Transfin.
HomeNewsGuidesReadsPodcastsTRANSFIN. EOD
  1. Reads
  2. Deep Dives

Australia's Law to Make Facebook and Google Pay for News Content: All You Need to Know

Editor, TRANSFIN.
Feb 8, 2021 6:35 AM 6 min read
Editorial

Across the world, there is a rising chorus of criticism against Big Tech’s business practices. One of the areas of concern is the news industry - specifically, how the rise of the internet and social media has contributed to dwindling revenues for newspapers, stolen traffic from news websites, and caused the “downfall of the news publishing industry”, as a US antitrust committee put it.

Nowhere is the tech vs news publisher clash more bitter than in Australia. In the land down under, media companies’ complaints against Google and Facebook have found avid listeners in the government. Three years of investigations and consultations culminated in a draft law (the first of its kind in the world) that, if passed, would amount to one of the strongest checks against Big Tech’s power.

What Does the Proposed Law Do?

The law is the product of a lengthy inquiry by the competition regulator, the Australian Consumer and Competition Commission (ACCC). Called the News Media Bargaining Code (link), it was tabled in the Australian Parliament in December 2020 and seeks to fix the gross power imbalance between news publishers and tech giants - specifically, Facebook and Google.

Firstly, the law requires the tech giants to negotiate with news publishers and broadcasters to reach an agreement on how much they should pay for the news content that appears on their platforms. If a revenue-sharing deal is not struck, a government-appointed arbitrator will decide for them.

Secondly, the Code mandates that the tech giants give the media 14 days’ advance notice of any deliberate algorithmic changes that affect news media businesses (which could be akin to ad fraud, something Facebook is well-acquainted with). The ACCC argued that sharing user data with news publishers would provide them with insight on who their target audience is and help them improve their services.

Thirdly, the law proposes hefty fines if Google or Facebook refuse to negotiate, fail to comply with an arbitration decision or engage in retaliatory action against news companies. The penalty imposed would be $10m or 10% of annual Australian turnover or three times the benefit obtained, whichever is the greater.

 

The Tech-News Nexus

Social media and search are increasingly becoming the go-to sources for news. Specifically, Google’s News tab and Facebook’s News Feed. Digital trends show that people prefer consuming news on social media or Google Search rather than on individual news websites, news curation apps or newspapers.

Now, news publishers and internet companies are well-versed with these trends and have built a symbiotic relationship of sorts to provide value to consumers. News sites depend on Google and Facebook to share their journalistic work and to reach a wider audience; the tech firms rely on their news tabs to drive traction and engagement.

However, this symbiotic relationship is a rather toxic one:

  1. Those doing most of the work are the news sites; tech platforms are simply the billboards where other platforms’ content is displayed or shared.
  2. Because both parties compete for digital ad revenue, they are, on some level, adversaries.

 

Why Was the Law Deemed Necessary?

Invariably, journalistic outlets are the overwhelming losers of the above-mentioned asymmetric arrangement.

Let’s illustrate this with an example. Say you want to know about when Tesla will begin operations in India. You’ll search the query with relevant keywords on Google, and you are shown a long list of relevant links - with descriptions below each link. Or you go to Google’s News tab and here too you’ll see a myriad of sources with sizable snippets under each option.

What’s likely to happen is, if you’re pressed for time or your interest in the topic is cursory, you’ll just skim through the snippets and move on without clicking on any of the news links.

Therefore, Google gets search hits and logs ad revenue while news companies - the ones who did the actual research and content creation that answered your query - walk away with nothing. It’s a similar situation with Facebook and its preview-infested News Feed.

It’s also important to note that news companies needed government intervention because of the aforementioned power imbalance. Google and Facebook are both business behemoths with meaningful buying power and sway across the entire content distribution value chain. The former made $4.3bn in advertising revenue in Australia last year alone while Facebook made $0.7bn. In contrast, Australian news media - as is the case in virtually all countries - is an industry in crisis, torpedoed by the digital revolution, confronting consolidation, and struggling with low revenues and high debt. Moreover, the COVID-19 pandemic ravaged the news industry. In Australia, many news organisations laid off staff while dozens shut down altogether - some of which were over 100 years old.

So the tech vs news clash is not exactly a David vs Goliath situation. Rather a Goliath vs David-tied-to-a-tree-without-a-sling-whilst-being-blindfolded-and-bankrupt situation.

 

How Did Google and Facebook React to the Law?

Unsurprisingly, they’re not big fans. Since the draft law was released in July, both companies have been vocally critical of the legislation. Yesterday, Google launched News Showcase, a platform in Australia offering news it has paid for, striking its own content deals with publishers as it seeks to prove that the Code is “unworkable”. Their reaction has bordered on hostile at times, frankly. Facebook threatened to stop publishers from sharing news on its platforms. Google threatened to shut down Search services in Australia altogether.

Australian PM Scott Morrison has frowned upon the tech companies’ reactions, comparing them to coercion and calling on them to instead engage constructively in the discussion.

The Code has also become a geopolitical issue when the US government entered the fray last month and asked Canberra to suspend the law, saying passing the same in the current form “may result in harmful outcomes”. Washington’s interjection isn’t surprising - after all, Australian action against Big Tech is along the same lines as the digital levies being proposed in many countries - aka the Google Tax - which have also elicited Uncle Sam’s ire. 

 

Why is Bing Back in the News?

Interestingly, as Google threatens exit, Bing has tossed its hat in the ring. The Microsoft-owned search engine holds less than 4% of the Australian market but an embattled Google - better yet, an absent Google - would mean its 94% market share will be up for grabs.

As such, Bing has come out in support of the News Media Bargaining Code and says it is ready to take Google’s place.

 

Why is Australia’s Approach Unique?

Hours before it threatened Australia with shutdown of its operations, Google signed a deal to pay news publications in France for their content. Two months ago, Facebook agreed to pay UK news outlets millions of dollars a year to license their articles. A similar 2014 law in Spain led to Google no longer offering Google News in that country. And back in the US, both companies have been pilloried by politicians from both major parties, whilst being under major investigations that could result in their eventual break-up.

Why are we focussing on Australia, then? Because the News Media Bargaining Code goes one step further than any other policy yet by making negotiations with news companies mandatory for the tech companies + reducing the power imbalance between the two sides + threatening Big Tech with hefty fines in case of noncompliance + requiring them to share algorithmic data.

 

Why is the World Paying Rapt Attention?

Australia’s handling of Big Tech is being watched keenly across the world. Particularly in India, whose mobile-first digital economy constitutes the second-largest online news consuming population after China.

This is also why Google and Facebook are so alarmed of the Code, even engaging in a politically incorrect slugfest against the Australian government. They worry that, if passed, the law could set a precedent for other countries and prop up similar legislation on a global scale. This could hurt their revenues and clout.

After all, governments everywhere are eager to curtail Big Tech and protect local businesses. But they need to find the right balance between smart policies and not pushing away Big Tech’s business (or worse, retaliatory tariffs by the US government). This is why Australia’s new law is of international importance. Based on how its passage and implementation proceed, we can expect (or not expect) a domino effect of sorts across the globe.

FIN.

Congratulations! You've made it to the end. Looking for more takes on Business, Finance, Markets and Investing? Subscribe to TRANSFIN. E-O-D for informative and insightful daily news updates, smartly curated from top sources and delivered straight to your inbox.