Google and Facebook are facing a regulatory backlash against their duopoly on the digital advertising market that could force them to start paying news publishers directly in some of the world’s largest economies.
Australia is leading the charge against the tech giants with a Bill proposing a mandatory news media bargaining code that “would allow news media businesses to bargain individually or collectively with Google and Facebook over payment for the inclusion of news on their services”.
The draft code – a world first – is expected to be brought into force this month after it was first put before Australia’s parliament in December. It seeks to address the “fundamental bargaining power imbalance between Australian news media businesses and major digital platforms”.
Since they were founded, Google (1998) and Facebook (2004) have transformed the digital landscape, aided by the rise of mobile, and continue to grow revenue and profits year-on-year. They now sit as gatekeepers to the internet, a resource that is fundamental to modern society.
Google parent company Alphabet, which also owns Youtube, reported net income of $40.3bn on turnover of $182.5bn for 2020; Facebook, which also owns Whatsapp and Instragram, reported net income of $29.1bn on turnover of $86bn. Both rely on advertising for most of their income.
In stark contrast, the news industry’s print-centric business model has faced ongoing decline and a transition to digital has brought it into direct competition with the Duopoly for digital advertising. The Covid-19 pandemic has placed added pressure on other revenue streams.
Australia’s Federal Treasurer (equivalent to the UK’s Chancellor of the Exchequer) told reporters last year that the bargaining code is “about a fair go for Australian news media businesses”, adding: “Nothing less than the future of the Australian media landscape is at stake.”
Facebook and Google have pushed back against the proposed regulation, which looks set to force them to pay annual lump sums to publishers. Facebook has restricted news-sharing in the region and Google has said it will stop its search engine services.
What happens in Australia will set the tone for the regulation of Big Tech worldwide, with Google and Facebook having to make good on their threats or concede and enter a new way of working with publishers.
It looks set to be the first spark in a regulatory bonfire that will sweep across countries in the G7 group of advanced economies (UK, US, Canada, France, Germany, Italy and Japan) and across the EU.
The G7, together with Australia, Russia and China, made up nearly two-thirds (64%) of the total global economy in 2019, according to figures from The World Bank.
Press Gazette has charted the regulatory threats against Google and Facebook in the world’s leading economies and allocated a rating out of ten (with China, where the two platforms are banned, the most severe).
Snapshot of proposed regulation against Facebook and Google by country in 2021
The higher the rating above, the more powers to curb big tech.
Canada eyes Australian-style Big Tech regulation
Trade body News Media Canada, which represents a majority of news organisations in the country, has called for Canada to follow Australia in enforcing a mandatory bargaining code.
In its report, published in September 2020, titled Levelling the Digital Playing Field, the trade body said Google and Facebook’s “effective duopoly in the market for digital ads” had led to “anticompetitive practices, resulting in market failure conditions threatening access to credible news”.
It estimates Google and Facebook share 75% of the digital advertising market in Canada and that an Australian code-style system would allow publishers to recover $620m in annual revenues.
Major newspapers in Canada, including the Toronto Star and the Globe and Mail, printed blank front pages this month as part of an NMC protest at the Duopoly and a call for Australian-style regulation.
Big Tech vs Big News
But for some this showdown is simply a fight between Big Tech and Big News, with smaller publishers and other companies likely to miss out on any deal that might be reached.
Rasmus Kleis Nielsen, director of the think tank the Reuters Institute for the Study of Journalism, based at Oxford University, which receives Google funding, told Press Gazette: “It’s clear that there are issues of market dominance in the digital marketplace.
“It’s also clear that there are very significant risks of market failure in the area of news, it’s not obvious to me that forcing a few large companies to give money to a few other large companies is the best way of addressing those two. It seems to me that these are two different issues.
“One is the issue of competition – the [UK] Furman Report and others have made recommendations in that space that look very sensible to me.
“The other is an issue of funding and it seems to me that there are more efficient ways of addressing that issue and ways that have proof of concept… direct subsidies for independent news media as they exist for example in Denmark, or independent public service media as it exists in this country, are other ways of trying to solve the second problem.
“I wonder whether to what extent it has been thought through, whether long term it is desirable to create a situation in which the financial fortunes of news publishers might become more reliant on platforms and more reliant on publishing in ways that follow the algorithmic incentives, if you will, of the few large companies.
“I thought that the underlying concern here was that publishers are too reliant on these companies, and wanting to reduce their reliance and I wonder whether that will be the effect of codes like the one that’s been proposed in Australia, or whether in fact it’ll lead to the opposite outcome.”
Australia’s confrontational approach has also raised other concerns, not least that it has explicitly targeted Facebook and Google rather than reform of the wider digital eco-system.
Douglas McCabe, chief executive and director of publishing and tech at media research firm Enders Analysis, said: “Public policy processes that start by naming the companies always really worry me because this isn’t about Google and Facebook, it’s about search and social media distribution techniques.
“The problem is if you design something for Google, you’ve then got to design something else for the next business that comes along.”
Rivals to Facebook and Google ‘can no longer compete on equal terms’
In the EU, an overarching reform to the digital market is being proposed, rather than a direct confrontation with Google and Facebook, but one that could still land tech companies with hefty fines for non-compliance.
The European Union’s digital services are currently still governed by its Ecommerce Directive, which came into force in 2000 – the digital landscape having changed considerably in the 20 years since.
The tech giants are now facing fresh regulation to curb their powers in the form of both the Digital Services Act and the Digital Markets Act, proposed by the European Commission in December 2020.
MEPs could yet amend the twin draft digital regulations to force Google and Facebook to negotiate payments with news publishers for use of their content, as in Australia, the FT reported.
Regulation in Europe in particular will hit both platforms. Google parent company Alphabet derived 30% of its total revenue for 2020 from Europe (EMEA) at $55.4bn, while nearly half (47%) was from the US at $85bn.
At Facebook, Europe represented a quarter (24%) of total revenue for 2020 at $20.9bn, with again nearly half (48%) from the US (including Canada).
The issue of sustaining the news industry in the digital age has been the subject of a number of reviews in the UK in the last two years, with the Cairncross Review proposing solutions while the Furman Review and CMA study looked directly at competition.
A study by UK competition watchdog the Competition and Markets Authority, published in July last year, found that potential rivals to Facebook and Google “can no longer compete on equal terms”.
It reported that “Google has more than a 90% share of the £7.3bn search advertising market in UK, while Facebook has over 50% of the £5.5bn display advertising market.”
The UK has proposed creating a Digital Markets Unit, which will sit within the CMA, to enforce a new behavioural code ensuring fairer competition.
It follows complaints by the news media industry that they were losing out. Press Gazette called for Facebook and Google to pay more back to news publishers, on whose content they rely, in its Duopoly campaign launched in April 2017.
McCabe, of Enders Analysis, said: “The question that’s been raised in Australia is very similar to a question that’s been raised in the UK.
“One of the points we made in the Cairncross Review was incredibly simple… which is that one of the things a democracy should do is make sure that there are incentives in place for quality news origination.
“That environment worked brilliantly for most of the decades of the 20th century, more by accident than because there was a very good regime in place. By that, what I mean is that lots of things came together and made it possible for the news industry to make money, both by selling physical newspapers, and lots of them, and collecting advertising revenue.
“That world has changed, and so as a result the incentives for quality news origination are not there to anything like the same degree.
“And so the Cairncross Review basically asked that question and said: ‘I think it’s legitimate for government for parliament, for public policy makers, to think about this question and try and devise some sort of improved incentive, or improved ecosystem that makes it possible, or incentivizes people who want to originate quality news content to actually be able to do so and make money out of it.’
“Whether that requires a big and heavy intervention or it requires no intervention, some sort of design needs to come into play, which is not a way of saying that what’s happening in Australia will suddenly happen here, but it is a way of saying that the question is at least relevant.”
In the US, the power of the big tech giants has mainly been challenged through lawsuits. The US Department of Justice and the attorney general of Texas both brought claims against Google last year over what they claimed was anti-competitive conduct. The Federal Trade Commission sued Facebook in December on the same grounds.
Google described the US DoJ’s lawsuit as “deeply flawed” and the case brought by Texas – that it was using its power “to manipulate the market” and “destroy competition” – as “misleading”. Facebook accused the FTC of “revisionist history” in defending against its claims.
Newly installed US President Joe Biden told a New York Times editorial meeting in December 2019 that he has “never been a fan of Facebook” or of its founder Mark Zuckerberg. The US focus seems to be on reforming tech platforms’ indemnity over the content they share under Section 230 of the Communications Decency Act, while wider regulation of Big Tech’s dominance of the digital market is likely not a top priority for a White House battling a raging pandemic and deep political fissures.
Facebook and Google direct payments
Spotting the regulatory storm coming their way, Google and Facebook have taken action to ease the pressure on them from the media in particular, offering direct payment for news content to appear on their platforms.
Facebook launched Facebook News in the US last year, expanding the service to the UK last month, paying a flat fee to select publishers for their content to appear in the new section.
The social network has also previously donated £4.5m to fund a cohort of community journalists on local newspapers and pay for their training. The scheme launched in 2019 with 82 new hires.
Google has funded a number of journalist projects, many through its Digital News Initiative, a grant to support innovations within the news industry. This month it launched the Google News Showcase, signing licensing agreements with a number of publishers to use their content.
The News Showcase is part of Google’s plan to pay publishers $1bn for news over the next three years, and is rolling out with 450 publishers across more than a dozen countries.
It has already done a AU$30m+ a year deal with the Nine Network in Australia, and this week announced a three-year partnership with Rupert Murdoch’s News Corp, including the Wall Street Journal, The Times, The Sun and The Australian to join Google News Showcase.
Although questions remain about whether these are truly long-term commitments or a bung to avoid tougher regulation at a crucial time.
McCabe, of Enders Analysis, said: “It would be frankly silly to criticise [Facebook and Google] for offering money – it’s great that they recognise the need for that money and it’s great that they’re offering it, but… what happens if after two or three years it’s switched off?
“In the end commercial businesses, rightly, are allowed to do what they want. They can switch off services they don’t feel are working very well for whatever reason. The danger is that the news industry builds a reliance on a particular revenue stream and then finds that revenue stream is not there.”