Google “white flag” and then share the terms of the surrender with your friends on Facebook. Australia’s attempt to make Google and Facebook pay for news content is set to be undermined by late concessions to the tech giants following threats they would withdraw services from the local market.

Any arbitration between publishers and the platform giants must now also consider the value the platforms provide to media companies by having, as Treasurer Josh Frydenberg put it Tuesday, “more eyeballs on their product”.

The exposure – and subsequent traffic – the platforms provide traditional media was one of Facebook and Google’s key arguments against paying publishers for news content, insisting it outweighs any revenue they generate from news content.

The tech giants will see the concession as a significant win and a valuable bargaining chip in any negotiations with news publishers, following intense lobbying against the code. And with similar pressure from publishers and regulators mounting elsewhere, concessions in Australia could be leveraged around the world.

Some of Australia’s biggest publishers, which strongly supported earlier versions of the code, were incensed at the concessions.

“While we are grateful for the ACCC Code process, the continued concessions to the digital platforms only entrenches both their monopoly power and the significantly unfair imbalance in regulation,” a spokesperson for Nine told Which-50.

“These companies pay little or no tax, contribute little and often negatively to our culture, and employ no creative teams.”

News Corp Australia executive chairman Michael Miller, was more accepting of the final legislation, describing the code as a “significant step forward” in the relationship between publishers and the tech giants.

“As a result of their lobbying, the tech platforms have won concessions, and there should be nothing stopping them now from reaching fair commercial agreements,” Miller said in a statement.

“Ultimately, this Code will benefit Australian consumers by helping sustain Australian news from Australian media companies.”

News media chagrin

The final version of the news media bargaining code was unveiled this week with legislation introduced Wednesday. The code is the culmination of three years of inquiries and consultation triggered by government concerns about Facebook and Google’s impact on traditional media, and recommended by the ACCC following a landmark 18 month digital platforms inquiry by the ACCC.

The news media bargaining code seeks to address the fundamental bargaining power imbalance between Australian news media businesses and major digital platforms by imposing forced arbitration on negotiations between “news” media and the tech giants.

If publishers and the platform companies can’t negotiate a revenue sharing agreement in good faith, the code allows for a forced “final offer” which would require both parties to submit a final offer and an arbitral panel will select one.

The code was originally intended to be voluntary but the ACCC recommended it be changed to mandatory earlier this year when it claimed talks between publishers and the tech giants had broken down.

The mechanism effectively forces Facebook and Google to pay publishers for news content they use on their platforms, something no other country has been able to do effectively. It also requires the tech giants to provide publishers with advanced notice of any changes to an “algorithm or internal practice that will have a significant effect on covered news content”.

Both Facebook and Google railed against the mandatory code, claiming the exposure draft was unworkable. Facebook threatened to pull news content from its platforms for Australian users, while Google waged a public campaign to undermine the code and suggested it would put its online services at risk here.

Legislation hesitation

The government waited until the final sitting week of the year to introduce the legislation, which was quickly referred to a Senate committee for enquiry, meaning debate and implementation won’t happen until sometime next year.

Treasure Josh Frydenberg and Minister for Communications and Arts Paul Fletcher held a press conference Tuesday to unveil the code, before reporters had a chance to see the legislation.

“The money can only go one way, the money can only go from the digital platforms to the traditional news media businesses,” Frdenberg told media Tuesday.

“But the arbiters need to take into account the benefits that traditional news media businesses get by having eyeballs on their product when they appear on Google and Facebook.”

Both Facebook and Google argue that benefit is worth hundreds of millions of dollars.

Frydenberg defended the concession, telling reporters it was part of a “fair and balanced outcome” following extensive consultation with stakeholders, adding it would not appease the tech giants much.

“Google and Facebook opposed this idea in the first place. I am sure if they had their intention there wouldn’t be any legislation before the Parliament.

Treasurer josh Frydenberg insists the news media bargaining code will level the playing field for news publishers and tech giants. Image: Twitter.

Both Google and Facebook told Which-50 they will properly review the legislation before commenting extensively, although Facebook hinted at pushing for further changes.

“We’re reviewing the draft legislation tabled by the Australian Government,” said Will Easton, Managing Director of Facebook Australia. “We’ll continue to engage through the upcoming parliamentary process with the goal of landing on a workable framework to support Australia’s news ecosystem.”

The digital advertising duopoly picked up two more important concessions from the government: the removal of some of their platforms from the code – Google’s Youtube and Instagram platforms are no longer subject to it – and a halving of the notice period they must provide publishers for changes to algorithms, from 28 days to 14 days.

Two way value

But it is the crucial inclusion of the consideration of two way value that threatens to reduce publishers’ claims for compensation.

A spokesperson for Nine said, “The notion they receive regulatory recognition with the so called two way value exchange, for something they already have a commercial model to monetise, seriously undermines the fundamental problem the ACCC identified in the beginning of this process – that is an abuse of monopoly power which fundamentally harms the future sustainability of media in Australia.”

Dr Rob Nicholls, A UNSW associate professor, says the latest version of the code is clearer that the relationship between news media businesses and either Google Search and Facebook is a “symbiotic” one.

UNSW Associate Professor Dr Rob Nicholls says the latest version of the code recognises the “symbiotic” relationship between platforms and publishers. Image: UNSW.

“This means that the amount that will be negotiated is the net of the value transfer,” Nicholls tells Which-50. “There is still an assumption that there is a greater value in creation when compared with curation. So, there is still an assumed imbalance, but it is really the imbalance that comes from a curating platform dealing with creators.”

Nicholls explains the code is only there as a last resort for when a commercial deal can not be done. But its existence sends a clear message that there is indeed a deal to be done.

Whether smaller publishers will have the resources to strike deals with the giants remains to be seen though.

“The real risk for small news media businesses, such as regional newspapers, is that doing a deal costs management time and resources,” says Nicholls. “The fact that there will be an opportunity for collective bargaining should help.”

The world is watching

Despite their protest to the Australian approach both Facebook and Google have acknowledged they need to support publishers. The companies have invested millions into journalism programs but have so far avoided structured long term deals or revenue sharing. And while Australia leads the latest attempt in making Facebook and Google pay for news, the rest of the world is watching.

According to Nicholls, while yet to be legislated, Australia’s proposed laws have already had an impact.

Between Australia’s release of the news media bargaining code exposure draft and the draft legislation released last week, Facebook struck multi million dollar deals with media businesses in the UK to license their content.

“The key thing that Google and Facebook were concerned about [with the Australian code] was the price signal that would be important in the European Union context,” says Nicholls.

The UK’s new technology regulator, the Digital Markets Unit, is expected to have the power to dole out billions of dollars in fines to tech giants for breaches of its own platform code of conduct. Of particular interest to the authority is the relationship between digital advertising and news publishing.

“In practice,” Nicholls says, “the UK has decided to create a Digital Markets Unit which will develop a much broader mandatory code on the basis that designated businesses – starting with Google and Facebook – have a bargaining upper hand with everyone including consumers, media businesses and small technology players.”

It means any negotiations involving Australia’s “world leading” code could have wider consequences around the world for Facebook and Google.

As for the tech giants’ threats to remove or withhold services in Australia, they say that could only happen if the code becomes law. Parliament returns in February when a Senate Committee is due to report on the code.

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