Google exploited lack of regulation to become a media company"

Ofer Miller  photo: Tamar Matzafi

Artimedia's Dr. Ofer Miller sees Israel as a lab experiment in challenging the global giant's stranglehold on video advertising.

Something happened in the Israeli media market last Wednesday. Artimedia Technologies Ltd., which markets video advertisements of content websites in Israel, obtained permission from the Antitrust Authority to operate. On the face of it, this contravened the concept of a competitive market, because, with certain restrictions, the Antitrust Authority allowed Artimedia to sell, under one roof, the lions share of video advertising inventory. But it turns out that the new economy finally knocked on the heavy door of regulation, which had to weigh various considerations: not just competition between Israeli enterprises, but between Israeli content sites and unbeatable giant Google Inc., or, more precisely, its video platform, YouTube.

Googles entry into Israel made the impossible happen, and not only at the Antitrust Authority. It was preceded by the unusual willingness of Israeli content sites and media companies to put aside their eternal fratricidal war and combine forces to stem the flight of video advertising budgets from the Israeli sites to the international giant. The alliance was made possible by the entry into Israel of a new company, which sought to do to the video advertising market what performance-based advertising did to basic advertising two years earlier to automate it.

Artimedia, part of Singaporean company Artivision Technologies Ltd. (GSX: 5NK), entered the market to build an advertising network based on all the top Israeli sites. It did not hesitate to make the necessary investments to develop and install technologies not previously seen in Israel, and it succeeded in bringing together the major sites, persuading media companies to work with it, and began to operate even as it waited for the decision of the Antitrust Authority.

It wasnt the anticipated profits from Israeli business that drove the companys efforts in Israel, but use of the Israeli market as a pilot for a larger effort in which Artivision would try to fight Google in other markets. Obviously, the fact that Dr. Ofer Miller, one of Artivisions owners, is an Israeli who sees ideological value in Israeli content that should be preserved, did no harm. If you were to ask him, the Antitrust Authoritys decision was nothing less than a rescue for the Israeli websites.

The Antitrust Authority did not examine Artimedia through normal regulatory eyes, but looked more at what was happening in the market without Artimedia, Miller told Globes in an interview. If Google wasnt taking over the advertising market, I am not sure that we would have obtained approval. Separately, no one has a chance of survival against Google, and in my opinion, that was the Antitrust Authority directors thinking. In the previous situation, Google would probably have acquired the views of each site separately and become a de facto monopoly. The Antitrust Authority saw what would happen in the future: with 350 million video views for Google compared with a few million views for each separate publisher, most advertising budgets had already switched to Google. Before Artimedias entry the distribution of digital video was 65% to Google and 35% to the Israeli sites.

Globes: What do these numbers mean?

"Miller: They mean that the sites disappear. It would not be worthwhile for video content producers to continue producing. All over the world, the subscriber model does not work, so the only way for a digital newspaper to earn a living is from advertising. Googles takeover left the publishers without an economic model. Google dried up the Israeli content sites because while they continued to create content, the advertising budgets to finance the content went to Google, where content is free. It uploads users content onto YouTube for free and when the viewers watch it, there is 100% profit. It's hard to grasp. Even if it were to lower the price of advertising to zero, it would not lose money. You cant beat that.

Without Artimedia, we might wake up one day to a new reality in which there are no content sites. Either they will be financed by Google, which will decide the price, and who will live and who will die. Obviously, they will be swallowed up, because if 70% of Google content is user generated content, maybe they'll decide that every purchase of content costs them too much, and who needs it? This reality was dangerous. Just as a country needs a state television channel, it also needs its own content. That is why the permit is the legal framework for an entity that serves the interests of many smaller entities, and, as a single entity, we can cope with Google. Previously, there was no way to deal with it. Through the law, we have created conditions of fair competition.

Balance has been restored to Israeli sites

Miller explains how the unbalanced situation between Google and the publishers caused unfair competition. The content of the Israeli sites and Googles content is sold to the same advertisers, but Google has no content costs, while the sites do and content, especially video content, is expensive. Before our arrival, Googles technology had an advantage over the Israeli sites. The largest site has 20 million views per month, which cannot create data like Google's, even if you throw NASA technology at it. There was a need to consolidate the views of all the Israeli sites to represent all of Israels residents, and we now have that, with technology that connects many views and creates data that is just as good as Googles. Whereas once, an advertiser could only reach a particular audience through Google, Artimedia now has the total views of Israelis, so if someone is seeking men aged 25-35, we know where to find them.

The moment that the targeting is like Googles, the balance is restored in favor of the Israeli sites, because if the technology is the same, a situation is created in which we have technology with quality content that competes with an entity that has technology with users' content. We argue that there is greater effectiveness for advertising in quality content and less in user generated content.

Users have a certain relationship of trust with the sites they visit, and when they consume high-quality content, they are well placed for receiving advertising. Conversely, when there is no confidence in the site, there is no confidence in the advertiser either. When people realize this, content becomes something effective for they are willing to pay. Its exactly like television, where advertisers are prepared to pay a lot more for programs with high ratings or highly regarded content.

There is a big difference if you pay for advertising in a video clip about a cat chasing a dog on YouTube or in an article. After all, the program affects the brand. If I'm at BMW, I want to advertise on a quality program, not on a program stuck at 3 am. Why shouldnt this be relevant for digital? Google is the technology leader and it introduced the language of eyeballs. The price of an advertisement was per 100,000 eyeballs. We restored what once was content. We will bring quality to the internet game.

How much money have you invested in your Israeli business?

"About NIS 50 million.

What is the difference between your product and Googles?

"We have a disadvantage; we have no search engine. We dont know what the consumer needs. Google can segment advertising on the basis of what the consumer needs. We build a profile on the basis of what the consumer consumes. We know which content they consume, which sites they visit, which ads they view. YouTube is segmented as a single site. We have scores of sites in many areas and different clienteles, a wide diversity of subjects, making it possible to build profiles on the basis of what interests the consumer and what he or she consumes. Needs change, profiles dont. A person who looked for an apartment on Google is no longer interested as soon as he or she finds one, but Googles method will continue to send him or her advertisements for apartments. At Artimedia, we build inclinations, pastimes, and so forth.

What about Facebook?

"Like Google, Facebook relies on users content, which costs it nothing and it does not pay taxes. But it is much more sophisticated, which is a major threat to Artimedia. This is because Facebooks targeting is such that it knows precisely who the user is, his or her age, who they talk to and about what, and who their friends are. But its media is lower quality than Googles, partly because it is built on sharing and partly because of the user's state of mind; you dont go there to see a video. The autoplay method is a bit of a cheat; a view is calculated form the moment the player starts to play, but the viewer does not necessarily watch. Most likely, he or she scrolls down and someone is paying for 30-40% of views that dont really exist.

Googles system is the same thing in a different package: a playlist. 25-30% of Googles media that is viewed is a listening list. The consumer listens to music and does not see the advertisement at all. Artimedia displays the clip that was intended to be viewed, the article, and only then the advertisement."

Why do you only compete in video?

"The value we can bring to banners is limited and does not justify the investment. Over time, every advertisement and article will go to video. In Israel, as in the world at large, banners are bigger than video, but they are shrinking, while video is growing. Users have developed a kind of blindness to banners, because sites have over-used them, and now, even if an advertisement is relevant, the number of people who click on it is steadily falling.

Video ads before an article have to be seen. You may have no interest, develop indifference, but not blindness. Were trying to set a uniform and agreed policy for sites about the maximum amount of permitted advertising, because on video you have to be extremely careful about the amount of advertising. A viewer who sees an advertisement while waiting for an article has no choice, but if there is too much, he or she wont stay to watch the article. Its like on television: if you only make advertisements and no content, the viewer will switch it off and leave.

A slow death market

It wasnt easy to obtain Antitrust Authority approval, but Miller understands that the hard fight is still ahead of him the war against Google, and that the Israeli front is just the first stage. Therefore, politely and articulately, as befits a doctor, he levels harsh charges against Google, the kind of charges that are not mentioned aloud in Israel, certainly not for citation. He thinks that Google is benefiting from the helplessness of regulators in Israel and other countries, and anyone who goes up against it faces an unfair fight.

Google does not pay taxes in Israel, says Miller. If you add to that the fact that it does not pay for content, its a big problem. There are countries which have tackled this imbalance through regulation. For example, what about paying taxes? How long can they keep saying that they only have consultants here, and that Google is only a platform? If it's a platform, they shouldnt charge money for advertising and arbitrage the difference between the purchase price and the sale price, charge for exposure and price the advertisement, but only collect money for use of the system. It tells the government, Were a platform; it tells advertisers, Were media.

How do you explain the fact that the tax review is taking so long? Is the regulator scared of Google?

"I tend to believe that it is not being handled because its the new economy, and the regulators tools are not advanced enough to deal with these kinds of imbalance. As long as it didn't bother too many websites, there was no need to make an effort and deal with it. Now it is massive and is disrupting the Israeli industry.

One might have expected the media companies to object. After all, it is harder to charge fees and benefit from arbitrage differences on an automated system like yours.

"Once, the fees were justified, because if someone wanted to run a campaign, they had to run around 20 sites, plan, buy, and use connections to get a price. With programmatic advertising you can do it at the touch of a button, and so the commission becomes questionable, but it is not possible to come along and in one day say, No more commissions'. There are commissions which I think are distorted, because how can you charge a commission for something that costs you nothing? We also charge a commission, but it is small and transparent. After all, in the end, media companies with great value will collect on the true value that they provide and less on the media.

When we entered the market, I asked myself whether the market would become programmatic. 40% of all the campaigns aired at that time were programmatic system, and we managed the rest of the campaigns with our programmatic system. Today, after nine months, 95% of Artimedias campaigns are managed through the agencies' programmatic systems as self-service. Google is also fully programmatic, naturally.

Where do you see yourselves in the future?

"Israel is an outstanding technology laboratory, and also a mirror that reflects what is happening in the world. The circumstances created here are similar to those created in Europe, China, and elsewhere, where Google exploited the lack of regulation to enter as a platform and turn into a media company. Like a Trojan Horse. It's a legitimate company, but it's a big problem. Wherever Artimedia identifies a lack of competition between content producers and a platform that turns into a media company, it wants to gain a foothold and consolidate. We are currently operating intensively in China and were in advanced negotiations to acquire some media there and install systems with a track record in Israel and Europe.

What about the US?

"In the US, there are responses to Google from specialist networks like ours, so it is not our first target. The balance there has not been upset as painfully as in other countries. The Israeli market is too small; there isnt enough money to justify the investment. Had I looked at Israel commercially rather than as a laboratory, I wouldnt have come in. China justifies the investment. It has a good infrastructure for the technology and a market that can adopt it quickly, in contrast to the Europeans.

Europe was technologically conservative, but it arrived at a point where there was no choice, and companies like Artimedia were founded there at the conceptual level by hemorrhaging publishers. But what exists there is not enough to compete against Google, and were now in talks in Europe. The dialogue there is different from in Israel. In Israel, each publisher takes care of its interests, but at the same time there is also a shared general concern about Israeli content and people care about the Israeli content market. Everyone feels that it's important that we should have something of our own, which isnt something I have found anywhere else. This gave Artimedia a kind of anchor. In Israel, we came to a market in which content producers were dying a slow death, which is very serious, but business-wise it was an opportunity.

What is your goal for Artimedia?

"My ambition is for Artimedia to be the leading player, and for Google to become a platform. I want advertising to be about content and not just eyeballs, and to win 80% of video advertising budgets.

Google said in response: We welcome competition in the market. Google works and will continue to work in cooperation with Israeli and foreign content sites to develop new technologies which will expand audiences, revenue, and users involvement in their sites. We are working to provide advertisers with the best quality programmatic solutions.

Facebook declined to comment on the report.

Ofer Miller - Bio

Founder and CEO of ArtiVision Technologies and Artimedia Technologies

Personal: 45, married with one child

Previous positions: Vice President of Research and Development for InfoWrap Intelligence Systems Ltd.; Head of Algorithms Group of Image ID Ltd.

Education: Ph.D. in Computer Science from Tel Aviv University

Artimedia Technologies

Founded: 2008; subsidiary of ArtiVision Technologies

Business: Video advertising technologies

Location: Kiryat Ono

Published by Globes [online], Israel business news - www.globes-online.com - on March 6, 2016

Copyright of Globes Publisher Itonut (1983) Ltd. 2016

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Ofer Miller  photo: Tamar Matzafi
Ofer Miller photo: Tamar Matzafi
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