Transcript of Google CEO Eric Schmidt’s Q&A at NAA

This is an unofficial transcript of Google CEO Eric Schmidt’s brief question and answer session following his speech at the Newspaper Association of America convention. It has been edited for clarity (incomplete sentences have been removed in places) and where audio was unclear, ellipses have been used.

Question: You have mentioned the importance of advertising. But in your opening remarks you also indicated a bit about micropayments and subscriptions. Would you elaborate on each of those other two potentials?

Eric Schmidt: I think you’re gonna end up with all three. An analogy I would offer is television. There’s free television, over-the-air television, there’s cable television and there’s pay television. And they have smaller markets as you go from free to more highly paid. And that structure looks to us like roughly the structure of all of these businesses.

Today there are very effective subscription based models, but there are not very good micropayment systems, micropayment meaning one cent, three cent kinds of systems. They clearly need to be developed by the industry. I think from your perspective you should assume thatthere’s a category of information you all produce that you’ll want to distribute freely. There’s a category you’ll want to have a per click basis. And there’s some that you’ll want subscription for. The reality in this model is the vast majority of people will only want the free model, so you’ll be forced, whether we like it or not, to have a significant advertising component as well as a micropayment and a traditional payment system.

The technology around micropayments is getting to be possible now. The transaction cost was so high before you couldn’t do the one cent, three cent model, and it looks like the new technologies around aggregation are will allow that.

Question: You’ve been quoted as saying a number of times that there should be a “flight to quality,” that there’s an awful lot of garbage out on the Internet –

Schmidt: Let me just say precisely: It’s a sewer out there.

Question: Recognizing that the brands in this room for the most part are credible brands and –

Schmidt: I would say 100% are credible.

Question: — Is there a way to look at search and when you search on a particular topic, that news organizations with credible brands, that somehow the algorithm could be tweaked to reflect that, not only for the benefit of the publishers, but for the users?

We actually do that in the case of Google News. Google News uses a relatively fixed set of sources which are selected based on exactly the kind of trust that you’re describing. So the answer to your question is yes on Google News.

For general search, we’ve been careful not to bias it using our own judgment of trust because we’re never sure if we get it right. So we use complicated ranking signals, as they’re called, to determine rank and relevance. And we change them periodically, which drives everybody crazy, as or algorithms get better. There’s no question in my experience that the top brands represented in this room would, in fact, float to the top in our search ranking. The usual problem is you’ve got somebody who really is very trustworthy but they’re not as well-known and they compete against people who are better known, and they don’t, in their view, get high enough ranking. We have not come up with a way to algorithmically handle that in a coherent way. But we’re very sensitive to not do that on search we don’t want to do the kind of thing you’re describing unless we can do it across the board and for all categories of trusted institutions, not just newspapers.

Question: Speak frankly about how you feel newspapers have performed digitally, and if you became CEO of an American newspaper company, what would be the top two or three or four things that you would do in the digital space?

Answer: I was very impressed by how quickly all the newspapers that I talked with in the mid- to late-’90s embraced the Web. And essentially all of them quickly understood first the re-purposing of existing print stories on the Web and in the creation of reporters’ blogs.

The criticism, if I can offer one, is there wasn’t an act after that. In other words, that was great, you guys did a superb job. The act after that is a much harder question. It’s how do you keep engagement? How do you avoid being just mediated with a set of stories that are aggregated with your brand on them, which is what’s happened to some newspapers?

So in the case you were describing, if I were involved in the digital part of a newspaper, trying to understand to do, I would first and foremost try to understand what my reader wants.

It’s obvious to me that the majority of the circulation of a newspaper should be online, rather than printed. There should be five times, 10 times more circulation because there’s no distribution cost. It doesn’t cost anything to read it online from an end user perspective.

I would start with — My diagnosis is: how do we get to 10 times more readers online? What do they want to see? What is their style?

My own bias, by the way, is a technology one: I think the sites are slow. They literally are not fast. They’re actually slower than reading the paper, and that’s something that can be worked on on a technical basis. I should also mention that at Google we’re working hard to try to address the technological question that you’re asking but we don’t have easy answers here. This is something where better development tools, better hosting tools, and so forth from the industry as a whole will make a big difference.

Question: The Associated Press resolved over the last few days to take a more aggressive approach to enforcement of intellectual property rights. Speaking from your perspective at Google, what impact, if any, do you think that would have on the relationship between Google & the Associated Press and the members it represents? Secondly, looking ahead, on intellectual property generally, how effective do you think that more aggressive approach might prove to be?

With respect to the Associated Press, we at Google have a multimillion dollar deal with the Associated Press not only to distribute their content but also to host it on our servers. So I was a little confused by all of the excitement in the news in the last 24 hours. I’m not quite sure what they were referring to. But we have a very, very successful deal with the AP and hopefully that will continue for many, many years. …

The ultimate resolution of all these will be determined by how you interpret fair use. And in my position I’ve come to learn that lawyers go to different schools and if you went to school A you learned it one way and if you went to school B you learned it another way. And if you’re Google all your lawyers went to school B and if you’re the other side, all your lawyers went to school A. And I am not a lawyer. So I will simply report what the school B lawyers say. And then if you’re a lawyer and you went to school A or B you can tell me so I can figure out how to talk to you.

From our perspective, we looked at this pretty thoroughly and there was always a tension around fair use, but ultimately fair use is a balance of interest in favor of the consumer. And I would encourage everybody when they think about — in all the rhetoric, all the concern about this or that — think in terms of what your reader wants. Try to figure out how to solve their problem. These are ultimately consumer businesses and if you piss off enough of them, you will not have any more, right? Or, if you make them happy, you will grow them quickly. And so we try really hard to think that way. …

Question: Do you think intellectual property rights will continue to erode given the digital future as you see it?

There are laws that cover these things. It’s important that all of us respect the law. And it is a balance of interest between the copy right holder and we try very much to respect the copyright holder. There are all sorts of examples when Google is the company in the middle of these disputes that never really resolve. We came to what looks like a very good settlement with respect to, for example, books.

I disagree with your premise that they will continue to erode. What I do believe is that all these partially-thought-through legal systems are being challenged by the ubiquity of the Internet. Just as free speech is being affected by the fact that people are free to speak whatever they think even if we really don’t want to hear them. It’s the same problem.

We’ve faced these issues for many, many years in our society generations before us and we resolved them in ways that caused the right things to occur. Businesses were built, entrepreneurs were able to create new businesses and consumer needs were ultimately being met.

I disagree with you that it’s obvious that there’s an erosion of future intellectual property rights. There is a problem. If by that you mean people stealing, there is a problem where countries outside of America do not have the same kinds of laws, and it’s really an issue. If that’s what you’re referring to, then yes it is an issue.

Question: Google has been at the forefront of conditioning our audiences that a headline and extract is enough. So they’ve gotten to the point now where we do a Google search, come up with a list of topics or from Google News we look at the headline and extract and that becomes “enough news” in the Twitter world. So that what happens is that Google becomes the point in the middle between that audience, that consumer supporting the creation of that professional content. So the real question becomes how can the media industry in general partner with Google to help support that professional content when the headline and the extract is good enough.

Again, I want to be careful not to criticize the consumer for doing things that are idiotic. You can have your opinion, but my position here is, we love our consumers even if I don’t like what they’re doing.

In Google News’ case, when we first built Google News, I remember being absolutely terrified the first meeting of this category I was in, and then one of the editors came up and said this is a great product. And I said, “Why?” And he said, “Because it provides me a summary every day from which I can then do quality work.” And I thought, “OK, that’s a good answer.”

Everyone here understands that everyone here has an opportunity to opt out of all of this by using robots.txt and other — these are one-line changes that can take all the information out of Google. It’s your content and we respect that and so forth.

Given that it’s a problem we all share, that consumers want to do this thing, I would first off observe that Google News is not very different from the news that I get on the radio. When I listen to the radio I hear roughly the same headlines that I get on Google News. So I’m not sure that it’s a new form, it’s a transmitted form.

My general answer to this question has to do with getting people to take the next step. If you see a headline what I want you to do is I want you to think, “Oh that’s interesting, I want to know more,” and then based on that I want you to click to the newspaper Web site or to Wikipedia or to wherever. If we can build products — and we have teams at Google working on this — to roughly work like that where there’s a one-liner that’s interesting and you click and go into layer after layer after layer of information — and by the way, not just text but also video and entertainment, and so forth and so on — that’s personalized, we think we can build a business — again, with you guys — with significant advertising resources, where the advertising is targeted to the content. To me that’s the only solution we’ve come up with to this problem.

I don’t think we’re fundamentally going to decrease the fascination the world has with Britney Spears. I just think it’s fundamentally going to continue.

Question: Fourteen or 15 years into the Internet for us, there are no defined standards of what an eyeball is. … What is truth to you when it comes to internal or external sources of audience counting that make the most sense to develop into a standard over time?

We look at clicks and we also look at how long people stay on a page. And we can then infer interest. Your question is so good because it shows you how early we are in the industry. We don’t have combined, accurate, audited ways of measuring audiences, counting advertisers, all of which has to be developed as a technology behind the businesses that all of us are going to build.

It took many, many years for the same business structures to be designed for the audit circulation bureaus for magazines. The same thing is going to occur and it will occur because it needs to. For our purposes, we use our internal information which is accurate, but as I agree, there is not a uniform standard.

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