(S&P REPORT): U.S. Digital Publishers Have Cause For Concern Over Google's AI Overviews

Publishers should be increasingly worried that Google's new AI Overview feature will significantly reduce referral traffic to their websites, according to the new report "Credit FAQ: U.S. Digital Publishers Have Cause For Concern Over Google's AI Overviews" from S&P Global Ratings. As Google expands this AI-generated search results feature, the potential negative impact on traffic and advertising revenue remains uncertain. Despite the recent rollout, some companies fear the consequences may be more severe than anticipated and are calling for greater transparency from Google,

Navigating the Impact: AI Overviews and Digital Publishers

On May 14, Google LLC introduced AI Overviews, a generative artificial intelligence model designed to provide users with quick summaries of their search queries. This feature will be available to all users of Google’s search platform in the U.S., with plans to expand to more countries soon. With hundreds of millions of users already accessing AI Overviews and expectations to reach over a billion users by the end of the year, this rollout marks a significant advancement in how information is delivered online.

The implementation of AI Overviews raises concerns for digital publishers who rely on website traffic to generate revenue through advertising. Publishers' revenue depends on high user traffic and page views, which attract advertisers looking to reach potential customers. If Google's AI Overviews sufficiently cover search topics, users may not visit the publishers' websites, leading to a decline in traffic. This reduction in traffic could make it harder for publishers to sell advertising space and monetize their content effectively.

As AI Overviews become more widespread, digital publishers may face significant challenges in maintaining their revenue streams. The convenience of receiving comprehensive overviews directly from Google could change user behavior, diminishing the need to visit multiple websites for information. This shift highlights the potential for decreased advertising revenue and increased difficulties for publishers in sustaining their businesses in an AI-driven search landscape.

Adapting to Change: Digital Publishers and the AI Overviews Rollout

Digital publishers are positioned differently in their ability to adapt to Google's AI Overviews rollout. Companies with more organic traffic, such as Red Ventures Holdco L.P., Dotdash Meredith Inc., College Parent L.P., and Ziff Davis Inc., are better equipped to handle the changes compared to those that rely predominantly on paid traffic, like Digital Media Solutions Inc., Centerfield Media Parent Inc., and System1 Inc. Websites with strong brand recognition are likely to see direct navigation or prioritization in search engine queries without needing paid links or referrals.

"Companies with more organic traffic, such as Red Ventures Holdco L.P., Dotdash Meredith Inc., College Parent L.P., and Ziff Davis Inc., are better equipped to handle the changes compared to those that rely predominantly on paid traffic."

Given Google's dominant position as the largest search platform, with a global market share of over 90%, companies heavily dependent on paid traffic from Google are more vulnerable to the AI Overviews rollout. Many publishers rely on Google in some capacity due to its critical role in the global advertising ecosystem. Changes in Google's search algorithm have previously led to reduced traffic and lost revenue for some websites, illustrating the risk of overdependence on Google. Additionally, updating sites and ad code in response to algorithm changes can be time-consuming and costly, exacerbating the impact of lost traffic.

While some companies focus on creating and monetizing their content, others, such as Taboola.com Ltd. and Red Ventures LLC's Red Digital business, primarily partner with publishers to manage advertising campaigns and monetize content. These companies often operate on a revenue share basis or charge a fixed fee. They may be better positioned over the next year or two, as they can grow by adding new customers to offset potential declines in existing customers' traffic. However, they are not entirely immune, as the ability to add new customers may not fully compensate for reduced revenue from existing ones, and new customers might yield lower profit margins if traffic declines become harder to monetize.

"Taboola.com Ltd. and Red Ventures LLC's Red Digital business, primarily partner with publishers to manage advertising campaigns and monetize content. These companies often operate on a revenue share basis or charge a fixed fee. They may be better positioned over the next year or two, as they can grow by adding new customers to offset potential declines in existing customers' traffic. ."

Legal and Legislative Frontiers: Publishers, AI, and Compensation

There is potential for litigation or new legislation if publishers or the U.S. government believe publishers are not being properly compensated for their content by Google, other AI engines, or digital platforms. Legal actions could be prolonged and outcomes uncertain. In December 2023, The New York Times sued OpenAI and Microsoft Corp. for copyright infringement of news content related to AI systems. OpenAI filed a motion in February 2024 to dismiss some elements of the lawsuit, but there have been no recent updates. Similarly, eight newspapers owned by Alden Global Capital sued OpenAI and Microsoft for copyright infringement in February 2024, with no further developments reported.

Digital platforms like Google may resist paying for licensed content even if new legislation is enacted. Australia’s 2021 News Media Bargaining Code required digital platforms to negotiate content deals with media outlets or face arbitration. Google and Meta Platforms Inc. made voluntary agreements with over 30 news organizations. However, in March 2024, Meta announced it would not renew these deals and would shut down Facebook’s news tab features in Australia and the U.S.

Recently, Dotdash Meredith Inc. signed a content-licensing deal with OpenAI, allowing OpenAI’s ChatGPT to use their content to answer queries. This could set a precedent for other U.S. publishers. However, smaller publishers or those with less recognized websites might struggle to negotiate favorable licensing deals with digital platforms, due to their limited bargaining power.

Challenges and Opportunities: Digital Platforms, Licensing, and Publishers' Future

The potential for litigation or new legislation exists if publishers or the U.S. government feel that publishers are not adequately compensated for their content by digital platforms like Google or other AI engines. Legal actions could be lengthy and their outcomes uncertain. In December 2023, The New York Times and eight newspapers owned by Alden Global Capital sued OpenAI and Microsoft for copyright infringement related to AI-generated news content.

Despite potential legal challenges, digital platforms like Google may resist paying for licensed content even with new laws. Australia's News Media Bargaining Code, enacted in 2021, mandated negotiations between digital platforms and media outlets, but Meta (parent company of Facebook) announced in March 2024 that it would not renew such agreements, leading to the shutdown of Facebook's news tab features in Australia and the U.S.

Dotdash Meredith Inc.'s recent content-licensing deal with OpenAI, allowing to use their content by ChatGPT, could set a precedent for other U.S. publishers. However, smaller publishers or those with less recognized websites might find it challenging to negotiate favorable licensing terms due to their limited bargaining power in the digital landscape.