What’s the value of news to the platforms?

Australia’s reckoning with Facebook and Google over news is setting the industry up for more turmoil.

Australian authorities are pressing ahead with a controversial plan to make Facebook and Google pay for news content, and with formal submissions made, it’s clear there will be no amicable settlement. 

The stage is set for a monumental showdown: news publishers, government and regulators on one side of town, and the two digital giants on the other. 

The Australian situation is important because competition law —  rather than copyright — is at the heart of the fight and what happens in Australia could influence other markets where pressure for a “news solution” is building.

Both sides in the coming gunfight are righteous, but both cannot be right.  The issue hinges on the true value of news to digital platforms. Google and Facebook say it is minor and that their businesses would be healthy even without news. People inside the decimated news industry say that is posturing, and that accurate timely information from reliable sources lies at the heart of the value proposition of both digital giants.

I have spoken to both sides, and I do not believe the “make ‘em pay” approach is realistic. Either the money involved will be insignificant or the entire enterprise will founder on the legal challenge that will inevitably follow a big cash transfer. 

Situation recap

Two months ago, the Australian government instructed competition watchdog the ACCC to draft a “mandatory code of conduct” to govern the relationship between news publishers and Google and Facebook. 

The code was to regulate, among other things, remuneration for news content. The world pricked up its ears: News execs were talking about huge sums of money, up to 10% of Google and Facebook revenues in this market, A$600 million to A$1 billion. 

The ACCC had found that the companies enjoy substantial market power and therefore competition law applied. They called for submissions from those involved, with a deadline in early June.

What media wants

Only one of the news industry submissions, from commercial broadcasting umbrella group Free TV Australia, has been made public, but it is possible to get a clear picture of all positions from talking to those involved. Free TV have proposed a centralised license fee model allocated to media according to how much money is spent producing news.

No one believes in collective boycott or collective bargaining — the two options of four canvassed by the ACCC. This is an interesting reflection on the lack of unity in the news industry.

News Corp Australia have been prime movers in the whole affair, and want to negotiate directly with Facebook and Google within a regulated and arbitrated framework. In this way, they are playing to their strengths as the most forceful and united group in Australian media. They will get the most out of this direct dealing. These guys agree with Free TV that the platforms should be paying at least 10% — the “news tithe” — and believe that Google and Facebook make much more money in this market than they are letting on.

The Guardian and smaller independent news publishers have proposed a hybrid model where a collective licensing body handles the redistribution of funds but bigger players can opt out of that and do separate deals. Guardian Australia Managing Director Dan Stinton says he won’t put numbers on how much money Google and Facebook should pay because at the moment it’s impossible to know how much news is actually worth to the platforms. He believes the ACCC can force transparency through the process.

A tech response

For their part, the digital platforms are steadily becoming more belligerent as what initially seemed unlikely — a code that hit profit and set a global precedent — takes on more substance. 

A summary of Facebook’s submission, released this week, shows a hardening of language: “If there were no news content available on Facebook in Australia… we are confident the impact [on audience and revenue] would not be significant”. Google Australia Managing Director Mel Silva has also written that both the direct and indirect value of news to the search giant is “very small”.

What happens next?

It’s clear from Facebook’s submission and Google’s public statements that there will be no immediate payout to news organisations. They argue the value they derive from news content is marginal and they don’t believe they should be responsible for funding it.

When the code is implemented, and if it involves a substantial cash transfer — above $60 million, say — the next step will be a legal challenge from these immensely wealthy global companies. According to legal experts, the challenge will focus on the Australian Constitution, and the issue will have to go all the way to the High Court because fundamental questions of justice are at stake.

So who’s right?

There’s a lot about this situation that seems arbitrary and self-serving.

Companies that have been out-competed in their core business of selling advertising are using their political heft to advocate a redistribution of wealth from the winners. 

If that redistribution happens at the scale being contemplated, it will distort the market it is attempting to protect, with incumbent news organisations favoured above newcomers. There may be less impetus to innovate in news and more difficulty in competing with the restricted pool of organisations that are effectively subsidised.

Facebook and Google undoubtedly dominate the ad market. They have been arrogant and cavalier at times — for example in changing algorithms businesses live by — and their market power is a potential cause of great abuse. But in a world where they maintain dominance and also fund news, that potential for distortion is much greater.

The market failure in regards to news is real, and must be addressed by governments in some way. Holding two very successful companies responsible for both the news industry’s demise and its ongoing sustenance seems far too convenient to be right.

Hal was chief news officer at MediaWorks NZ. He was also the Editor-in-Chief and Publisher at Ninemsn. Follow Hal Crawford on Twitter.

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