was pushing into content—hiring a former Hollywood executive, Lloyd Braun, to produce and package shows for the Web, in addition to such popular features as Yahoo Finance—and in 2005 had more than four hundred million worldwide users. That year, Yahoo generated profits of $1.1 billion, and was valued by Wall Street at a whopping $50 billion, equal to the combined value of Viacom and CBS or to the Walt Disney Company. Jaws dropped when media executives read in 2005 that Yahoo CEO Terry Semel cashed in $230 million in stock options, and had another $396 million yet to exercise.
Google believed, with merit, that traditional media too often blamed digital companies for events they did not cause—for the disruptive impact of the Internet, for slowed or declining profits, for their shrinking stock price or budget cutbacks, for their rampant insecurities. It was inevitable that the Internet would alter the way consumers received and used content. But Google became a convenient piñata.
The company gave its critics a big target to swing at: in 2005 alone, Google acquired fifteen smaller digital companies and partnered with various others, including a smaller search engine, Barry Diller’s Ask.com, to which Google directed advertising as it now did for hundreds of thousands of Web sites. Google had 7,000 employees working out of 62 offices, 30 of them outside the United States, which produced nearly 40 percent of its revenues. By the end of 2005, the company had indexed 8 billion Web pages in 116 languages; its revenues soared to $6.1 billion and its net income to $1.5 billion.
Meanwhile, the tide was running against traditional media. In December of 2005, 77 percent of Americans had Internet access at work and 37 percent of all adults had high-speed access to the Internet. The slight but steady decline in newspaper circulation suddenly steepened in 2004 and 2005. The circulation of daily newspapers would plunge 6.3 percent between 2003 and 2006, with Sunday circulation falling 8 percent. Newspaper advertising revenues, which had grown on average in the high single digits since 1950, beginning in 2001 fell in four of the next seven years, and in 2006 began to fall more steeply. With investors convinced that companies like Google would grow while newspapers would not, the stock price of newspaper companies also plunged—falling 20 percent on average in 2005—leaving them less capital to diversify by acquiring growth businesses. With search and Google News and other news aggregators culling reports from all over the world, readers could easily fetch their news for free online. Newspapers cried that Google and other Web sites that aggregated news lacked what elite newspapers offered: bureaus in Baghdad and state capitals, investigative reporting, professional editors, and familiar brand names that often stood for quality. But readers could effortlessly view their stories through Google News or Google search. By the end of 2005, 40 percent of American broadband users said they got their news online.
Much of the rest of old media was also challenged. Book sales were steady, but not robust, and the industry was anxious about the decline of independent bookstores and the new leverage exerted by giants like Barnes & Noble and Amazon.com. This anxiety was only inflamed by Google’s thrust into digitizing books. The movie and television and music industries were fretting about piracy. U.S. content and software companies lost an estimated $6.9 billion in revenues to piracy in 2005, and in China about 90 percent of all content and software was pirated. About one billion songs per month were swapped on illegal file-sharing networks. Although digital companies claimed piracy was hard to control, media executives rarely believed this. They believed digital companies were building their own audiences by stealing their content, particularly that of music companies. The lubricant of trust was missing. “I don’t believe they have any incentive to solve it,” said Sony CEO Sir Howard Stringer. With the rise of high-speed Internet connections, Hollywood knew its movies and TV programs were becoming more vulnerable to hackers and illegal downloads.
Television broadcasters were antsy about new user-generated online video companies like YouTube, a site that threatened to steal not just eyeballs from TV but perhaps its content as well. And YouTube was not their foremost threat. New consumer choices drained audiences from traditional media. Three years earlier, in 2002, there was a total of 308 cable and video networks, a number that had tripled from just eight years earlier, and would double over the next four. The radio industry was also squeezed by newer technologies