Google has agreed to create a 60 million euro ($82 million) fund to help French media organizations improve their internet operations.
It follows two months of negotiations after local news sites had demanded payment for the privilege of letting the search giant display their links.
The French government had threatened to tax the revenue Google made from posting ads alongside the results.
The US firm had retorted it might stop indexing French papers’ articles.
In addition to the creating the Digital Publishing Innovation Fund, Google has agreed to give French media access to its advertising platforms at a reduced cost.
The compromise allows it to avoid paying an ongoing licensing fee.
“France is proud to have reached this agreement with Google, the first of its kind in the world,” the French president’s office said on Twitter.
“It appears Google have opened the door to other countries’ newspapers doing the same thing,” said Ian Maude, head of internet at Enders Analysis.
“This sets a precedent which other publishers may pursue in their own negotiations.”
Google has agreed to create a 60 million euro fund to help French media organizations improve their internet operations
After the news was announced, Eric Schmidt, Google’s chairman, wrote on his company’s blog: “These agreements show that through business and technology partnerships we can help stimulate digital innovation for the benefit of consumers, our partners and the wider web.”
The search giant has also made efforts to resolve a separate European dispute.
It has filed proposals with the European Commission stating how it intends to deal with complaints made by Microsoft and more than a dozen other companies that it had broken competition rules.
The European regulator will now consider Google’s proposals, which have not been disclosed.
If it rejects them and finds the firm has broken its rules, it has the power to fine the firm up to 10% of its global turnover which could amount to more than $4 billion.
Google has threatened to exclude French media sites from its search results if France goes ahead with plans to make search engines to pay for content.
In a letter sent to several ministerial offices, Google said such a law “would threaten its very existence”.
French newspaper publishers have been pushing for the law, saying it is unfair that Google receives advertising revenue from searches for news.
French Culture Minister Aurelie Filippetti also favors the idea.
Aurelie Filippetti told a parliamentary commission it was “a tool that it seems important to me to develop”.
Google France had said earlier that the plan “would be harmful to the internet, internet users and news websites that benefit from substantial traffic” that comes via Google’s search engine.
It said it redirected four billion clicks to French media pages each month.
Print newspapers have seen their incomes gradually eroded in recent years as consumers and advertisers turn to the web.
Previously the French government has considered introducing a tax on online advertising revenues but it later dropped the plan, worried it would hurt small local companies more than global internet giants.
“France has a track record of enacting laws to protect its local media interest that seem out of step with the conventional wisdom in other markets,” said Adrian Drury, an analyst with research firm Ovum.
“The question is whether by returning a search result Google is infringing the copyright of a site. The publishers will continue to contest this, but the general consensus is that it is not,” he added.