The ACCC thought it was leading the world in pushing major reforms – but the result might harm journalism. By Mike Seccombe.

The next fight with Google and Facebook

On December 30 last year, Andrew Bosworth, a key lieutenant to Facebook head Mark Zuckerberg, sent an extraordinary memo to the social media company’s staff, laying out its rationale in refusing to be an arbiter of truth.

At one point in his 2500-word post, Bosworth posed the question: “So was Facebook responsible for Donald Trump getting elected?”

“I think the answer is yes,” he wrote, “but not for the reasons anyone thinks. He didn’t get elected because of Russia or misinformation or Cambridge Analytica. He got elected because he ran the single best digital ad campaign I’ve ever seen from any advertiser. Period.”

Others would beg to differ. Part of the reason Trump was able to run such an effective digital campaign was that detailed Facebook data on tens of millions of users was harvested by Cambridge Analytica, a political consultancy working for Trump, which allowed the micro-targeting of thousands of variants of campaign ads – often misleading – to tiny cohorts of the electorate deemed receptive.

Facebook was subsequently hit with a $US5 billion penalty by the US Federal Trade Commission for “deceiving” users about its ability to keep their personal information private. Some members of the commission thought even that record settlement was inadequate, because, as one said, it “imposes no meaningful changes to the company’s structure or financial incentives, which led to these violations. Nor does it include any restrictions on the company’s mass surveillance or advertising tactics.”

Nor did it address the bigger question of Facebook’s hands-off approach when it comes to policing what appears on its platform. Bosworth’s memo did address that issue, though, by way of tortured metaphor.

“I find myself thinking of the Lord of the Rings at this moment,” he wrote. “Specifically when Frodo offers the ring to Galadrial [sic] and she imagines using the power righteously, at first, but knows it will eventually corrupt her.

“As tempting as it is to use the tools available to us to change the outcome [of the 2020 United States presidential election], I am confident we must never do that or we will become that which we fear.”

At best, Boswell’s memo, which was promptly leaked to The New York Times, amounted to a meek retreat from the notion of defending a discernible, objective truth. Instead, Facebook would defend freedom of expression – unmoored from considerations of truth or consequence.

In a swingeing opinion piece, Times technology writer Kara Swisher argued it was a cynical effort to dress up corporate amorality as a matter of principle.

“Facebook’s plans, moves that were signalled in Mr Bosworth’s ruminations,” she wrote, “boil down to one basic idea: Dear consumer ensnared in our digital panopticon, you might want to fashion a homemade shiv right about now because you are on your own in this prison of hate speech and dangerous lies we built.”

The clear takeout was that, as far as those who led Facebook were concerned, the work of separating fact from fiction, reality from conspiracy theory, real news from fake, basically fell to individual users.

There is abundant evidence many users have trouble doing that. But if Facebook carries out the threat it made on Monday – that it will remove news entirely from its Australian operations if the Morrison government pushes ahead with a mandatory code for it to pay publishers – it will become even more difficult for Australian users. The tech giant will continue to host fake news and conspiracy theories, but it will dispense with real news from major publishers.

The proposal, drafted by the Australian Competition and Consumer Commission, would force Facebook and the other tech giant, Google, to pay Australian media organisations for content that appears on their sites. The government has foreshadowed legislation to force digital platforms to negotiate a price for what they publish.

This prospect has mightily displeased the digital behemoths. Google recently began running pop-ups warning users that “the way Aussies use Google is at risk” and “their search experience will be hurt by new regulation.”

But Monday’s media release from Facebook, under the bland heading “An Update About Changes to Facebook’s Services in Australia”, escalated things dramatically.

In it, Will Easton, managing director of Facebook Australia and New Zealand, claimed the proposed regulation “misunderstands the dynamics of the internet and will do damage to the very news organisations the government is trying to protect”.

“Assuming this draft code becomes law, we will reluctantly stop allowing publishers and people in Australia from sharing local and international news on Facebook and Instagram,” he wrote.

“When crafting this new legislation, the commission overseeing the process ignored important facts, most critically the relationship between the news media and social media and which one benefits most from the other.”

Easton said it is the media companies that gain the greater benefit. He argued – and it’s true – that Facebook, like Google, does not make much of its revenue from news searches.

He also noted media organisations voluntarily posted news on the site and said that over the first five months of 2020, “We sent 2.3 billion clicks from Facebook’s News Feed back to Australian news websites at no charge – additional traffic worth an estimated $200 million AUD to Australian publishers.”

But those estimates are beside the point, as far as the ACCC and the government are concerned. Their focus is the fact that before the advent of digital platforms, news organisations – radio, TV and print – subsidised newsgathering through ad revenue. Now that the digital platforms are taking an ever-growing share of that revenue, many media organisations are in dire straits financially. In the past decade, thousands of Australian journalists have lost their jobs, even before the pandemic shuttered dozens of newsrooms across the country. Coverage has become concentrated, with important aspects of politics and public life unreported. While the big companies shrink, smaller outlets are going bust.

Meanwhile, the tech giants are growing quickly. Google Australia took in $4.3 billion from Australian advertisers last year, while Facebook earned $674 million. In reporting those numbers, The Australian Financial Review noted that because both companies structure their activities as “resellers”, they successfully minimised their profits and paid little tax: about $100 million and $17 million, respectively.

The ACCC’s digital platforms report, completed last June, which set the stage for this attempt to claw back money for local media, shows just how these companies have become ubiquitous in our daily lives.

“Each month, approximately 19.2 million Australians use Google Search, 17.3 million access Facebook,” the report said. It also reported 17.6 million Australians watch YouTube, which is owned by Google, while 11.2 million access the Facebook-owned Instagram.

The amount of time spent on Google or Facebook platforms dwarfs the amount of time spent on other websites or apps, the ACCC said, the result being that “these platforms occupy a key position for businesses looking to reach Australian consumers”.

“Google, and to a lesser extent Facebook, are able to effectively act as gatekeepers, and to influence and potentially enter multiple markets reliant on attracting online customers.”

The two big platforms had become “unavoidable trading partners” for Australian media, the commission found.

“The ACCC therefore considers that Google has significant bargaining power in its dealings with these media businesses … [and] Facebook has substantial bargaining power in its dealings with news media businesses.”

It is this “gross power imbalance”, says Katharine Kemp, senior lecturer in law at the University of New South Wales and an expert in competition law and data privacy, that has to be fixed.

“It is creating not just an injustice for the news businesses, but it’s actually jeopardising the future of journalism in Australia, because if that content is not paid for, then it undermines the ability of those businesses to pay journalists and actually to invest in quality content.”

The ACCC determined the tech giants would be required to negotiate compensation for the news they use. And if no mutually satisfactory agreement were possible, all parties would go to arbitration.

For a while, both giants had engaged fairly productively with a number of media companies, including Schwartz Media, publisher of The Saturday Paper, but negotiations with the bigger companies, particularly News Corp, reached a stalemate. Facing a mandatory code if they could not make a deal, Google was first to push back publicly, soon followed by Facebook’s more dramatic threat to pull out of the Australian news market entirely.

“Facebook is packing up all its toys and saying, ‘If you won’t let us have our way, we’ll stop publishers from sharing news on Facebook feeds, full stop,’ ” says Kemp.

This has happened before. Five years ago, Spain did something similar to what is being contemplated in Australia, and Google News promptly shut down its Spanish operation.

The consequence of that, according to studies, was that overall news consumption fell by 20 per cent. Overwhelmingly, it was smaller publishers that suffered, while large publishers saw little reduction in traffic.

The big publishers in this country are no doubt aware of this precedent, which suggests there may be more than one reason for their intransigence in negotiations: not only would they gain more revenue as a result of Google and Facebook being forced to deal, but they would also damage upstart competitors.

Given the Spanish precedent, and the fact “snippet taxes” remain a bone of contention between the tech giants and other European nations, such a response may have been expected. The possibility Australia could set a precedent for other countries is a serious risk.

Mike Cannon-Brookes, the billionaire co-founder of the Australian tech company Atlassian, noted that Facebook’s threat to remove Australian news content was “the only logical move for Facebook to make”.

Yet the ACCC seemed to have been taken by surprise. A media release quoted commission chair Rod Sims blandly reiterating that “the draft media bargaining code aims to ensure Australian news businesses, including independent, community and regional media, can get a seat at the table for fair negotiations with Facebook and Google”.

“As the ACCC and the Government work to finalise the draft legislation, we hope all parties will engage in constructive discussions,” Sims said in the statement.

But it would seem the reality – with the tech giants and the big Australian media players both digging in – has moved well past that.

It fell to a former head of the ACCC, Professor Allan Fels, to suggest a way in which Australia could muscle up against the threat.

“If all fails,” Fels told The Saturday Paper, “the government could impose a tax on digital revenue, a 10 per cent tax. The government carries that weapon in its back pocket.”

But such a move would bring other problems. For a start, a tax would not result in money flowing directly to media companies; instead, it would go to the government, which would then have to redistribute accordingly.

And it would likely result in a big international fight, involving not only corporate players but also, quite likely, the US government.

Michael Dirkis, professor of tax law at the University of Sydney, says digital revenue taxes have been widely debated as a way of mitigating big tech’s capacity to shift profits around the world, avoiding tax as they go.

The reason Google, Facebook and others pay so little tax in Australia is that “they are advertising into Australia, but the contracts for all that advertising [are] usually entered into offshore”, says Dirkis.

“What tends to happen is they have local agents that are out there, going to businesses selling advertising, and … you wind up entering into a contract in Singapore.”

Such profit-shifting is a huge problem for many nations trying to pin down the tech giants. One mooted solution is to levy a tax not on their profits but on their revenue.

The European Union is strongly disposed towards such measures. Last year, France legislated a 3 per cent tax for digital companies with revenues of more than €25 million in France and €750 million worldwide. That is, it specifically targeted the giant companies, all of which are US-based.

Even before the legislation comes into force, says Dirkis, the Trump administration has declared it anti-competitive and imposed “a whole range of tariffs”, including on French Champagne.

Dirkis doesn’t think the digital services tax idea will ever fly. He also suspects the politics of this fight could get very difficult for our conservative government, if push comes to shove.

After all, ideologically the Liberal Party is the party of free enterprise and competition. And essentially this comes down to some companies outcompeting others, as a consequence of technological change.

“The extent to which the government will carry its own caucus, I suppose, is an issue,” says Dirkis.

The stalled negotiations appear to be the result of an intractable problem: the irresistible force of the tech giants meeting the immovable object of Australia’s big media players and their political agents.

And the outcome looks like it will be bad news. Figuratively and literally.

This article was first published in the print edition of The Saturday Paper on September 5, 2020 as "The next fight with Google and Facebook".

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Mike Seccombe is The Saturday Paper’s national correspondent.

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