Make Google and Facebook pay for posting the news they don't make

Author: Holding Redlich partner Angela Flannery
Publication: Australian Financial Review
Publisher: Fairfax Media 

During next week's final sitting of parliament, the Morrison government plans to unveil the final form of its legislation for the News Media and Digital Platforms Mandatory Bargaining Code. The aim of the controversial code is to require Google and Facebook to pay for their use of the news content of Australian media businesses.

While it may not be perfect, the controversial code is a solution to the problem created by the rise of big tech: the erosion of the advertising revenue and the business model for public interest journalism.

The code had its origins in the Australian Consumer and Competition Commission's Digital Platforms Inquiry. That inquiry recognised the many benefits the digital economy has provided for Australians, but also recognised that the digital economy has a dark side, including in its impact on the production of public interest journalism – that is, news coverage of matters of public significance or which informs public debate and democratic decision making.

The traditional business model of media companies was simple: great content (including news content) attracts an audience, an audience attracts advertisers, advertising revenue funds the production of even more great content and the cycle continues.

The advent of digital platforms has challenged this model. In recent years, the advertising revenues of Australian media companies have dwindled, while the advertising revenues of the digital platforms have increased dramatically. Although Google disputes this, the only logical conclusion that may be drawn is that advertising revenue has moved from media companies to the platforms.

Competition means some businesses flourish and others fail. That is a fact of life, and a sign of a healthy economy. But, as ACCC chairman Rod Sims has noted on many occasions, what has occurred in the media sector is not an example of creative destruction, where innovation has created a better product. Instead, less product – that is, public interest journalism – is being produced. As their advertising revenues have fallen, media companies are producing less. Although new online media produces a limited amount of news content, neither the platforms nor any other businesses have stepped in to fill this gap in production.

As public interest journalism is an essential ingredient for a functional democracy, reduced production is a market failure which has social as well as economic consequences. The government has rightly decided to act to address this issue. Its response has included proposing the code, requiring the platforms to contribute to the cost of news production.

Although the code model may not be perfect, it has already facilitated an open debate on the value of news content to the platforms.

The platforms use news content: for example, Google makes news snippets available and news stories appear in Facebook News Feed, and each platform benefits from this. They benefit directly from advertising revenue and the collection of user data.

They also benefit indirectly, by being seen as a source from which trusted news content may be obtained. However, the platforms do not pay for this use. The bargaining imbalance between the platforms and media companies, largely created by the fact that media companies need the platforms to reach their audiences but the platforms do not need any particular media business, has meant the platforms do not need to pay.

Although the code contains other provisions, it has three key elements intended to address the bargaining imbalance, to allow prices to be set for use of news content. These elements are: sharing of information to assist media companies assess the value obtained by the platforms from use of news content; a mandatory bargaining regime for issues related to that use; and a final offer arbitration model for resolution of disputes about payment for that use.

The platforms object to the code, largely arguing that news content should not be given preferential treatment over other forms of content, that media companies already receive sufficient consideration for the use of their content from referrals by the platforms and that the final offer arbitration model favours high payments being made to media companies.

The first argument is easy to dismiss. Given the importance of public interest journalism and news content, it is entirely appropriate that it is given preferential regulatory treatment. Of course, it will be difficult to work out the prices the platforms should pay, which is why the ACCC recommended to the government that the code include an arbitration model, under which the arbitrator may take into account a variety of factors, rather than setting the prices itself.

Although the code model may not be perfect, it has already facilitated an open debate on the value of news content to the platforms. This is a debate that needs to be held. Importantly, the ACCC is to review the operation of the code within 12 months of its start. By that time, the first round of arbitrations will be complete and an assessment may be made about the code’s impact in solving this troubling market failure.

While the platforms have threatened to withdraw their services from Australia if the code is introduced, it is hoped they will instead work constructively with media companies to play their part in helping ensure the much needed ongoing production of public interest journalism.

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