The Internet was established, rightly or wrongly, on the grounds that it was ‘free’ for users to access. There’s no 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 for themselves through advertising but also promote some content over other content by paying for their algorithms.
Customers have benefited in many ways through the services provided by Google and Facebook. But they have a broad view on the need or justification for intruder data collection for these services (Australian Competition and Consumer Commission 2019: Chapter 7). Then there is the impact of private companies having so much data on people, which, for example, has worked badly in the Cambridge Analytica scandal (Acemoglu et al. 2019).
However, what is often overlooked is that accessing the services without any financial charges results in the fact that broad content creators may be badly rewarded for their content, if not. This is not only because of the common sense 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.
The market capability of digital platforms is a response to Australian policy
The News Media Bargaining Code (NMBC) was conceived and originally formulated by the Australian Competition and Consumer Commission (ACCC), of which I was chairman from 2011 to March 2022 (Australian Competition and Consumer Commission 2019: Chapter 5). The law was passed by the Australian Parliament in February 2021, despite threats to remove Google search from Australia and take all news and more from Facebook (Australian Government 2021), despite widespread publicity around the world.
NMBC’s sole objective was to address the widespread imbalance in bargaining power between Australian news media businesses and platforms (Caffarra and Crawford 2020). Google and Facebook need to have news on their platforms to increase user attention and therefore increase their advertising revenue on which they rely, but they do not need any specific news business content. On the other hand, every media business needs to be on every platform.
This imbalance, or market failure, means that platforms cannot make commercial deals to pay fairly for the benefits they receive from news media content on their platforms. Those who have so much market power set the rules of employment on their terms. Of course, there are market failures across our economy, but often governments are not in a position to deal with them. The difference here is that journalism brings great positive externals.
The result of the market failure we see from the imbalance of bargaining is the low journalism capacity and therefore can be supplied. Journalism benefits society in many ways, even for those who do not have access to it, because it is powerful on account, provides a journal of record and is a forum for ideas. While not all market failures need to be addressed, it was and was with NMBC.
Prior to the passage of the Australian NMBC, news media businesses were unable to negotiate with platforms for any payment for their content; With this, they may need to negotiate platforms and trigger arbitration if those discussions do not yield appropriate results. The threat of arbitration increases the bargaining power because all parties want to avoid intermediaries in determining the commercial arrangement.
For those who have market power, the threat of arbitration means that they can no longer dismiss the claims of those with whom they do business. For media businesses, arbitration is much better than accepting or giving up from a monopoly, but it is better to settle a commercial arrangement.
Arbitration must be the ‘final offer’ to avoid arbitration (FOA) ambit claims that would greatly complicate the work of the arbitrator. Through the FOA, arbitrators simply choose the most appropriate proposal put before the arbitrator by both parties.
One criticism of NMBC is that it is protecting ‘old’ businesses at the expense of new ones. We all applaud Schumpeter’s (1942) idea of ’creative destruction’. The problem here is that the concept does not apply. Where digital technology has replaced the need for Kodak film, Google and Facebook have not replaced journalism: they have only contributed to its downfall.
NMBC Australia has been very successful in achieving its stated objective. Since not being able to connect to the platforms, Australian news media businesses feel comfortable with their contracts under NMBC, and these deals generate more than A $ 200 million per year for the Australian news business. Furthermore, Google has entered into agreements with virtually all qualified media businesses, while Facebook has so far entered into agreements with media organizations that employ around 80-85% of Australian journalists.
Misunderstanding of the broadcast code of the news media
NMBC was formulated keeping in mind the Tinbergen rule. This rule, named after one of the first two Nobel laureates in economics, effectively states that each policy instrument must be aimed at achieving a policy goal (Tinbergen 1952, Schaefer 2019). It may have side effects, but to be effective, each policy instrument must be true to the single purpose for which it was designed. All policy makers should be aware of and abide by this rule and this was the key to NMBC’s success.
NMBC has been misunderstood and criticized for the fact that the agreements were not transparent; That it is in favor of those responsible and therefore did not promote media diversity; And no platform was nominated under NMBC and no arbitration result.
The most considered critique of NMBC that I am aware of was written by Bill Gruskin (2022). He is particularly concerned with the lack of transparency in transactions.
Transparency was not the intention of NMBC Australia. Not only will commercial transactions be transparent if the bargaining power is equal in the first place, but any arbitration result under NMBC needs to be kept secret under the law. The reason for this was that transparency of commercial or arbitration agreements could result in various transactions or acquisitions to the detriment of the news business. Further, if contracts are made public, platforms can first target a weaker player and then use it to impose unfavorable conditions on others.
Related to diversity, NMBC’s purpose was to allow commercial negotiations to pay for existing content. How might platforms be required to pay for content that has not yet been created? NMBC was just one of the nine recommendations of ACCC’s (2019) Digital Platform that affects search media. Others, such as government grants to support the media and allowing the media to deduct taxes for grants, will benefit media diversification.
The title and arbitration results were not NMBC’s intent. The hope was that the arbitration threat would see the commercial deal achieved. These, of course, have been achieved through the threat of title.
In a recent study published by the Judith Nielsen Institute for Journalism and Ideas (Sims 2022), I addressed all these criticisms in more detail.
Misrepresentation of the broadcast code of the news media
There have also been some deliberate misrepresentations about NMBC. One is about NMBC copyright; It’s not about copyright at all, it’s about balancing the power of bargaining so that commercial deals can be made.
Another is that NMBC only helps NewsCorp and not small media players; This is actually wrong and misinterprets today’s Australian media market. Although Newscorp is one of Australia’s three largest broad-based media players, there are a number of mid-range media companies and a large number of smaller players. Virtually everyone has deals with Google and many, including many smaller players, with Facebook.
A third misrepresentation is that NMBC will destroy the ‘free’ internet; It is difficult to argue here because NMBC will not change how the Internet works now; It will only see some content rewarded. This argument also seems to ignore the fact that the Internet is now dominated and controlled in many ways by Google and Facebook, whose algorithms determine what we see and experience on the Internet.
There are two issues that need to be addressed. First, while Google has contracts with virtually all media companies, it has drawn a very small number of lines that argue that qualifications should not be obtained under NMBC because they do not create public interest journalism. The media business without any agreement strongly objected to the exclusion.
The Australian Treasurer recently launched a review of NMBC to discuss what is required under its legislation and what criteria the media business should be eligible for. The Australian Treasury will evaluate whether those who should have had a deal have received one and if not, why not.
More worryingly, Facebook has done far fewer deals than Google, including SBS, not contracting with Australia’s multicultural media business or Conversation, Which allows collaboration between Australian academics and journalists to publish research-based news. Both will qualify under the NMBC criteria.
A key question, then, is whether Facebook should be nominated under NMBC now or following the Treasury review. Unless Facebook makes more deals, it will seem appropriate.
These two issues should not deviate from the fact that NMBC is a highly successful policy intervention, having succeeded in fulfilling its sole purpose in a short period of time.
Despite the efforts of those who would prefer not to expand the model to other countries, a lot is happening. On 5 April 2022, Bill C-18, the Online News Act, was introduced by the Government in the Parliament of Canada. It follows NMBC very closely, and is now being debated for a hearing to begin soon.
In the United States, the Journalism Competition and Protection Act (JCPA) has been introduced under the auspices of both Democrats and Republicans. It follows the NMBC approach and could become law this year.
In the UK, there are drafts of special market conditions laws, which should be passed next year and which allow competition and market authorities to draft mandatory codes of conduct. The first code may be one that basically reflects NMBC.
Acemoglu, D, A Makhdoumi, A Malekian and A Ozdaglar (2019), “Can We Have Too Much Data?”, VoxEU, 18 November.
Australian Competition and Consumer Commission (2019), “Digital Platform Search”, Final Report, June.
Government of Australia (2021), Treasury Amendment (News Media and Digital Platform Compulsory Bargaining Code) Act, No. 21, 2021.
Caffarra, C, and G Crawford (2020), “ACCC’s‘ Bargaining Code ’: A Path to‘ Decentralized Control ’of Influential Digital Platforms?”, VoxEU, 25 August.
Grueskin, B (2022), “Australia has pressured Google and Facebook to pay for journalism. What’s next for America? ” Columbia Journalism ReviewMarch 9.
Schaefer, PV (2019), “A Note on the Tinbergen Law”, Department of the University of West Virginia, Resource Economics and the Regional Research Institute.
Sims, R (2022), “Instruments and Purposes; The news media is interpreting the bargaining code, ”said Judith Nielsen of the Institute for Journalism and Ideas, May.
Schumpeter, J (1942), Capitalism, Socialism and Democracy, Harper & Brothers.
Tinbergen, J (1952), On the theory of economic policy, North-Holland.