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The Australian government’s bid to have Google and Facebook share revenue with local media companies has seen the tech giants threaten drastic action – with the main aim of heading off similar measures from other countries. By Royce Kurmelovs.

Tech giants push back on media bargaining code

Google’s managing director for Australia, Melanie Silva.
Credit: GoogleDownUnder Facebook

A game of brinkmanship between the tech giants, Australian media and the Morrison government escalated last Friday when Google’s managing director for Australia, Melanie Silva, told a senate committee the company could block Australian users from accessing its search engine over a contentious proposed news media bargaining code.

Silva said the code, which would force Google and Facebook to share revenue with local media companies, represents “unreasonable and unmanageable levels of financial and operational risk” to the search giant.

“If this version of the code were to become law, it would give us no real choice but to stop making Google search available in Australia,” Silva said. “That would be a bad outcome for us but also for the Australian people, media diversity and the small businesses who use our products every day.”

Silva’s comments built upon similar statements from Facebook, which has pledged to stop links to Australian news media being shared on its platform if the code is passed.

In the wake of Silva’s salvo, the long-time chairman of the Australian Competition and Consumer Commission, Rod Sims, is striking a defiant tone.

“Google and Facebook are not providing journalism. They have not replaced journalism. This is not the car replacing the horse and buggy,” he tells The Saturday Paper. “They’ve inserted themselves between journalists and their readers and are taking one hell of a clip on the way through.”

Sims says that if Google does pull out of Australia, the move could see the search giant hand a competitor $4.8 billion in revenue.

“This is high stakes for everybody involved,” he says. “Obviously if Google do follow through, it will be very disruptive for Australian consumers and business – if it does happen.

“On the other hand, if Google does pull out and other search engines become successful, it might show places elsewhere that Google doesn’t completely have you over a barrel.

“But I’m not predicting any outcome.”

As yet, it is not clear how Google will achieve the ban at a technical level, but the company has confirmed it’s running “tests” to block Australian news media from its search engine. This week, the webpages of News Corp publications were not visible in the site’s main search results.

One of Google’s key criticisms of the Australian code is that it would force the company to pay for content “per click” , but Sims rejects this claim. He says the legislation only works to set ground rules for negotiations over payment. But he understands why the tech giants are holding firm against the code, which would require some revenue sharing with media companies.

“You’re getting very powerful companies – these are the biggest of big business. They’re some of the biggest companies in the world, they’re used to getting their own way. And you’re getting them to do something they do not want to do,” says Sims.

“I do not know what will happen. All I do know is that the deals on the table now are a lot better than they were before we had the legislation before parliament.”

Australia’s proposed media bargaining code evolved out of the ACCC’s Digital Platforms Inquiry, which began in 2017 and reported in 2019. The original proposal was for a voluntary media bargaining code but that shifted in April last year when the federal treasurer, Josh Frydenberg, directed the ACCC to draft a mandatory code after negotiations between large media companies and the tech giants saw little progress towards an agreement.

At last Friday’s senate hearing, representatives from Google and Facebook said they had been blindsided by Frydenberg’s decision, as they had prepared their own voluntary proposals but had not yet shared them with government.

To date, Google and Facebook’s opposition to the code has focused on three broad areas: the form payment will take, the requirement to give notifications about changes to their algorithm and what they describe as a “flawed” arbitration model.

In its current iteration, the code does not specify what form payments should take – whether lump sum or otherwise – and empowers Google and Facebook to make “standard offers”.

When it comes to notification requirements, the 14-day notice period only applies to “planned” changes to algorithms that will have a “significant effect” on news content – not the actual mechanics of the algorithm itself.

The tech industry has argued the wording “significant effect” is vague and may result in Google and Facebook being subject to fines for subtle yet profound changes to their algorithm. But the provision appears to be an effort to guard against situations such as Facebook’s now-infamous “pivot to video” in 2015.

At the time, the company’s executives claimed publicly that their data showed users preferred video over text. “If I was having a bet, I would say: Video, video, video,” the company’s vice-president for Europe, the Middle East and Africa, Nicola Mendelsohn, told a Fortune conference in June 2016. This rhetoric was in part supported by impressive viewership metrics on video advertisements on Facebook, which in late 2016 The Washington Post found to be misleading and based on calculation errors.

But it was too late – the subtle shift had already had a profound effect. Many media companies, seeing the successful metrics for video ads, had “pivoted to video” in order to feed Facebook more of the content it wanted, expanding their video production teams and sacking large numbers of reporters working in text. The shift transformed newsrooms, but was based on misinformation.

If the tech giants and the Australian media are unable to reach an agreement over the bargaining code, the process will move to arbitration, with a panel appointed by the Australian Communications and Media Authority (ACMA).

Google and Facebook would have to treat all publishers the same and negotiations would work like those between unions and businesses, with the panel acting as an ombudsman. The panel would not come up with a compromise figure but would hear from both parties before picking a side. It would also be required under legislation to ensure no offer places an “undue burden” on the tech companies.

The ACCC says that because of the size of the companies – Google controls 94 per cent of the search engine market in Australia and Facebook remains the dominant social media platform – such a process is necessary to stop them from winning through a divide-and-conquer strategy.

But the size of these companies also means either could pull out of the Australian market, rather than engaging in this arbitration process.

“These companies are too big to mess with,” says Richard Holden, an economist at the University of New South Wales. “The bottom line is, if I were them, there’s no way we’re going to allow a precedent by accepting this in a 25-million-person jurisdiction.”

Holden describes the code as “embarrassing” and says it is too much of “a dangerous precedent” for the tech giants to cede ground on – if they agree to pay media companies in Australia, other governments will likely follow with similar legislation.

The code’s supporters, meanwhile, admit that it is not perfect. Both the Public Interest Journalism Initiative and the Media, Entertainment and Arts Alliance have raised concerns about whether it caters properly to regional media companies and whether there’s a risk the money paid to media companies will be returned to shareholders rather than invested in journalism.

But they also point out that Australia is not alone. By one count, there are at least 40 government inquiries across the world examining similar regulations in response to what is increasingly being understood as an old structural problem with a sleek new finish – monopoly power.

Like railroad tycoons of the past, the tech titans control the portals through which the vast majority of people engage with the internet – a situation that is highly profitable and renders them incredibly powerful.

Associate Professor Timothy Dwyer from the University of Sydney says the bargaining code is a necessary first step after decades of “hands-off” regulation of Australia’s media market.

“To say ‘do nothing’ on this is a red flag to a bull,” Dwyer says. “That’s been one of the big problems with government in Australia in relation to legacy media – the ‘do nothing’ approach. In Australia, media policy has meant – for the last two decades – deregulation.

“And in many ways, this is completely new terrain. What we’re seeing here is a transitional period in the regulation of news media and so we have a situation where governments and their regulatory agencies are trying to tackle the rise of the platforms and the way the news is distributed.

“It’s amazing,” Dwyer says, “how it’s really hit a nerve.”

This article was first published in the print edition of The Saturday Paper on Jan 30, 2021 as "Why pay the papers when you can call the tune?".

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Royce Kurmelovs is an Adelaide-based freelance journalist and author.