The Italian Federation of Newspaper Publishers recently filed an anti-trust complaint against Google Inc. (GOOG). This prompted the Italian Competition Authority to search Google’s Milan offices on Thursday, pursuant to a probe that was initiated on Wednesday. The matter is expected to be settled by Oct 15, 2010. 
The news industry has undergone a sea change, with a large number of consumers using online sources. Companies have adapted by offering their content online. However, they needed a medium through which customers could be directed to their websites. Since Google was the most effective search engine, a large number of them partnered with the company.
But as it happens, they were sucked deeper into the abyss, with many readers preferring to pick up Google news stories rather than go to the newspapers’ own websites. Newspapers have come to realize that they have to stop offering content on Google news to prevent further losses. The Italian Federation of Newspaper Publishers has complained that this move resulted in Google excluding them from search, which is a matter under investigation.
The obvious reason for Google’s success is its ranking system, which makes it extremely effective at catering to consumer needs. Since the company’s product is superior to the one offered by newspapers, it also attracts higher advertising revenue.
The ranking system is Google’s bread and butter and the forceful disclosure of key trade secrets seems unlikely in our opinion. Also, while it is true that newspapers are suffering, it doesn’t make sense for them to complain about something for which they joined hands with Google in the first place. It will be interesting to see how the problem is taken care of, but Google might want to part with some revenue, given its dependence on them. That said, we do expect regulators to keep a close watch on the company’s affairs.
Read the full analyst report on “GOOG”
Zacks Investment Research