Australian Government takes on digital giants Google and Facebook

What’s going on?

The Australian Government is considering a new law to regulate tech giants such as Google and Facebook. This law is based on a draft bargaining code developed by Australia’s competition regulator, the Australian Competition and Consumer Commission. The ACCC’s 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. The mandatory code of conduct will be implemented as a Treasury Laws Amendment (News and Digital Platforms Mandatory Bargaining Code) Bill 2020. In April, Australian Treasurer Josh Frydenberg stated that the goal of the voluntary code of conduct was to protect consumers, improve transparency and address the alleged power imbalance between tech giants and media companies such as News Corp Australia.

The ACCC claim Google and Facebook generate more than $6 billion a year of advertising revenue in Australia. Furthermore, research conducted by the ACCC revealed that for every $100 in online advertising spent in Australia $47 goes to Google and $24 to Facebook. But Google Australia Managing Director Mel Silva has pointed out:

We don’t run ads on Google News or the news results tab on Google Search. And looking at our overall business, Google last year generated approximately AU$10 million in revenue — not profit — from clicks on ads against possible news-related queries in Australia

In other words, Google is arguing Australian content generated by local media companies generates a very small proportion of its revenue in Australia.

The proposed regulation is targeting Google and Facebook’s alleged monopolistic dominance. As Josh Frydenberg explained, the regulation:

… is not seeking to protect traditional media companies from the rigour of competition but rather create a level playing field where market power is not misused, companies get a fair go and there is appropriate compensation for the production of original news content.

Addressing abuses of market power is a legitimate reason for government intervention. But is the playing field really uneven, and is a new law needed to level it?

What can history tell us?

Australia would not be the first country to attempt to hold the digital giants to account. In 2014 Spain passed legislation requiring Google to pay news outlets for the article extracts they published. Last year, France also implemented a European Council Directive to protect the copyright of content where it is reproduced online.

Arguably, attempts to regulate Google have been ineffective. In response to Spain introducing legislation, Google closed Google News and changes were made to the way Google News displays content. Google even shut local outlets out to avoid paying for content and removed publishers from other international news sites, disadvantaging traditional media companies. However, Swinburne University’s Dr Belinda Barnet states that in Australia, “the ACCC has added into the legislation that they can’t do that, so Google is in a corner and can’t take that usually retaliatory action.”

Google’s response

Recently, Google has launched a public campaign against the new regulation by placing warning messages to users on its search pages. Google users in Australia would have noticed the pop-up links to an open letter that declared “the way Aussies use Google is at risk”. This is largely owing to the prospective regulation that would require Google to hand over its algorithms to Australian news businesses so that they would be able to more effectively advertise their products. The ACCC hit back on the same day, claiming that:

The open letter published by Google today contains misinformation about the draft news media bargaining code which the ACCC would like to address.

Google has suggested the new code would “seriously damage our products and user experience because the code as it is drafted is unworkable.” In a letter to users, Google said: “the rules would dramatically worsen the experience of Google users in Australia, threaten its free services and lead to privacy risks by forcing it to share data with big media companies.” Despite this, ACCC chairman Rod Sims said the tech giant “would not be required to charge Australians for the use of its free services” under the proposed regulation.

Noteworthy considerations

According to the Sydney Morning Herald, under the new code, the amount Google and Facebook would have to pay publishers is expected to be fairly insignificant for the two companies as both generate massive profits, with Google generating $4 billion in high margin revenue from Australia each year. The mandatory code could be viewed as a way of keeping more of the income earned by these companies in Australia. Incidentally, concerns have been expressed that tech giants are not paying their fair share of tax in Australia, with Prime Minister Scott Morrison stating “what occurs in taxation law, should occur in the digital world as much as it does in the real world.”

On the other side of the argument, Billionaire Mike Cannon-Brooks suggests that the regulation will set a dangerous precedent. “Should Netflix be forced to pay for reduced cable bills? For lower popcorn revenues at movie theatres?” he asked on Twitter. Similarly, Dr Barnet, believes the main concern is that “if the ACCC’s regulation works, it will set a precedent in other markets. Maybe 70 countries taking this step might make a difference to their bottom line.”

A Nine News spokesperson said that the tech giants’ threats are a “demonstration of tech giants use of their monopoly power while failing to recognise the importance of reliable news content to balance the fake news that proliferates on their platforms.”

The power dynamics in this struggle are definitely deserving of attention. For instance,  News Corp and Nine Entertainment which made profits of $228 million and $234 million respectively in 2019, will benefit hugely from the proposed regulations. News Corp and Nine are both large corporations, albeit nowhere near as large as Google and Facebook, but they are not obvious candidates for government assistance.

While Google and Facebook have squeezed small independent publishers out of the market, news site platforms actually rely on such platforms for thoroughfare. Communications Minister, Paul Fletcher, states that “digital platforms need to do more to improve the transparency of their operations for news media providers as they have a significant impact on the capacity of news media organisations.” This is apparent as dozens of regional newspapers stopped printing throughout COVID-19 due to a decline in advertising revenue.

As such, it is arguable that greater concern is being given to protecting News Corp and other Australian media companies, rather than to preserving a healthy news media sector in general. It may be better to allow the process of creative destruction to play out and not risk constraining the growth of new, independent media players.

Arguably, the new mandatory code could also have an adverse impact on independent media content producers. Google have warned Australian YouTubers that there is a possibility they could stop paying them as part of its advertising revenue sharing stoush with the ACCC. Hence, some prominent Australian YouTubers such as Isaac Butterfield have published videos critical of the mandatory code (e.g. see the Media wants to kill YouTube in Australia).

Overall, the media bargaining code aims to cover the sharing of data, the ranking of news content and the monetisation of revenue generated from the news. The jury is still out on whether this is sound policy or not, but there is no doubt the Government is tackling an important public policy issue. A draft of the code has been released by the ACCC and a consultation process concluded at the end of August. The Government suggest that the legislation will be introduced into Parliament shortly after. We look forward to seeing how the debate over the mandatory code of conduct plays out.

This article was prepared by Adept Economics Research Assistant Taylor-Rose Hull and Director Gene Tunny. 

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