On May 14, Google LLC announced it would begin rolling out AI Overviews to all users of its search platform in the U.S., with more countries coming soon. AI Overviews is a generative artificial intelligence (AI) model that, in response to a search query, provides users with quick overviews of topics searched with links below the overviews for users to learn more. Hundreds of millions of users received access to AI Overviews last week, and Google expects it will reach over a billion users by the end of the year.

Here, S&P Global Ratings answers some questions about how the rollout could potentially affect digital publishers and our ratings on them.

What could the rollout of AI Overviews mean for digital publishers?

Publishers generate revenue by selling advertising against the content created on their websites. Websites with greater user traffic and page views (and therefore ad impressions) provide advertisers with a wider audience of potential customers to buy their products. The rollout of AI Overviews could reduce traffic to these websites if Google's AI engine provides an overview that fully covers the searched topic and therefore negates the need for the consumer to directly access the data on the publisher's website (see table 1). If website traffic declines, it would be more difficult for publishers to sell their advertising inventory and monetize content.

How are publishers positioned to adapt to the rollout?

Rated companies with more organic traffic (e.g., Red Ventures Holdco L.P., Dotdash Meredith Inc., College Parent L.P., and Ziff Davis Inc.) are better positioned than those with predominantly paid traffic (e.g., Digital Media Solutions Inc., Centerfield Media Parent Inc., and System1 Inc.) that generate traffic primarily by paying third parties such as Google. Websites with greater brand recognition are more likely to have consumers navigate to them, either directly via the website's URL or by being prioritized in search engine queries, without the need for paid links or referrals. Google is the largest search platform, with an estimated global market share of more than 90%. As such, companies that rely more on paid traffic from Google than other search or social media platforms are more exposed to the rollout. Most, if not all, publishers rely on Google in some form, given its dominant position in the global advertising ecosystem. Some companies noted that changes in Google's search algorithm over the past year reduced traffic to some websites leading to lost revenue, demonstrating the risk of overrelying on Google for traffic. Often, it also takes companies time and money to update their websites and ad code in response to Google's algorithm changes, magnifying the already costly impact of any lost user traffic.

While some companies are predominantly publishers that create and monetize their own content, other companies (e.g., Taboola.com Ltd. and Red Ventures LLC's Red Digital business) primarily partner with publishers to help them run their advertising campaigns and monetize their content. These companies tend to operate either on a revenue share basis by taking a percentage of advertising revenue from publishers or by charging them a fixed fee. We believe companies that primarily partner with publishers could be better positioned over the next year or two, as they could continue to grow their business by adding additional customers to offset potentially declining revenue per customer should traffic decline on their existing customers' websites. However, they wouldn't be immune because the ability to add new customers may not be sufficient to offset the drop in their existing revenue base. New customers may also come with lower profit margins if reduced traffic becomes harder to monetize.

Table 1

What is the potential for litigation or new legislation?

Publishers (or the U.S. government) could potentially take legal or legislative action if publishers believe they're not being properly compensated for their content, whether it be from Google, other AI engines, or other digital platforms. However, the outcome of any potential legal action is uncertain, and it is likely that litigation would be prolonged. The New York Times sued OpenAI (not rated) and Microsoft Corp. in December 2023 for copyright infringement of news content related to AI systems. OpenAI filed a motion in February 2024 seeking to dismiss some elements of the lawsuit, although there haven't been any recent updates on the lawsuit. In February 2024, eight newspapers owned by Alden Global Capital (not rated) also sued OpenAI and Microsoft for copyright infringement, though we're not aware of any further developments at this time.

Google or other digital platforms may not be willing to pay for licensed content, even if new legislation is signed. Australia passed the News Media Bargaining Code in 2021, giving the government power to make designated digital platforms negotiate content-supply deals with media outlets. If an agreement couldn't be made, an arbiter would step in to set the price and force the platforms to pay. While no digital platforms have been designated, Google and Meta Platforms Inc. (parent company of Facebook) voluntarily made commercial agreements with more than 30 news organizations. In March 2024, Meta announced that it wouldn't be renewing the deals it made when the government initially passed the bill and would be shutting down Facebook's news tab features in Australia as well as in the U.S.

Dotdash Meredith Inc. recently signed a content-licensing deal with OpenAI to train AI models and allow OpenAI's chatbot and virtual assistant ChatGPT to answer queries using their content, which others in the U.S. could potentially look to replicate. Smaller publishers or those with less recognized websites would likely have less bargaining power to negotiate favorable licensing deals with digital platforms.

What has Google said about AI Overviews expected impact on publishers?

Google generates a significant amount of revenue from directing traffic via paid listings on its search engine. The Google Search segment generated $163 billion of revenue in 2023, and we expect Google wouldn't want to compromise this lucrative revenue stream. The company conducted testing of AI Overviews with Google's Search Labs. Google said that people using AI Overviews visited a greater diversity of websites for help with more complex questions, and that the links included in AI Overviews got more clicks than if the website had appeared as a traditional web listing for that query. However, we're skeptical and believe it's more likely AI Overviews could cause traffic to decline, in many cases because there's less incentive for users to click the links below the AI Overviews results.

How does the rollout of AI Overviews affect our ratings on digital publishers?

The rollout of Google AI Overviews hasn't had an immediate impact on our ratings on digital publishers because it's uncertain what the long-term effect will be and to what degree traffic, and subsequently advertising revenue could decline (see table 2). However, the announcement highlights the rapid rate of technological evolution (including generative AI) and the potential disruption it can have on the companies we rate. We believe larger companies with greater financial resources will likely be better positioned to navigate future changes in technology, although even they could be significantly affected, while smaller companies may not have the necessary resources to adapt.

We have taken several negative rating actions on the digital marketing companies we rate over the past two years due to declines in advertising amid macroeconomic challenges--including elevated inflation and interest rates. This is particularly true for those with greater exposure to challenged advertising categories such as mortgage, finance, and insurance, which haven't yet abated, resulting in elevated leverage and either muted or negative cash flow. Amid these challenges, LendingTree Inc., System1 Inc., and Digital Media Solutions Inc. pursued distressed debt transactions over the past year.

We will continue to evaluate developments related to Google's rollout of AI Overviews and other AI platforms and assess the impact on companies' business models and financial results as information becomes available.

Table 2

Related Research

• Red Ventures Holdco L.P. Outlook Revised To Negative From Stable On Elevated Leverage; 'BB-' Rating Affirmed, May 17, 2024
• Digital Media Solutions Inc. Upgraded To 'CCC' From 'SD' Following Restructuring, Outlook Negative; New Debt Rated, May 2, 2024
• Taboola.com Ltd. Upgraded To 'BB' On Improved Performance And Lower Leverage Expectations; Outlook Stable, April 12, 2024
• LendingTree Inc. Upgraded To 'B-' From 'CCC+' On Improved Profitability; Outlook Stable, April 8, 2024
• System1 Inc. Upgraded To 'CCC+' From 'SD' Following Debt Repurchase, Outlook Stable; Debt Rating Raised, Jan, 30, 2024
• Centerfield Media Parent Inc., Dec. 15, 2023
• Foundation Models Powering Generative AI: The Fundamentals (https://www.spglobal.com/en/research-insights/special-reports/foundation-models-powering-generative-ai-the-fundamentals), Nov. 29, 2023