Did it capitulate? On Facebook de- and then re-friending Australia

I previously wrote about the kerfuffle between Facebook and the Aussie government (namely its PM and his Treasurer) about a week ago here. I wrote that piece after Facebook had chosen the “nuclear option” of blocking all news content from its users’ pages. I concluded there and then:

“So, in sum, and to return to the question posted as title: Facebook banning the sharing of Aussie news: The evil empire at work? There is no doubt that Facebook flexes its muscles to improve its bargaining position but it does have good reason to be concerned about the proposed news media bargaining code which is likely to benefit the big players already in the market and presumably the ACCC which has clamored for more regulatory power (“The ACCC recommends that Government establish a specialist digital platforms branch within the ACCC, with standing information-gathering powers, to pro-actively monitor and investigate potentially anti-competitive conduct by digital platforms and conduct that may breach our consumer laws, and to undertake rolling market studies.”) I see no really persuasive argument that Facebook is responsible for the decline of journalism in Australia. Rather it looks to me as if the big players already in the market — Murdoch in particular — have tried to force the Morrison government’s hand to channel some of the pie that Facebook currently gets to eat to them. Hardly a promising recipe for a diverse and flourishing media landscape, I’d argue. If the Morrison government were to be serious about diverse and flourishing media landscape, it could address the destructive role of the Murdoch gutter press and it could increase, rather than decrease, the funding for ABC and SBS, the public providers. Fat chance that I fear.”

Others came independently to similar conclusions: Over at Core Economics Today, Joshua Gans captured his take on things succinctly in the title of this very readable piece: Australia surrenders to monopolists and codifies corporate oligarchy. Over at Club Troppo, David Walker dissected News Corp’s false claims about the value of Facebook links to its content. And the friends from Juice Media encapsuled the essence of it all quite nicely in this brilliant must-watch clip (which features a guest appearance by the fabulous Michael West.)

Gans’s, Walker’s, and my piece were written before amendments to the Code were hammered out between Frydenberg and Zuckerberg and a slew of other characters, behind closed doors of course as we have come to expect from this government. It is not clear what exactly the amendments ultimately entail as the government maintains that the further amendments to the code allows it to force Facebook (and Google) into mandatory bargaining. Here is what the Frydenberg — Fletcher joint media release said:

“These amendments will make it clear that:

  • a decision to designate a platform under the Code must take into account whether a digital platform has made a significant contribution to the sustainability of the Australian news industry through reaching commercial agreements with news media businesses;
  • a digital platform will be notified of the Government’s intention to designate prior to any final decision — noting that a final decision on whether or not to designate a digital platform would be made no sooner than one month from the date of notification;
  • non-differentiation provisions will not be triggered because commercial agreements resulted in different remuneration amounts or commercial outcomes that arose in the course of usual business practices; and
  • final offer arbitration is a last resort where commercial deals cannot be reached by requiring mediation, in good faith, to occur prior to arbitration for no longer than two months.

The press release made clear that “the Code only applies to the extent a digital platform is making covered news content available through those services”. Which seems to leave the door open for Facebook to ban selectively news from publishers like News Corp who have their bargaining power clearly reduced to the extent that Facebook can demonstrate that it contributes to a more diverse media landscape (which it has claimed for a while it has done for years anyways). The amendments might indeed entice Facebook to strengthen the hand of regional and small publishers in obtaining appropriate remuneration for the use of their content and foster more sustainable public interest journalism in Australia.

That does not look like capitulation by Facebook to me, or a victory of Frydenberg over Facebook and Google, as some people have claimed (e.g., Peter Lewis in The Guardian and Peter Hartcher in the Sydney Morning Herald, the latter in an embarrassingly fluffy piece.)

Ultimately the proof of the pudding will be in the eating but I doubt very much that the government will ever go as far as designating Facebook under the Code. I consider some such intervention highly unlikely and wishful thinking. Facebook, at some such juncture, surely would have again the nuclear option available.

What follows is a slighly edited version of my earlier piece which contextualized the kerfuffle between the government and Facebook, written right after the defriending but holding up well.

First, Facebook is a powerful social media company which through its platform exerts considerable influence on the public discourse. (Contrary to what some people argue, it is not a monopolist as there are substitutes such as twitter.) The considerable influence makes it imperative that it becomes more transparent on consumer protection and privacy issues, for example. I believe the ACCC (Australian Competition and Consumer Commission) got that right in its Digital Platforms Inquiry report published almost two years ago. Clearly, that report motivated the code that has led to the kerfuffle between Facebook and Frydenberg/Morrison.

Second, Facebook uses a zero-pay model in a two-sided market. That is, it does not, seemingly, charge on one side of the market its Facebook users for using the platform and posting content but it does collect their data and sells them to the other side of the market where companies transform them into targeted ads (and often rather sneaky ads). That business model is rather profitable as we can tell from Facebook’s steadily increasing valuation.

Third, there are good arguments that multinational companies like Facebook should be taxed and that, in particular, various schemes of tax avoidance are addressed. Aggressively so.

Fourth, the proposed law suggests that Facebook pay for the decision of its users to post links that contain content produced by third parties such as news providers. It is not clear why Facebook should pay for those decisions. To the extent that Facebook users violate property, or copy, rights those users should be targeted. Not Facebook.

Fifth, nevermind the question whether Facebook is the right target to right the wrongs discussed under 4., it is hard to see how anyone can complain that Facebook decided not to use the good or service that the Morrison government, and a conflicted and power-hungry ACCC, want to make it pay for. Facebook’s decision not to “use” (allow its users to to use) the Aussie news links anymore seems defensible. If you try to extort a company to give you money for nothing (and for you to give that money to your buddies), they don’t take it well. No surprise there.

Sixth, Facebook (and Google) collect an ever increasing share of the money spent on ads, with domestic media having lost out dramatically over the last few years (according to Morgan Stanley one third of their ad revenues, down to 8 billion from 12 billion five years ago). At the same time the global players such as Facebook (and Google) have increased their share considerably and steadily, with no end in sight. But it is not clear to me that these drifts are caused by news content which according to Facebook constitutes less than 4 percent of content shared on Facebook.

Seventh, it has been argued — and it has been used as an argument in support of the news media bargaining code — that the redirection of advertising revenue to Facebook and other global players is, together with the re-posting of news content, has been responsible for the decline of journalism in Australia and the loss of thousands of jobs. As early as December 2018, the ACCC claimed, in its preliminary report, that “Google and Facebook are now the dominant gateways between news media businesses and audiences and this can reduce the brand value and recognition of media businesses. In addition traditional media businesses and in particular, traditional print media businesses, have lost advertising revenue to digital platforms. This has threatened the viability of business models of the print media and their ability to monetise journalism.” Facebook won’t have any of it: “publishers willingly choose to post news on Facebook, as it allows them to sell more subscriptions, grow their audiences and increase advertising revenue. Last year Facebook generated approximately 5.1 billion free referrals to Australian publishers worth an estimated AU$407 million. Despite some of these discussions, Facebook does not steal, take or copy news content.”

Eighth, it is at this point noteworthy that there are serious questions about the diversity of domestic media, with Rupert Murdoch’s News Corp accounting for about two thirds of the market for news papers; News Corp, Nine (owning Fairfax media) and Seven West Media also co-own Australian Associated Press (AAP) which distributes the news to its owners and sells them to other outlets such as the Australian Broadcasting Corporation, Australia’s publicly funded broadcaster which has been under attack for years and which in 2020 was forced to cut 250 jobs and a number of programs.

Nineth, in light of this concentration it seems indeed as if the proposed media bargaining code will entrench further the dominance of News Corp/Murdoch and his journaille. Not a good thing that. Lizzie O’Shea has provided a good primer on the trouble with the media bargaining code, why it is not going to address the decline in the quality of journalism, why it is not going to bring about a diverse and flourishing media landscape, and why in effect it is creating barriers to entry, and why it is likely to further entrench the big players that already dominate the domestic news market.

Tenth, I am not sure to what extent Facebook is hurting itself (especially if true that news content on its form is only 4 percent). A couple of million customers going elsewhere, won’t cause Facebook (which has literally billions of customers) many worries. But I note that Facebook is engaged in a chain-store paradox game: it is forced to play tough so as not be taken to the cleaners down the road. Much of what we see is at least to some extent posture although I also believe that some of their reservations about the proposed code are justified.

Eleventh, the last days have seen massive blustering of the usual suspects (Morrison, the heroic PM, who found the episode an ideal weapon of mass distraction from the failed and monstrous cover-up of serious rape allegations that exposed “the cold inhumanity of [his] government” (Peter Hartcher in the SMH), or the Daily Terror’s Morrow who equally heroically told us he had decided to go cold turkey and that Facebook could Zuck itself.) Predictably he was back on Facey this weekend. Old habits die hard.

Twelfth, the Zuckerberg news content ban may be really a blessing in disguise. Because people will be prevented from re-posting articles without explaining why they do it, or what particular aspect in it strikes them of being of interest. It’s been a long-standing gripe of mine — see this summary of what I see as the benefits and costs of Facebook and how one can maximize value for self (and others). As of now, you can still copy and paste from Aussie news sources selected bits and pieces including the headline which then encounters Facebook friends to google the relevant article.

So, in sum, and to return to the question posted as title: Facebook banning the sharing of Aussie news: The evil empire at work? There is no doubt that Facebook flexes its muscles to improve its bargaining position but it does have good reason to be concerned about the proposed news media bargaining code which is likely to benefit the big players already in the market and presumably the ACCC which has clamored for more regulatory power (“The ACCC recommends that Government establish a specialist digital platforms branch within the ACCC, with standing information-gathering powers, to pro-actively monitor and investigate potentially anti-competitive conduct by digital platforms and conduct that may breach our consumer laws, and to undertake rolling market studies.”) I see no really persuasive argument that Facebook is responsible for the decline of journalism in Australia. Rather it looks to me as if the big players already in the market — Murdoch in particular — have tried to force the Morrison government’s hand to channel some of the pie that Facebook currently gets to eat to them. Hardly a promising recipe for a diverse and flourishing media landscape, I’d argue. If the Morrison government were to be serious about diverse and flourishing media landscape, it could address the destructive role of the Murdoch gutter press and it could increase, rather than decrease, the funding for ABC and SBS, the public providers. Fat chance that I fear.

EconProf: I post occasionally on whatever tickles my fancy: Science, evidence production, the Econ tribe, Oz politics, etc. Y’all r entitled to my opinions …