Google to US newspapers: We could acquire you, but what is the point?

A couple of weeks ago, Fortune carried a surreal conversation between editor-at-large Adam Lashinsky and Eric Schmidt, chief executive of Google.

The subject was the future of the newspaper industry.

Schmidt started out –- as he has done a few times in the past – by suggesting that there’s plenty of demand for news. (‘People love the news.”) But there are terrible difficulties, too: ‘a problem with advertising, classifieds and the cost itself of a newspaper: physical printing, delivery and so on.”

As a result, he says, the business model ‘gets squeezed”.

This much we know. But Lashinsky’s follow-up question is a corker. No doubt with Timothy Geitner in mind, he asks Schmidt this:

How about just buying them?

Without apparently batting an eyelid, Schmidt replies that Google has the cash to do so. But, he adds:

I don’t think our purchasing a newspaper would solve the business problems. It would help solidify the ownership structure, but it doesn’t solve the underlying problem in the business. Until we can answer that question we’re in this uncomfortable conversation.

I think the solution is tighter integration. In other words, we can do this without making an acquisition. The term I’ve been using is ‘merge without merging.’ The Web allows you to do that, where you can get the Web systems of both organizations fairly well integrated, and you don’t have to do it on exclusive basis.

‘Merging without merging”? What precisely does Schmidt mean by this? Quite aside from the idea of outsourcing all sales activity to Google, it’s not clear than he knows entirely, because before long, he’s telling Lashinsky this:

The fundamental question you’re asking is why does Google not write large checks to newspapers? We’re careful at Google with our money. We write large checks when we have a great strategy. And we don’t yet have that strategy.

Insiders will smile wryly at the mention of Google’s new-found financial prudence. All the same, it’s interesting to dwell on the possibilities. If Eric Schmidt doesn’t yet possess a workable plan, he may do so at some point in the future.

Descending rapidly from the this 20,000 ft perspective. . . it’s also clear that Schmidt’s colleague Tim Armstrong is getting stuck into the news industry’s crisis at ground level.

Armstrong, who runs Google’s global sales operation, has been revealed as an investor in Patch, a New York-based start-up that aims to spawn a new generation of local news sites across America. Or as Patch’s site puts it:

We’re a community-specific news and information platform dedicated to providing comprehensive and trusted local coverage for individual towns and communities.

Patch launched itself upon the world last week. At the moment, it runs sites for just three of those ‘individual towns and communities”: Millburn, Maplewood and South Orange, all of which are in New Jersey.

Valleywag has a typically sour take on Armstrong’s venture. The site suggests that local journalism is a ‘starter job that desperate grads take straight out of J-school”.

The site adds: ‘The difference, in this Google-funded scenario, is that there won’t be anywhere else to go from there.”

Well, we’ll see. I’m inclined to give a bit more credence to Armstrong and his effort. Credit to him, at the very least, for putting his money where Eric Schmidt’s mouth is.

As Johsua Mack points out, Patch looks a little bit like backfence.

Uh-huh: and here’s Jeff Jarvis popping up on the Patch Editorial Advisory Board.

Which leads us to an apposite question: what would Google do?

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