* Italian papers say forced to appear on site
* Watchdog probes impact on advertising
* Google says helps newspaper websites
(Adds Google response, background, analyst)
By Stephen Brown
ROME, Aug 27 (Reuters) - Italy’s anti-trust watchdog said on Thursday it was opening an investigation into Google’s (GOOG.O) Italian news website after local papers complained that they were forced to appear on the site (http://news.google.it).
The competition authority said the Italian Federation of Newspaper Editors had complained that any publication refusing to appear on the website “would automatically be excluded from Google’s search engine”.
The newspapers said Google’s use of their online material on its Italian website hurt their ability “to attract users and advertisers to their own home pages”, but if they chose not to appear they were barred from its search engine.
The anti-trust body, which said it had notified Google Italy during an inspection on Thursday with the finance police, said it would look into the “possibility that this could distort the online advertising market”.
Google said it was seeking more details about the complaint to the competition authority.
“We do know that it’s in relation to Google News which drives significant traffic and new readers to newspaper websites,” said a spokesperson for Google in Italy.
Google and its competitor Yahoo YHOO.O face complaints from news providers in the United States and elsewhere that their search engines make money from news generated by others.
Google argues that it helps newspaper websites make money through online advertising and does not misappropriate content.
“We drive traffic and provide advertising in support of all business models, whether news sources choose to host the articles with us or on their own websites,” wrote one of the firm’s lawyers, Alexander Macgillivray, in a blog in April.
Such disputes are taking place against a backdrop of newspaper publishers struggling with a decline in advertising revenue and seeking more ways to make money from their online editions.
The Italian Federation of Newspaper Editors includes Italy’s two biggest newspaper companies, RCS MediaGroup (RCSM.MI) and L’Espresso ESPI.MI, which agreed to pool online advertising in January in a deal aimed at increasing Internet revenues.
One Milan-based analyst, who asked not to be named, said the objective of the newspaper publishers might be to seek a revenue-sharing agreement with Google. (Additional reporting by Danilo Masoni and Alberto Sisto; writing by Stephen Brown, editing by Will Waterman and Rupert Winchester)