Transcript

Rod Sims: We need to help journalism just because it's really important. But in the digital age, we need to make sure it survives even more. It's more fundamental, I think, now than it used to be.

Taylor Owen: Hi, I'm Taylor Owen, and this is Big Tech. It's easy to forget that, for a long time, there wasn't a business model for the internet. That's why the .com bubble popped. But then came along Google and Facebook. They found a way to take their biggest asset, their users' data and to turn it into a product, advertising. Specifically, advertising that could target consumers with way more nuance than traditional TV or print ads. There's a lot to say about this type of micro-targeted advertising, its impact on our society, and whether it should even be allowed. But one thing is for sure, it captured almost all of the advertising revenue in the market and made Google and Facebook two of the most profitable companies in history. The problem is, this was the very revenue that journalism depended on for nearly a century. And journalism isn't like other businesses. We need it for our democracy. Governments have been struggling to figure out how to address this dilemma for years now. And last week, Australia may have done just that.

 

[CLIP]

Andrew Clennell: Finally, Josh Frydenberg, the Treasurer and Communications Minister Paul Fletcher have released the News Media Bargaining Code, or at least some data on it.

SOUCE: Sky News Australia YouTube Channel https://youtu.be/sTvveEHEDOE

“Government 'finally' reveals media bargaining code”

December 8, 2020

 

CLIP:

A world first move aimed at protecting independent journalism. Australia finalized plans, on Tuesday, to make Facebook and Google pay its media outlets for news content.

 

Taylor Owen: At the centre of all this is Rod Sims. Rod is the head of Australia's competition and consumer commission. And this new code is the result of a three-year inquiry into the businesses of Facebook and Google that ultimately concluded they were distorting the market. The code requires the platforms to negotiate with Australia's publishers over the use of their content. If they fail to come to an agreement, the government can mandate binding arbitration. Rod was the driving force behind this legislation, and is now in the middle of a global debate about how governments should support journalism and regulate platforms. I wanted to talk to him about what exactly Australia is trying to do here, and why he thinks that this is the right approach. Because while there are lots of people who are applauding him, this code also has plenty of detractors. I sat down with Rod just a couple of days after the News Media Bargaining Code passed into law.

Taylor Owen: Thank you so much for doing this. And welcome. I can only imagine things are insanely busy, and you're in high demand at the moment.

Rod Sims: Well, I think the thing people don't really realize is we've got a lot of product safety, merger, wholesale, telecommunications, regulation, enforcement cases. So we're busy on a lot of fronts. We're right in the middle of a whole lot of gas issues at the moment. So, it's more that there's the whole lot of other stuff on. I mean, this has been busy. Don't get me wrong, but there's a lot else on as well.

Taylor Owen: So taking on two of the biggest companies in the world was just a slice of the mandate, not the entire thing?

Rod Sims: We just do that before breakfast, Taylor.

Taylor Owen: I want to talk about the code itself in more detail. But first, I'm wondering if you can talk through the problem you were trying to fix.

Rod Sims: A number of points. Firstly, it's important to understand that Google and Facebook don't produce news. So, it's not as if Google and Facebook have come along and displaced what the media did. What they did do was, in a sense, become the internet. So it's always interesting when they talk about a free internet. I mean, they are the internet. If you are interested in search, Google has 94, 95% of search in Australia. It's a stunningly high percentage. And Bing is about 3%. With Facebook, by far, the biggest social media platform is Facebook. Number two is Instagram, which is owned by Facebook. So they totally dominate social media as well. So, in a sense, they have put themselves between news media businesses and their audience. And they benefit from that. Obviously, they get more people on their platforms because they're showing news. People stay on their platforms longer because they're showing news. And having more people go there, staying on your platform longer, all means you've got opportunities to advertise to them more. So, Google and Facebook benefit enormously from having news media content. But, of course, they don't pay for that in any way. In a competitive market, you would expect, let's say there were four or five social media platforms on the one hand, and search engines on the other to deal with, I have no doubt, the news media businesses would find ways to do deals, to have their content paid for, because they might say, "Well, I'll give it to you. And I won't give it to you. And it's valuable." But you don't have that. So it's been very hard. Well, it's impossible to negotiate with a monopoly.

Taylor Owen: I mean, it's the definition of a monopoly, isn't it?

Rod Sims: That's right. That's what monopolies do. That's no disrespect to anybody involved. That's what you and I would do, Tyler, if we were a monopoly. So what the code does, is it allows news media businesses to bargain. But then to go to arbitration to get an outcome if they can't negotiate one. And what that does, is it improves the bargaining position of the news media businesses. In our experience, in Australia, people usually want to avoid arbitration because then somebody else is determining what the deal is, but it evens up the bargaining power. You've got a threat you can make, just as they can threaten to say, "Well, you're not on our platform anymore." They can threaten to say, "Well, I'll take you to arbitration." And so, you then even up to the bargaining power. You then are able to do commercial deals rather than take it or leave it deals. So, in a nutshell, that's what the code is meant to do.

Taylor Owen: How is this going to affect the Australian users of these services?

Rod Sims: Well, if deals get done, and they look like they will be done, with both Google and Facebook, it won't affect the individuals in any way whatsoever. The deals that are being done have been lumped-sum deals. That is to say, we'll pay you a block amount. You're not paying per click. It doesn't influence the clicks. It's a general payment for making your news available.

Taylor Owen: And what would happen without the code. Is the viability of journalism in Australia, at the moment, at risk, if this kind of thing doesn't play out?

Rod Sims: Yes. I think that's right. Journalism in Australia has been in decline for some time, both in terms of less journalists employed, more stretching of existing journalists in what they do, with the bigger media organizations on the one hand. And often, smaller media organizations closing down so that a range of regional areas no longer have newspapers or print online, whereas they once had them. So it's been quite a noticeable change. And also, there's less court reporting, less specialized reporting of health matters, education matters, as the news media has narrowed down. So, it has been a noticeable decline in journalism, which obviously damages society. Hopefully, the code will reverse that trend.

Taylor Owen: I'm curious. When you began this, there seems to be a big debate going on about whether traditional mechanisms of competition policy are sufficient for regulating the digital economy, and whether traditional notions of consumer harm being a price-based measure, for example, is suitable for free services. So, when you sat down to begin this process, were you thinking about how you could expand your mandate and the tools at your disposal? Or was it just a case of applying the things in a slightly different way than they were already there for you?

Rod Sims: Good question. Thank you. First of all, we have never, in Australia, applied a price-based approach as determining whether the consumer welfare standard would be met.

Taylor Owen: Oh, really? That's just an American thing.

Rod Sims: I think so. I think it's an American thing. In Australia, you look at service standards, you look at the whole picture. If you interfere with the competitive process in a way that harms the person on the other side of your transaction, then that enlivens our competition interest. So it's not, have prices gone up for consumers? That is a way too narrow approach, and just emasculates sensible competition policy. But there's a separate point here, Taylor. And it's a very big point. Firstly, the ACCC is the competition enforcer, the consumer law enforcer, and we regulate telecommunications and transport. And we're also the product safety enforcer, and recalls and lots of stuff. So we have a very broad mandate. So, I don't sit here looking through just a competition lens. We take a broad look. Separately, how this came about was not through a competition investigation, or any investigation at all. It came about because the government gave us an inquiry. And when government gives us inquiries, it does so so that, on the one hand, we might find a breach of the Act. But equally, we provide recommendations to government. So what happened here is, we recommended a media bargaining code to the government because we found a problem. That problem being a market failure, being the bargaining power of Google and Facebook. So we used our competition analytical skills to determine the market power, and therefore, the market failure. But the remedy was never anything under our act. It was new government legislation, which passed the house, our parliament, yesterday. So we pulled on all of our toolkit to come up with this. But ultimately, it's new regulation imposed by government.

Taylor Owen: That's really helpful. Thank you. So, right now this only applies to Google and Facebook. Is that correct? They're the only two companies with market dominance in this space in Australia?

Rod Sims: Absolutely. And that is just so incredibly clear. When Google and Facebook complain, why us? Well, you've got 95% of search. And you dominate social media. Who else would it be?

Taylor Owen: And, on the publisher side, how do you decide who qualifies to be included in this?

Rod Sims: Two criteria. The lesser one is, really, you've got to earn at least $150,000 a year, which is a pretty low threshold, as a news media business. Secondly, you have to be producing core news. Core news is public interest journalism, but it's what enlivens public debate, it's local court reporting, and things of that nature. But, broadly defined, public interest journalism. And so, if you do produce that, and you're above 150,000, you qualify.

Taylor Owen: Is there anything that says what those companies can spend this money on? Probably not, right?

Rod Sims: That's correct. Having said that, I think there'll be a lot of community interest in seeing that journalism expands. I certainly think if media businesses succeed in doing good commercial deals with Google and Facebook, it's going to look pretty shocking if more journalists lose their jobs. And you'd expect extra journalists to be hired. So the whole world is watching, including a whole lot of journalists who have an interest in the outcome here.

 

[CLIP]

Karl Stefanovic: In breaking news this morning. Social media giant Facebook has followed through on its threat. Restricting people in Australia from viewing news content.

SOURCE: 9 News Australia YouTube Channel https://youtu.be/e3SPSloVMrQ

“Sharing and viewing Australian news banned by Facebook | 9 News Australia”

February 17, 2021

 

Taylor Owen: It seems like Facebook and Google now have, to a certain degree, come to terms with this being a reality. But there was a pretty significant display of power or influence or control over the distribution of content online in Australia.

[CLIP]

Fiona Willan: So this morning, if you visit a news site, an Australian news site, via the social media platform, you'll find there are no posts. You can't view or share news articles.

SOURCE: 9 News Australia YouTube Channel https://youtu.be/e3SPSloVMrQ

“Sharing and viewing Australian news banned by Facebook | 9 News Australia”

February 17, 2021

 

Taylor Owen: And I'm wondering why you thought they reacted like that.

Rod Sims: I always thought there was a good chance they would. Google and Facebook are very different businesses with very different cultures. So they did come at this in very different ways. But ultimately, they are used to dictating terms. And when you're used to doing that, it's very hard to change your mindset. So, I was very confident they were going to make those threats. What I had no idea of, was whether they would follow them through. But really, it's the main card they've got to play to avoid something happening that they don't want to happen.

Taylor Owen: Do you think this signals that other countries might be considering something similar was what they were really concerned about?

Rod Sims: Oh, I think there's no doubt about that. Australia is, I think, 13th largest economy. But we're massively smaller than the US, Europe, UK. We're not that much smaller than Canada, but we are a bit smaller. So I think they probably didn't want it to spread to other places. And I think it's probably fair to say that, the fact that they're trying to do deals now, in a sense, in advance of the code, but completely attributable to the code, is also evidence of that.

Taylor Owen: What does it say about a company that would cut off reliable information in the middle of a pandemic?

Rod Sims: Well, I think it's extraordinary that a company would do such a thing without any notice at all to the government who they were in conversation with, but much more importantly, their users. I can't think of another example of a company doing something like that.

Taylor Owen: I've been following this relatively closely. And there seems to be a fair amount of debate and confusion at the moment over whether the government or Facebook ended up backing down with the amendments to the code. What's your interpretation of that?

Rod Sims: Many years ago, I used to be involved in a lot of negotiations. And when you are negotiating, you try and find what matters to the other side. That doesn't much matter to you. And so, Facebook had some, well, there were two headings of changes. One was, they wanted a bit more time between negotiation and arbitration. They wanted a month's notice of any designation. Those things aren't ideal, but you're not going to break a deal on the basis of those. So, that was fine. And also, they wanted some clarifications of things that we thought were the case all the time anyway. So, I think both sides got what they want. I mean, they got things that didn't affect the core integrity of the code. They mattered to Facebook.

Taylor Owen: Why did they matter to them? Why did they want that?

Rod Sims: That I don't know, Taylor. I seriously don't know. I think if you have a negotiation, in both sides changes are made. And from the government's point of view, they weren't significant changes. Facebook think they are. I mean, I think you just declare victory for both sides. There's no doubt, the integrity of the code remains intact.

Taylor Owen: And the intended outcome of forcing, or incentivizing, negotiation is intact?

Rod Sims: Yeah, I think it's not forcing. It's giving some bargaining power to the news media businesses. When, without the code, they don't have any bargaining power.

Taylor Owen: So, stepping back a little bit, there seems to be general consensus about the challenges facing journalism, the effect that might have on a democratic society. But there's a fair amount of debate about how best government can support journalism, if it is indeed a market failure. And you've taken this particular route. Other countries, such as Canada, have provided direct subsidies for journalism, for example. They said, "We agree, you are essential for democracy. You may be subject to a certain market failure right now. Therefore, we will subsidize." In Canada, we've subsidized journalistic labor. Why is the forced arbitration, or mandated arbitration, approach better? Are these mutually exclusive? How do you view this landscape of policy options to support journalism?

Rod Sims: In Australia, the government already forged the Australian Broadcasting Commission, which is a publicly owned entity. It supports the Special Broadcasting Service. So the main way the government assists journalism, because it's a public good. You benefit from it, whether you pay for it or not, is the Australian Broadcasting Commission and the Special Broadcasting Service. Separately though, the government has set up a fund, which has been going for a few years now, to support regional newspapers and journalism. So they are doing that as well. I think, for me though, if you think about, what's the next step? Then, if you have identified a clear market failure, and you think you can address that market failure so that some of the lack of funding going into journalism is happening because of this market failure, then the first best policy response is fix the market failure, which is what the code's done. I mean, no point having a market failure and subsidizing your way round it. If you've got a market failure, you fix the market failure. Having fixed the market failure, if you want to support journalism more, then you can. But your first step is, fix the market failure. And that's what the code does.

Taylor Owen: And then maybe evaluate what the state of the industry and practice is, once the market is functioning.

Rod Sims: That's right. I guess the other point to make though is, it can be quite tricky territory when government is funding journalism. You've got to be careful when you start trying to fund these things, that government money could influence the media, which of course would undermine it. I mean, you really want independent media.

Taylor Owen: Now, there's also a potential problem with the platforms themselves funding journalism. And I'm wondering if you're, at all, concerned of the consequences of most journalistic organizations in the country being, in part, funded by platforms that they also have to be holding to account.

Rod Sims: That is very much an issue. But, keep in mind, those same entities have accepted advertising for many years. And we still have newspapers in Australia. They're still funded by major companies. So, you do find occasionally that, I mean, we find, for example, we might take a very big Australian company to court, and one news outlet might not cover it very much. And then you find that, of course, they're getting a lot of advertising from that company. So it's not a new problem. The fact that the platforms doing commercial deals with a whole range of players, I think, helps. It's not that they don't have the ability to withdraw to compulsory codes. So I think it lessens the problem, having the code behind it, rather than just advertising.

Taylor Owen: Is there any market concentration problem in the industry of journalism as well? Does News Corp, for example, have a dominant role in the journalism market in Australia?

Rod Sims: Yes, it does. But I need to qualify that. So, News Corp Australia probably owns papers that have 65% of the readership. That's a big concentration. But now, I think, you segment the market differently. It's no longer a newspaper market. It's a print online market. So there's no doubt now that The Guardian has come in. Also, the Australian Broadcasting Commission, when I was growing up, provided radio and television. Now it's got a website, sends out news articles to people's email addresses, so you can read the news or you can go to their website. So the ABC is now a print online player. Many of our television stations and radio stations have websites, and they put their news up there. So now, if you're a reporter for a radio station, and I get interviewed by them quite a lot, I'll find that they'll not only do the interview for radio, they're going to write something and put it on the radio website. And also, I would add, you've had, as I said, the digital natives coming in. And there's quite a number of those. But also, I can go online and get the Financial Times each day. I can subscribe for that as easily as I can subscribe for a News Corp paper. So yes, there's too much concentration, but it's getting better all the time because it's a print online market, not just a print market.

Taylor Owen: Is there any case to be made for some sort of antitrust action against News Corp or any of the dominant players in the Australian media market? Or do you see this online shift just solving the problem?

Rod Sims: I think the online shift helps a lot. But keep in mind, just as in Canada, if you've got a high market share, that's not illegal. Nothing you can do about it. If it comes about, because you do an acquisition, then you can do something about it. You can block the merger or block the acquisition. But just because somebody has, I mean, Google's got 95% of search in Australia. That's not illegal. So, no. There's not much that we can do about it. But as I say, the problem is getting better all the time. I mean, if News Corp have got 65% of newspapers, they have probably got 10 or 15% of the print online market. If you look at the top rating news websites, there's plenty of them. And you look at how much readership they get. News is not dominating that at all, I'd say. My guess is news is 10 or 15%. So, once you go print online, you get a lot more diversity.

Taylor Owen: Beginning to wrap up here. Countries around the world, including Canada, are watching this. Trudeau said he wants to collaborate with Australia in this kind of direction. Having been through this for the last number of years, and particularly the last two weeks, what advice do you have for other countries heading into these waters?

Rod Sims: Look, I think everyone needs to be aware of the importance of journalism. How they deal with the issue is very much going to depend on their legal and policy background. The Europeans have done it through copyright. We did it through negotiate/arbitrate, which is better suited to Australia. Different countries might do things differently, but I think there is a lesson here that there is a market failure to be addressed. And so, if overseas countries learn anything, it's that there's a market failure, and we should deal with that. It's important to journalism. And journalism's important to society.

Taylor Owen: And just finally. We mentioned, earlier, how this might affect citizens or not. In an ideal world, they will still get to get their news and use the platforms as they already have. But what do you say to people who are looking at all of this, and not fundamentally sure what the significance of this is? Why, ultimately, do you think this matters?

Rod Sims: It matters because journalism matters. Journalism is called the fourth estate. It's the other part of what you need for proper governance in a country, what you need for a well-functioning society. You need people who are professional journalism, they have a professional set of ethics, just like doctors and lawyers do. And I noticed that, how they work, they're cynical by nature. They question things. They don't accept anything at face value. And so, this is really important. I think also, we're realizing that with the internet, if you don't have quality news, it can be a real problem. You can get news that's not of good quality. Indeed, news that's described as fake news. And that could be very damaging to society, and can allow people to believe things that are just blatantly not true, that make it hard to get cohesion in society. So, I think both. There's a problem with journalism. But there's also a problem with how the internet's functioning in terms of distribution of opinion. So we need to help journalism just because it's really important. But in the digital age, we need to make sure it survives even more. It's more fundamental, I think, now than it used to be.

Taylor Owen: That was my conversation with Rod Sims. As always, you can reach me [email protected]. Big Tech is presented by the Centre for International Governance Innovation, and produced by Antica Productions. Please consider subscribing on Apple podcasts, Spotify, or wherever you get your podcasts. We release new episodes on Thursdays every other week.

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