Explainer - The arguments against the news media bargaining code and what happens next

Mariam Cheik-Hussein
By Mariam Cheik-Hussein | 1 February 2021

The debate around the news media bargaining code has been heating up since Google threatened to pull Search from Australia and Facebook said it would remove all news content for Australian users if it was passed in its current form. 

The news publishers, who stand to benefit financially from the code which forces the tech giants to pay them to make their content “available”, have been publicly pushing for the legislation to be passed. 

But Facebook, Google, and a growing group of third parties have been highlighting what they say are flaws in the legislation. There are objections to specific parts of the code, including the payment for links, and then there are wider arguments against the idea that tech companies should have to pay publishers for news content at all - although Facebook and Google aren’t themselves part of this group. 

The key arguments against the code:

1. Forcing payment for links attacks the nature of a free and open web
Who is saying this: Google, inventor of the World Wide Web Tim Berners-Lee, “father of the internet” Vint Cerf, Professor of internet studies at Curtin Universities Tama Leaver, S4 Capital founder Sir Martin Sorrell, Atlassian, Business Council of Australia

This one is a big claim.

Currently, the legislation would force the tech giants to pay eligible news publishers if their platforms make content “available” by either; reproducing it on their service, linking to the content, or providing an extract of the content on their service.

This second part means that Google could pay for “snippets” of news stories we see in search results.

Google, Vint Cerf, one of the architects of the internet and it’s important to note the vice president and chief internet evangelist for Google, and Tim Berners-Lee, inventor of the World Wide Web, are part of a group saying this requirement would “break” the web. They argue that the internet was built to share information between people in a free and open manner, and that’s how it works best for everyone - not just news businesses.

In his submission to the Senate committee, Berners-Lee went on to say that the code could set a global precedent. This is something Australian regulators and politicians have seemed proud of, but Berners-Lee warns that if it is followed around the world it could actually make the web “unworkable”.

“To my knowledge, there is no current example of legally requiring payments for links to other content,” Berners-Lee said in his submission.

“The ability to link freely -- meaning without limitations regarding the content of the linked site and without monetary fees -- is fundamental to how the web operates, how it has flourished till present, and how it will continue to grow in decades to come.”

The code of course only applies to certain news content, but there are economists and policy experts who agree that it could spread to other content. Given there are plenty of content creators who provide significant value to Facebook and Google but also have had their revenue disrupted by the advent of the internet, it’s not hard to imagine this happening.

“Legislation creating ‘government-favoured’ categories of web sites will only disrupt neutrality on the Internet, opening the door for other content to claim favoured status,” Atlassian director of global public policy David Masters points out in a submission to the Senate committee.

“That is, although the boundaries of the Code’s application to NMBs are narrowly drawn, the way in which NMBs as a category are ‘favoured’ through its application could open the door to other content owners seeking similar or equivalent favourable treatment outside of its terms.

“For example, although the ACCC provided clear reasoning for not grounding its approach to the Code in copyright law, the narrow and unsettled nature of the current fair dealing exception could lead content owners to assert greater control over their own ‘snippets’ through a copyright-based approach, outside of the Code but based on a similar rationale.”

Professor of internet studies at Curtin Universities Tama Leaver says the government could easily fix this by deleting the requirement referring to payments for links, meaning Google and Facebook would still pay publishers, just not for links.

2. The algorithm notice requirement and final-offer arbitration model are unfair
Who is saying this: Facebook, Google, S4 Capital, US Chamber of Commerce, US Trade Representatives, Business Council of Australia, economics professor at UNSW Richard Holden

The code requires that Facebook and Google let eligible news publishers know at least 14 days prior to any “conscience” changes to their algorithms, or internal practices, which will likely have a significant impact on referral traffic.

The ACCC was initially criticised last year for spending 18 months investigating how digital platforms interact with news publishers and then proposing a 28-day notice requirement on all “significant” algorithm changes - which people who understand how algorithms work said was a little impractical given that they happen frequently and many are automated.

Experts say the update is still unfair, with economics professor at UNSW Richard Holden telling AdNews it “infringes on the core intellectual property of the tech companies by forcing disclosure of changes to their algorithm”.

Even if you agree more transparency is needed from the tech giants on their algorithms, another red flag with this requirement is that two of the world’s biggest companies, which almost all businesses rely on, are being forced to share insights into their algorithms with only a select group of businesses.

“Consumer welfare should be the underlying principle driving this legislation. However, the current approach would place the interest of one subset of users (media businesses) over and above the legitimate interest of all other participants in the market, including other businesses and users” the Business Council of Australia, which has Facebook and Google listed as members, said in its submission.

The use of final-offer arbitration has equally been criticised. This model requires if a deal can’t be reached after three months, each party puts their final offer to an arbitrator who decides on the best deal.

It’s worth noting that News Corp Australia and Nine have publicly said they should be paid $600 million to $1 billion from the tech giants for their content. On the other hand, Google says it made about $10 million in advertising revenue from news-related searches in Australia in 2019, and Facebook told a Senate committee hearing that the commercial value from news content on its platform in Australia is “virtually zero”. So it’s not unlikely that it will go to arbitration.

Some, such as ACCC chair Rod Sims, have said that if Google and Facebook think journalism isn’t that valuable they should simply go to an arbiter. But Facebook and Google argue that the final-offer arbitration model is skewed in favour of news publishers and limits what the arbitrator can consider when settling disputes, for example they don’t take into account the cost of running their platforms. The Business Council of Australia say the use of the model in this case will set a “poor precedent”.

“Final offer arbitration models are typically used in cases where the value of the asset under negotiation is well understood and all parties are relatively close in their positions. However, in this instance the ‘value’ being negotiated over is still relatively novel and the market this legislation is being applied to is still dynamic and evolving,” the group says.

“The use of this model is particularly concerning given there is no recourse or opportunity for pirates to appeal the decision taken by the arbitration panel.”

3. The code harms small and emerging players
Who is saying this: Broadsheet Media, Man of Many, S4 Capital, Business Council of Australia

Given this code is meant to help produce a sustainable and diverse media landscape, it’s important to consider how it will impact the smaller players, i.e. that it doesn’t just make the big players more dominant by giving them more revenue and leave behind smaller players already struggling for advertising and reader revenue.

Because that’s exactly what small publishers are saying it will do.

Broadsheet Media says that while it supports a code, the current one could harm competition and lead to further consolidation in the market. A 2016 study, Who Owns the World's Media? found that in 2011 Australia had the third most concentrated newspaper industry of the 30 countries studied. Australia was also the 10th most concentrated “content media” industry, which includes newspapers, magazines, books, radio, TV and film.

A key warning from Broadsheet Media is that small publishers such as itself could be left out of payments for certain news content because it isn't the primary content they create. However, other big players, such as Nine and News Corp Australia, who do meet the criteria will have a competitive advantage - both with payments and algorithm information - for the same type of content.

“A significantly dire potential is that a major media organisation could launch a stand-alone direct competitor to a small publisher, such as Broadsheet, which would be, in part, financed via remuneration for the competitive Covered News Content,” Broadsheet Media says.

“A competing publication with support from the Code will threaten both audience and revenue of the independent publishers not covered by the Code. Such an outcome would likely have a material negative financial impact on competing small independent publishers, potentially threatening their viability.”

4. Targeting two US companies breaks Australia’s free trade agreements
Who is saying this: US Chamber of Commerce, US Trade Representative, UTS Law visiting fellow Dr David Brennan

US government representatives have written to the Senate committee saying that the updated code still doesn't have an objective criteria for determining who is subject to the code and instead “targets and discriminates” against US companies, Facebook and Google.

“As a result, the proposal violates the non-discrimation obligations to which Australia has undertaken in the Australia-United States Free Trade Agreement and the World Trade Organisation General Agreement on the Trade in Services,” the Chamber of Commerce says.

The Office of the US Trade Representatives also wrote in raising concerns about it targeting two US firms, saying that the code is “highly prescriptive” and “burdensome” without having first established a violation of existing Australian law or a market failure.

5. Forcing tech giants to share their revenue is on shaky legal and economic grounds
Who is saying this: UTS Law visiting fellow Dr David Brennan, Thinkerbell general manager of media Ben Shepherd, economics professor at UNSW Richard Holden Richard Holden

A running argument for the code is that Google and Facebook sucked up the revenue from newspapers. However, consulting firm AlphaBeta conducted a study for Google, which the tech giant likes to cite frequently, estimating that newspapers’ classified advertising revenue dried up and went mostly to online players such as REA and Domain, which News Corp Australia and Nine have stakes in, respectively, cannibalising much of their own revenue. As early as 2002, there were media reports in other countries recording the “rivers of gold” being diverted to free websites.

The tech giants do take potential revenue from publishers, but Thinkerbell general manager of media Ben Shepherd estimates less than 1% of ad spend that goes to Google Search and Facebook would go to publishers if they didn't exist.

“Search and Facebook are not competitors to publishing companies,” Shepherd tells AdNews.

“They offer a different product, appeal to a different buyer (the majority of both companies revenues is small or mid-market) and perform a completely different task.”

Because tech giants and publishers are offering completely different products, and arguably have unrelated sources of revenue, UNSW’s Holden says that revenue sharing doesn't make economic sense

Google and Facebook undoubtedly get value out of news, but they also benefit from all the other free content communities provide, such as arts and science. So there’s a strong argument they should do more to repay the communities they take so much from. A simple way to do this would be to tax them more appropriately, and increase government funding for journalism for a sustainable news media landscape.

The ACCC’s Digital Platform Inquiry report itself recommended “stable and adequate” funding to ABC and SBS, and Holden says that for 72 cents per Australian per year, we could provide $2 billion a year in media subsidies.

“If the government wants to subsidise high-quality journalism they should do so,” Holden says. “It’s unfair to make the tech companies pay for it.”

UTS Law visiting fellow Dr David Brennan raises questions around the legal basis for the code in a submission to the Senate committee.

Basically, Brennan says that unless the payment is tied to copyright property use, it’s not clear what the tech giants are paying the news publishers for, and why. This leaves the code open to legal attacks.

“Without connecting use under the Bargaining Code to copyright reform – and therefore to make the remuneration amount a payment by the digital platforms for copyright property use – the public policy ends being sought may not be perfected,” he says.

“This is because without such a copyright connection the proposed legislative regime may be vulnerable to internal (constitutional) and external (international trade law) legal attacks.

“More fundamentally, absent property rights, the reform is open to being characterised as having a patronage-basis rather than any bargain-basis.”

What happens next?
The Senate committee is due to report back to parliament with its recommendations on February 12.

So far, all parties look like they’re digging their heels in, so if no changes are made Google and Facebook could follow through and pull parts of their services from Australia. This move would most likely harm publishers, given how dominant Facebook and Google are, with Junkee Media saying about 75% of its traffic is driven through search and social, and almost all of that traffic comes from either Facebook or Google.

While competitors can step in, particularly to fill Google Search's gap, Thinkerbell’s Shepherd is doubtful they will be as successful.

“The victims would be small and medium sized businesses who rely on Google and Facebook to connect them to national and international markets, rely on their tools to better understand their buyers, rely on their platform to ensure they're accessible and visible to the nation. These were benefits previously unavailable to companies who weren't large,” he tells AdNews.

“No other company is going to invest the billions of dollars to replicate these tools and functionality. Show me concrete tangible things the incumbent media companies have done for local business aside from allow them the luxury of purchasing and inventory from them.

“Secondly, would another search engine take Google's place? Maybe ... but how does that change anything. Local publishers will move their focus to asking them for money, so any new entrant would have to be comfortable taking a risk they go to final-offer arbitration and get asked for a $600m-$1b cheque from one of the incumbent news organisations. That's a hell of a lot of risk, quite the tariff to operate in the Australian market.”

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