided about the best path forward. And in the case of Google, newsrooms have struggled to negotiate with a company that is at once an antagonist and a benefactor — it provides grants and trainings to publications across the state.

Closed Negotiations

In California, two bills moved forward in the legislature that took aim at Google and other tech companies to generate money to sustain journalism in the state.

State Senator Steve Glazer proposed a “link tax” on Amazon.com Inc., Meta Platforms Inc. and Google parent Alphabet for collecting data on users. The money would be funneled into $500 million worth of tax credits to be distributed to news outlets employing journalists in California.

Wicks drafted a bill that would have charged companies like Google and Meta for using and selling advertising alongside news produced in California, which has 580 local news outlets, the most of any state, according to data from Medill’s Local News Initiative.

California news outlets would have received the profits from the fees mandated by the bill, with a requirement that at least 70% of the funds be spent on paying journalists and newsroom support staff. Wicks’ proposal was the first state-level attempt to force Big Tech to fund the news industry, borrowing from similar agreements in Canada and Australia.

Google fought back. In April, the company announced it was limiting search results from California news sites and said it would halt planned investments in news “until there’s clarity on California’s regulatory environment.”

Google’s move to limit news access surprised and angered Newsom, according to one of the people familiar with the matter. But the governor, who faced a multibillion-dollar budget deficit, wasn’t eager to support either bill in the legislature, the person said.

Newsom viewed Glazer’s bill as a tax increase and had indicated throughout the year that he was against tax-raising measures. And, for about a year, Newsom’s office had told Wicks that there would be no state money in a Google-journalism deal.

“Our interest was how much the taxpayer and the state would have a buy-in and making sure that publishers around the state weren’t cut off entirely from any news site, including Google News,” said Bob Salladay, an adviser to Newsom.

As a result of the agreement, “we have a balance that provides nearly a quarter billion dollars to help the industry — more than any other state has provided and we hope it works to restore and revive journalism in California,” Salladay said.

Tech’s Influence

Google framed the deal as a model of public-private partnership.

“This agreement builds on our existing support for the local news ecosystem in our home state with additional investments,” the company said in a statement.

Google shares rose about 1% to $163.38 at 12:30 p.m. Friday in New York. The stock gained 16% this year through Thursday’s close.

Tech giants have notched a series of wins in California, where many executives enjoy close relations with the governor. Newsom has been criticized for backing Silicon Valley when last month he vetoed an AI safety bill that would have made companies legally liable for harms resulting from their models.

Without stronger backing from Newsom, Wicks struck out on her own and narrowed negotiations to Google and a select few after California’s legislature returned from summer recess on Aug. 5, according to Wicks’ office. The deal was finalized in roughly two weeks before being announced Aug. 21.

“The path forward for the bills — both their passage in the legislature and potential for a signature by the governor — was uncertain,” Wicks’ office said in a statement. “This uncomfortable reality is why we decided to come to the table to negotiate with Google.”

Wicks relied in the talks on Bob Hertzberg, a former speaker of the California state assembly. Jaffer Zaidi, Google global vice president of news partnerships, who is normally based in New York, decamped to Sacramento for two to three weeks as the deal came together, according to another person familiar with the matter.

“As far as I know, the only people at the table were her office and the Google folks,” Chase said.

The governor, initially worried any taxpayer money would be in the hundreds of millions of dollars, agreed to the lower number of $70 million, with $30 million distributed in the first year and $10 million in the following four years, according to a draft of the agreement reviewed by Bloomberg. The California legislature must still approve the state’s contribution, which is expected to be considered early next year. Google will contribute $110 million for the news industry over the five years and another $12.5 million for AI research, according to the draft.

Google declined to specify the amount for AI research, saying “we’ve committed to further investments that will go toward AI initiatives and priorities in the state.”

The company’s message to the industry was that if the deal collapsed, newsrooms would get nothing, said one journalism leader, who asked to remain anonymous to avoid jeopardizing professional relationships. Google was very persuasive in its viewpoint, the journalist said.

Google insisted on taxpayer money as part of the deal with California to help set a precedent for potential talks about payments to the news industry in other states, according to the people familiar with the talks. The company believes the inclusion of public funds will discourage other states from following California’s lead, one of the people said.

But California’s annual contribution also may be subject to the budget process in the legislature, putting those funds at risk each year, according to one of the people.

In a statement, Google said the company was “clear in our public statements and conversations with the government that a healthy news industry in California requires support from both the California government and a broad base of private companies.”

Ties to Google

Despite the impact these negotiations could have on the California news industry, few news publishers, unions or interest groups were clued in. Some of those in the loop had ties to Google.

Lion Publishers, a trade association of mostly hyper-local digital news startups, found out about the agreement less than a week before it became public knowledge, according to one of the people. The group had connected with Wicks’ team before — her legislative director attended a Lion happy hour in Oakland in the spring.

Google is also a major backer of Lion, which has 15% of its 600 members based in California. The company sponsors a conference once a year and contributes to an annual grant program that gives as much as $20,000 each to Lion newsrooms.

Chase of CalMatters, who is also a Lion board member, said he brought up the possibility of his group hosting the AI research accelerator that is proposed as part of the deal, though he said a journalism school with deep ties to engineering and tech also would be a good option. The Emerson Collective, the investment company founded by Laurene Powell Jobs, was considered as a potential host for the accelerator, according to Wicks’ office. The venue is still being determined.

Google, which is locked in a race for dominance in AI with Microsoft Corp. and the startup OpenAI, has a keen interest in pushing its AI tools to as many companies as possible.

“It seems as though Google is using this as an opportunity to advance their own interest in AI,” said Ted Glasser, a professor emeritus of communications at Stanford University. “I didn’t see journalists asking for this, and that’s the problem with doing this behind closed doors.”

The announcement from Wicks and Google about the deal labeled UC-Berkeley as the administrator of the new journalism fund. While the school had been approached during the negotiations, it had never accepted the role and was surprised when it was named in the agreement, according to people familiar with the matter. The University of Southern California may be swapped in for UC Berkeley, the people said.

Spokespeople for UC Berkeley and USC said they have been contacted about the proposal, stressing that a final decision has not yet been made. Wicks’ office said talks with both schools are ongoing.

Danielle Coffey, CEO of the News/Media Alliance trade group, which includes the state’s largest newspaper, the Los Angeles Times, said Google’s contribution doesn’t reflect its market value as a tech giant. The company gained the upper hand through negotiating a deal, rather than being subject to legislation, she said.

For the state’s local news industry, the deal was a missed opportunity to secure a pillar of support for a precarious future, Glasser said. The relationship among tech companies and news outlets has gained even greater importance as AI tools provide information directly and eliminate the need for a user to visit the websites of publishers whose content often powers the AI responses in the first place.

Amid a wave of dealmaking between media companies and AI startups, including a tie-up in early October announced by OpenAI and Hearst Corp., Google has been a notable holdout. With the exception of a reported $60 million deal with Reddit Inc., Google has signaled to publishers behind closed doors that it isn’t interested in negotiating, Bloomberg has reported.

When it comes to securing financial support for California news outlets, “there seems to be this sense that well, something is better than nothing. I’m not sure that’s true,” Glasser said of the Wicks-Google agreement. “I think this needs to be done legislatively in order to instill a sense of public purpose and public interest. I think Google’s self interest is not enough to sustain this project.”

(Updates with shares in the 21st paragraph. An earlier version was corrected to remove a reference in the 33rd paragraph to Google executive’s attendance at happy hour.)