Aggregators, antitrust and Australia: A conversation with Prof. Rob Nicholls

Editor’s note: is a technology company, though we also like to look at conversations happening around the use of algorithms to highlight information online. This is one of the occasional posts we do speaking to someone with something to say on topics that we find interesting.

By Christopher Brennan

The way that readers get their news is under the microscope Down Under, with platforms pushing back against publishers who want them to open their pocketbooks. 

In recent weeks the back-and-forth between Australian media publishers and Facebook and Google made headlines around the world, with Mark Zuckerberg’s company saying that it could stop users from sharing news and the dominant search engine publishing an open letter saying its free service is “at risk.”

The core of the matter is a new mandatory code of conduct for platforms drawn up by the Australian Competition and Consumer Commission. Its biggest changes would be forcing the platforms to negotiate with publishers who say that they should be paid for the use of their journalistic content, as well as giving those publishers advance notice of changes in algorithms that could affect them.

I am not an expert in Australian law or the Australian media scene, so I reached out to one: Prof. Rob Nicholls, of the University of New South Wales and its Cybersecurity and Data Governance Research Network. We discussed where this push came from, the specific case in Australia and what it may mean for the world.

Here is a lightly edited transcript of our conversation to show the highlights of the discussion.

Christopher Brennan: This all started with a report from the ACCC last year. What did it find and could you walk us through to where we are now?

Prof. Rob Nicholls: It found that Google and Facebook separately had a significant degree of market power in certain markets, but also found that there was an imbalance … Essentially the government took the recommendation from the agency which was to say there’s an imbalance in negotiating power. The imbalance, shockingly, is in favor of Facebook and Google despite the News Corp chairman hailing from Australia, even though he’s only an American citizen these days. And so, Mr. Murdoch is in a weak bargaining position, that was the decision.

The treasurer directed the ACCC to conclude a voluntary industry code, which would address this imbalance and to report back by June this year on the negotiations. Basically what happened was that in their discussions with Facebook and Google, the agency took the view that there would be no movement from either of Facebook or Google, and that there would be no point in continuing negotiations because there would be no movement. As a result of that advice, the treasurer pulled the trigger that he had reserved for himself and said, okay, in which case ACCC please prepare a draft mandatory code which will address these issues.

CB: And what did that code say?

The obligation on each of Facebook and Google is to negotiate a fee for the news media services. And the way that that negotiation is framed is that it’s a 13-week negotiation with one day of mediation, leading to — if that is not successful — an arbitration and that arbitration is a “baseball determination.” That is the arbitrator looks at the final offer from one side, the final offer from the other, and can choose one or the other, but not something in between. And the idea behind baseball determination is that, from a theoretical construct, if you say something’s worth 10 bucks, and I say it’s worth $1, we’ve got a $9 difference. And it would be pretty scary for me to have to pay $10 for something I think is worth $1 and for you to only receive $1 for something you think’s worth $10. So we’re likely to converge somewhere in the middle. 

There is a real recognition, although Facebook and Google don’t accept this, that actually, what we’re really looking at is the net of the value of flow. So there is a real benefit to Facebook and Google to be able to index news because it’s attractive to Australian users. Facebook estimates have 2.3 billion click-throughs worth 200 million Australian dollars in the first five months of 2020 here to news media businesses. The news media businesses think that Google and Facebook are getting content for free. But they also recognize that real value comes from those click-throughs. So ultimately, negotiations are designed to try and say, well, what’s the net value. And there’d be a payment flow for that net value. There is an assumption that that flow will be to the news media businesses, but that flow could be as low as zero. There’s also an obligation on the draft code for each of Facebook and Google to give 28 days notice if their algos are going to change in a way that would change where news is placed. In my opinion, that is a much bigger issue than the value of the news. …

It’s essentially a code that says, “Well, if you want to be in the platform business in Australia and you’re offering news content, you as a platform are going to have a significant imbalance and this is our way of dealing with that.” And in another space, a very different, non-tech space, there is a mandatory code of conduct for franchising, which essentially recognizes that franchisors have a significant power imbalance compared to franchisees and provides a mechanism for dealing with that. So this idea of somebody with significant negotiating power, and somebody else without it is already quite well established under Australian competition law. But generally the approach is a voluntary code that only becomes mandatory if things start going wrong or if the voluntarily adhered to parties stop following the code. The difference here is that we never got through the voluntary bit and went straight to the mandatory.

In terms of competition law, which I know is your field of expertise and is interesting to me, the imbalance of power there is coming from just the fact of something existing as a platform?

That’s right. Essentially, it comes partly from market share. So there’s 25 million people in Australia, 17 million of those interact with Facebook and Insta on a monthly basis and 18 million with Google including YouTube on a monthly basis. So in terms of touch, both are significant. But they are one side, essentially acting as an aggregator. And there is no alternative news aggregator that has anything like that touch. 

It’s an interesting question when you start looking at other markets like Asia, where there’s all sorts of news aggregators.

Absolutely. It is. I think the other question which flows through Facebook’s decision and Google’s dire warnings if you use YouTube or Google in Australia at the moment, is that potentially if both of those businesses exit news acquisition, then potentially you might see an aggregator come in. But that also leads to a second political problem because most likely these social media and search platforms are likely to be Chinese ones rather than US ones. And that causes a lot of angst with the current government, a government which has led the US on things like banning Huawei and 5G networks and things like that.

I was also interested in where this is coming from, about why it’s happening in Australia. Is that because of the position of certain media companies that are powerful, the News Corps of the world?

Yes it is. So we have a media sector which is not terribly diverse. We don’t have the high levels of plurality that we had even a few years ago. So the major media players are News Corporation, Nine … and Western Australian newspapers, which is the Seven Network which is the most popular commercial network and another bunch newspapers and they all own radio assets as well. So you have a relatively concentrated sector.

And COVID-19 plays into this because at the time when Facebook and Google were not settling for a voluntary code, many regional newspapers were shut because  it’s hard to deliver if you’ve got social distancing and the pivot to online for many small regional papers was just too hard. Aggregating a whole bunch of small regional papers was cheaper and easier, but it got rid of a large number of regional journalists. In Australia the current party that’s in office is always in office in coalition. The junior coalition partner is the National Party and that’s a party of the regions. So you’ve got a political beat as well: “We’re losing our newspapers.” And the claim is, so we’re not getting all of the local news about the council and things, but much more importantly, we’re not getting the local news about me as the MP and that of course is an issue.

So you had mentioned before the exchange of value in terms of the value that’s provided, I’m interested in the discussions on that. Are there different camps of some people looking at it through monetary value in terms of advertising for example, or is there a camp that’s looking at it as “our content is valuable”?

Sadly, it’s entrenched positions on both sides. So Google and Facebook are saying, “This is outrageous, because you’re making us pay for content, where the value flows to the content provider.” And the content providers, unfortunately, particularly the chair and CEO of Nine, that I mentioned before, screaming that we should get 10% of their advertising revenue because we produce 10% of their value. So you’ve got this starting position, which is a very long way apart, which is precisely why the negotiating framework was designed to bring people back together on a more realistic basis.

But I also think that there is an international perspective. And that is, because Australia was first. And that’s more to do with the timing of the original digital platforms inquiry than anything else. It does set a potential benchmark that could be used in the European Union. If Facebook and Google signal “we prepared to exit this space in Australia, which is the 11th largest economy in the world, it’s an important one for us. But we ain’t gonna play that game” that sends a very strong signal to individual jurisdictions as they come to consider the implementation of the EU copyright directive. So I think there’s also a little bit of Australia being first and being a potential signal in much more important geographic areas.

So moving forward a little bit with Facebook and Google talking about the kinds of changes to their service. Is this something where you’re dealing with a company by company negotiation basis where there could be some companies that say, “Okay, we’ll do it for free” and they get the traffic and then some others that don’t?

There is a non-discrimination provision in the draft code that says you can’t just provide content with people who have agreed to provide it free outside of the negotiation framework. Probably more importantly, you can’t replace domestic content with international content, because that would also breach the non-discrimination provision. So you’ve got this issue that essentially it’s an all or nothing play. You either you either provide news access or you provide no news access, but you can’t sort of substitute, for example, BBC content for Australian Broadcasting Corporation content. So Facebook’s been very clear on this in their communications. They’ve said they will exit providing links to news. They’ve actually even sent an update to their terms and conditions for use of both Facebook and Insta in Australia reserving the right to block links, if they feel they need to do it in order to meet regulatory and legislative obligations.

So for exiting from the market, I think you brought this up in one of your articles. Is the situation something like Spain in 2014 with Google News exiting? Is that something that we’re likely to see, where Google News leaves and Facebook changes its service to remove news? In terms of gaming out what’s going to happen, that’s one of the options, but are we likely to see that or something less than that? 

That’s one option. And essentially, Facebook has said that’s the option we will take if the code is enacted without amendment. I think the timing reflects perhaps the expectation. One outcome is Google and Facebook stop. Google stops indexing the news, it stops access to international news through YouTube, so I won’t be able to stream Sky UK. I’m not going to be terribly sad about that. But that happens and Facebook takes similar measures.

What they both want is that the code in its draft form, it’s exposure draft legislation, is amended. Either before it goes back into into the Parliament, or is amended essentially on the floor of the Parliament, at which point they can step back and say, “We have won and therefore we’re not going to change our offerings.”…

Ultimately, [the desired change] is going to be something that limits the amount of money that Facebook or Google would have to pay, and potentially limits the obligations on notification of algo change

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