Divide and conquer – Google and Facebook show who’s the boss!

Dec 11, 2020

After a year of reports, submissions and public inquiries – and much posturing on all sides – the Government has finally delivered the draft legislation designed to bring Google and Facebook to heel. But who is holding the leash?

The legislation introduced into Parliament this week is designed to force Google and Facebook to share some of their online advertising revenue with Australian media companies. According to both Rod Sims of the Australian Competition and Consumer Commission (ACCC) and Treasurer John Frydenberg, the ideal outcome is for the media companies to come to a commercial agreement; but if they can’t, the umpire will step in and force an arbitrated outcome.

It all started a year ago when Nine Entertainment Co and News Corp did what so many corporations do when the “hidden hand of the market” slaps them down; they run to the government for help. They complained to the ACCC that the big, bad global behemoths were stealing their advertising revenue! “All we want to do is provide quality journalism and we can no longer afford to,” they cried.

And they’re right.  The advertising dollars have shifted from newspapers (and, to a lesser degree, from TV screens and radio) to online, where Facebook and Google dominate with 54% of a  market worth $9.3 billion in 2019.

Nine and News say that Facebook and Google are using their content to attract visitors and that the media companies should be paid for what that they have produced at great cost. It’s a simple and compelling argument and the ACCC concurred.

But what the final commercial outcome will look like is not yet clear – the main parties are hundreds of millions apart as we reported a few months ago. Google and Facebook have since lobbied hard in public and no doubt behind the scenes. Their argument has always been that they drive traffic to the media websites and that this, too, has monetary value.

Old Media v New: can government do Murdoch’s bidding and force Google to pay for news?

As a major concession to the Internet giants, the draft legislation recognises that and allows for it to be taken into account in the arbitration process. Not in a way that will reverse the direction of the money flowing from Google and Facebook, but in a potential reduction of those amounts.

Nine Entertainment is very unhappy, saying that:

“…the continued concessions to the digital platforms only entrenches both their monopoly power and the significantly unfair imbalance in regulation.”

News Corp, on the other hand, seems fine with it. The company is reportedly close to a global deal with Google and Facebook, which may explain why it is not just “fine”, but doesn’t care much about the legislation at all.

The proposed legislative structure is one of individual arbitration between parties or between a group of media companies and the Internet giants. The ACCC (via ACMA) will only step in if a negotiated outcome cannot be agreed. The first deal that is struck will set a precedent that will be hard for others not to follow.

The independent media sector has argued that the Government should facilitate negotiations on its behalf, but that has not been included in the legislation. As the cost of arbitration has to be borne by each party, it is unlikely that many will be able to enter into the scheme individually and will just have to take what, if anything, is on offer.

Another barrier is the minimum annual revenue of $150,000 required to be able to participate in the scheme. It leaves out the majority of independent media operators, including those in the regions not owned by News Corp or Antony Catalano’s ACM.

An important change from the original draft legislation is that the ABC and SBS are now specifically included. The Government probably knows that without their inclusion the bill would not pass a Senate vote.

The ABC news site is the No. 1 news website in Australia, in front of News.com.au and nine.com.au. Of the top 10, News and Nine combined have just under a 60% share.

Independent media winning the battle of the online audience

The reality is that all online media, including this site, rely heavily on Google and Facebook for visitors. And aye, there’s the imbalance that Frydenberg refers to when releasing the bill to Parliament:

“…the substantial market power that has arisen through the growth of digital platforms, their impact on competition in media and advertising markets and their implications for news media businesses, advertisers and consumers.”

And although the inquiry was ostensibly set up “to protect public interest journalism”, there is little in the legislation that directly tackles that. It’s all about the money and, incidentally, consumers of media get nary a mention.

The only non-monetary issue the legislation addresses is a set of clauses to compel Google and Facebook to give prior notice (28 days) of algorithm changes. This was put in place to avoid online media being disadvantaged by sudden changes to how the digital platforms rated and ranked their content. It is the issue they have most vehemently opposed and lobbied against, with Facebook threatening to omit news content from its platform (in Australia).

Their lobbying has been effective and the legislation now includes a carve-out to prohibit the disclosure of “trade secrets”. The algorithms are part of Google and Facebook’s core intellectual property and are heavily guarded. The definition of “trade secrets” has the potential to keep armies of IP lawyers in their Porsches for years to come.

At the behest of the faltering mainstream media companies the government (via the ACCC) set out to force Google and Facebook to pay for the use of Australian-produced media content. But while the media landscape has irrevocably changed over the past two decades, media laws and regulation have not. As a result we find ourselves at the mercy of global giants with exceptionally deep pockets holding (almost) all the cards.

Facebook and Google will not worry much about tens or even a few hundreds of millions of dollars to be paid for content. They face much bigger regulatory challenges in the US and the EU, but for now, they will continue to grow, adapt, divide and conquer.

Meanwhile, News Corp, Nine and much of the mainstream media will continue their slow and inevitable decline with business models that are no longer working. We can only hope that from the ashes of the printing presses, declining subscriber numbers and the dried-up “rivers of gold”, a vibrant and diverse online media sector will continue to thrive and grow even stronger.

We’re working on it.

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