Google and Facebook drive traffic to news websites but have absorbed most of the digital advertising it attracts © FT montage

The writer is a University professor at Columbia University

Australia is trying to blaze the way on tech regulation with a new code that would require Google and Facebook to pay for the news they circulate online.

Plunging in where France and Spain have failed, Australia’s News Media Bargaining Code aims to lessen the power imbalance between quality media outlets and social media. If it passes parliament, the legislation would require the big platforms to pay for news, with prices to be set by arbitration if the two sides cannot agree on a fair price.

The information provided by the media is a public good, from which all society benefits. But the sector’s financial problems have been aggravated by the coronavirus pandemic: job losses have mounted as outlets have shut around the world.

Previously, a simple if fragile business model supported high-quality journalism. Much of the money came from advertising, which funded good journalism, attracting readers, who attracted the advertisers. It was far from perfect, and some governments recognised the need to supplement this private model with public funding. 

The shift online and the growth of social media disrupted this business model. Although Google and Facebook drive traffic to news websites, they have absorbed most of the digital advertising it attracts. They can finely target recipients of advertising messages, and better match readers with stories they are interested in. Platforms also undermine the direct relationship between news organisations and audiences, hampering efforts to garner more subscription revenue.

Facebook and Google are trying to freeride: it suits them to let someone else pay for the production of news while they reap most of the advertising revenue. This is not viable: without funding for quality journalism, misinformation, disinformation and low-quality journalism will prevail. Our society will be worse off. 

Efforts by publishers to bargain collectively have had at best mixed results. There is an enormous imbalance of economic power between the tech giants and even the largest enterprises in conventional media. Media’s bargaining stance is further weakened because once news is produced, the marginal cost of reusing it is zero. This is not a free and competitive market.

Unfortunately, earlier efforts to use copyright law to get tech companies to pay up have not been successful.

Australia is trying something new, taking aim at market power rather than intellectual property rights. As drafted, the code would not just ensure fair pricing for use of news but force more disclosure of changes in key algorithms and the sharing of user data. 

Other governments from Africa to the EU and US are watching closely to see whether the code is something they should try to emulate. But it is not yet clear whether the Aussie effort will come to fruition.

Google has fought back hard against Australia’s proposals: it featured a “letter” to users on its homepage in which it said it would stop providing local news if it was forced to pay for content. Facebook has also come out against the proposed law, saying it will block individuals from sharing news if Facebook is forced to pay for it.

The ferocity of the tech companies’ opposition to a law that seeks to set fees in a fair and equitable manner is testimony to their market power: in a competitive world, a threat not to provide something that users value highly, local news, would be self-defeating.

These companies like being able to use their unfettered market power, even if this is short-sighted — in the long run, it undermines the production of news, harming our society and possibly even their business models.

Of course, Google and Facebook are not the only companies with market power. Rupert Murdoch’s News Corp controls two-thirds of Australian newspaper readership, a study shows. This means it is likely to receive the majority of the new revenue from the code. But key senators are also pushing for amendments that would deliver additional funding for public television and radio, and AAP, the not-for-profit newswire service.

In an ideal world, we would simply seek to ensure there is competition between the platforms and within the traditional media. But the nature of social media today means that is not going to happen. As technology changes, so too does the role of government. Australia should be commended for recognising this reality and attacking it head on. 

Anya Schiffrin, senior lecturer at Columbia, also contributed to this article

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