VoxEU Column Competition Policy

The logic behind Australia’s news media bargaining code

Rod Sims
/

24 Jun 2022

Australia’s news media bargaining code has been successful in achieving the single objective set for it: to address the imbalance in bargaining power between the country’s news media businesses and the digital platforms of Big Tech. The code is largely being copied in Canada, and its key components are in essence replicated in draft legislation under discussion in the UK and the US. Yet it is both misunderstood, because it is novel, and misrepresented, by those who do not wish to see the model extended beyond Australia. This column explains the economics behind the code’s inception and implementation, and deals with some of the misconceptions and misrepresentations.

Rod Sims

Professor Australian National University

The internet was established, rightly or wrongly, on the basis that it is ‘free’ for users to access. There is no monetary charge for getting information, sharing news with friends, and navigating your way around a city. Of course, as economists we know that nothing is ever for free, and so Google (now Alphabet) and Facebook (now Meta) dominate search and social media, respectively, and aggressively obtain user data. They have created trillions of dollars of value for themselves largely through advertising but also through payments for their algorithms to promote certain content over other content.

Consumers have benefitted in a number of ways through the services offered by Google and Facebook. But they also have a wide range of views about whether these services require, or justify, the intrusive data collection (Australian Competition and Consumer Commission 2019: Chapter 7). Then there is the issue of the implications of private companies having this much data on people, which, for example, played out badly in the Cambridge Analytica scandal (Acemoglu et al. 2019).

What is often overlooked, however, is that accessing services for no monetary charge brings with it the consequence that a wide range of content creators can see their content poorly rewarded, if at all. This is not just because of the prevailing logic of ‘free’ user access, but also because of the market power of Google and Facebook, which can refuse to pay for content without consequences for them.

Australia’s policy response to the market power of digital platforms

The news media bargaining code (NMBC) was conceived of and largely formulated by the Australian Competition and Consumer Commission (ACCC), of which I was chair from 2011 to March 2022 (Australian Competition and Consumer Commission 2019: Chapter 5). It was passed into law by the Australian Parliament in February 2021 despite threats, widely publicised around the world, to remove Google Search from Australia and to take all news and more off Facebook (Australian Government 2021).

The NMBC’s sole objective was to address the massive imbalance in bargaining power between Australia’s news media businesses and the platforms (Caffarra and Crawford 2020). Google and Facebook need to have news on their platform to maximise user attention and so enhance their advertising revenue on which they depend, but they do not need the content of any particular news business. On the other hand, each media business needs to be on each of the platforms.

This imbalance, or market failure, means that commercial deals cannot be done to achieve fair payment for the benefit that the platforms gain from news media content on their platforms. Those with this much market power set the rules of engagement on their terms. There are, of course, market failures throughout our economies, but often it is not worth governments stepping in to address them. The difference here is the large positive externality that journalism brings.

The outcome of the market failure we see from the bargaining power imbalance is that less journalism can be afforded and so provided. Journalism benefits society in many ways, even for those who do not access it, as it holds the powerful to account, provides a journal of record and is a forum for ideas. While not all market failures need to be addressed this one needed to be and was with the NMBC.

Prior to the Australian NMBC being passed, the news media businesses were unable to negotiate with the platforms for any payment for their content; with it, they could require the platforms to negotiate and trigger arbitration if those negotiations did not yield an appropriate result. The threat of arbitration evens up the bargaining power as all parties wish to avoid having an arbitrator determine commercial arrangements.

For those with the market power, the threat of arbitration means that they can no longer simply dismiss the claims of those with whom they do business. For the media businesses, it is much better to have arbitration rather than a take-it-or-leave-it offer from a monopoly, but even better to settle a commercial arrangement.

The arbitration was to be ‘final offer’ arbitration (FOA) to avoid ambit claims that would have greatly complicated the arbitrator’s task. With FOA, the arbitrators simply choose the most appropriate offer put forward by the two sides to the arbitration.

One criticism of the NMBC is that it is protecting ‘old’ businesses at the expense of the new. We all applaud Schumpeter’s (1942) concept of ‘creative destruction’. The problem here is that the concept does not apply. Whereas digital technology replaced the need for Kodak film, Google and Facebook have not replaced journalism: they have simply contributed to its decline.

Australia’s NMBC has been extremely successful in achieving its stated objective. From not being able to engage with the platforms, the Australian news media businesses are comfortable with the deals they have under the NMBC, and these deals are yielding over A$200 million per annum to the Australian news businesses. Further, Google has done deals with virtually all eligible media businesses, while Facebook has so far done deals with media companies employing around 80-85% of Australian journalists.

Misunderstandings of the news media broadcasting code

The NMBC was formulated with the Tinbergen rule well in mind. This rule, named after one of the first two Nobel laureates in economics, says in effect that each policy instrument must be targeted at achieving one policy objective (Tinbergen 1952, Schaeffer 2019). It can have side benefits, but to be effective each policy instrument needs to stay true to the single objective for which it was designed. All policymakers should be aware of and adhere to this rule, and it was the key ingredient leading to the success of the NMBC.

The NMBC has been misunderstood and criticised for the fact that the deals reached were not transparent; that it favours the incumbents and so has not promoted media diversity; and that no platform has been designated under the NMBC and that there have been no arbitrated outcomes.

The most considered critique of the NMBC of which I am aware was written by Bill Grueskin (2022). He is particularly concerned about the lack of transparency of the deals that were done.

Transparency was not an objective of Australia’s NMBC. Not only would the commercial deals not be transparent if the bargaining power had been equal in the first place, but any arbitrated outcomes under the NMBC were required under the legislation to be kept confidential. The reason for this was that making the commercial or arbitrated deals transparent may see different deals done or achieved to the detriment of the news businesses. Further, if the deals were made public, the platforms could target a weaker player first and then use that to force unfavourable terms on others.

In relation to diversity, the objective of the NMBC was to allow commercial negotiations for payment for existing content. How could the platforms be required to pay for content not yet created? The NMBC was only one of nine recommendations from the ACCC’s (2019) Digital Platform Inquiry affecting media. Others, such as government grants to support media and allowing tax deductibility for donations to the media, would benefit media diversity.

Designation and arbitrated outcomes were not the objective of the NMBC. The hope was that the threat of arbitration would see commercial deals achieved. These were, however, achieved with the threat of designation.

I address all these criticisms in more detail in a recent paper published by the Judith Nielson Institute for Journalism and Ideas (Sims 2022).

Misrepresentations of the news media broadcasting code

There have also been what appear to be some deliberate misrepresentations about the NMBC. One is that the NMBC is about copyright; it is not at all about copyright, it is about rebalancing the bargaining power so that commercial deals can be done.

Another is that the NMBC only helps NewsCorp and does not help the smaller media players; this is factually incorrect and misunderstands today’s Australian media market. While NewsCorp is one of the large three broadly equal media players in Australia, there are many sizable mid-level media companies and a huge number of smaller players. Virtually all have a deal with Google and many, including a lot of smaller players, with Facebook.

A third misrepresentation is that the NMBC will subvert the ‘free’ internet; it is hard to see the logic here as the NMBC will not change how the internet operates now; it will simply see some content rewarded. This argument also appears to ignore the fact that the internet is now in many ways dominated and controlled by Google and Facebook, whose algorithms determine what we see and experience on the internet.

Outstanding issues

There are two issues that do need to be addressed. First, while Google has done deals with virtually all media companies, it has drawn the line at an extremely small number that it argues should not qualify under the NMBC because they do not produce public interest journalism. Those media businesses without a deal strongly object to being left out.

The Australian Treasurer has recently launched a Review of the NMBC as required under its legislation and the issue of whether the criteria dealing with which media businesses should be eligible will be addressed in this. The Australian Treasury will assess whether all who should have got a deal did get one and, if not, why not.

More concerning is that Facebook has done many fewer deals than Google, including not having done deals with the SBS, Australia’s multicultural media business, or The Conversation, which allows collaboration between Australian academics and journalists to publish research-based news. Both would qualify under any NMBC criteria.

A key question, then, now or following the Treasury Review, is whether Facebook should be designated under the NMBC. Unless Facebook does more deals, then this would appear appropriate.

These two issues should not detract from the fact that the NMBC has been a very successful policy intervention, achieving success in meeting its single objective in a short period of time.

Despite efforts by those who would prefer the model not to be extended to other countries, much is happening. On 5 April 2022, the Bill C-18, the Online News Act, was introduced into the Canadian Parliament by the government. It follows the NMBC very closely, and is now being debated with hearings to begin soon.

In the US, the Journalism Competition and Preservation Act (JCPA) has been introduced, sponsored by both Democrats and Republicans. It also follows the NMBC approach and could become law this year.

In the UK, there is draft Special Market Status legislation, which should be passed next year, and which allows the Competition and Markets Authority to draft binding codes of conduct. The first code is expected to be one that largely mirrors the NMBC.