International regulators are watching closely the passage of the Australian News Media Bargaining Code. And despite last-minute threats from Google and Facebook, the legislation is set to pass the Australian parliament in the coming days.

In what The Sydney Morning Herald called a “sensational display of brinksmanship,” and in response to what Google’s Mel Silva called “an untenable precedent,” Google has threatened to walk away from 19 million Australian users and a A$4.8 billion ad revenue market by shutting down or moving its search engine from Australia. 

Chris Janz, chief digital and publishing officer at Nine Entertainment Co., told a parliamentary committee hearing in late January that Google’s recent experiment with removing local news from its search engine deprived some Australians of important information on the local news and illustrates Google’s market power.

“Their market credibility, business models, and substantial valuations have been built on having free and unfettered access to quality journalism and content,” Janz said. “Content that is created and funded by others.”

Google’s moves, which Silva wrote off as scenario planning, are in response to the current terms of Australia’s proposed News Media Bargaining Code and comes weeks before a vote in Parliament determines its fate.

Google’s objections to the code

Silva, Google Australia’s managing director, has said the world-first code is “unworkable” in its current form and undermines a fundamental principle of “unrestricted linking between Web sites,” constituting an “unmanageable financial and operational risk” to Google’s Australia operations.

Google’s three current complaints about the code, according to Silva’s opening statement to the Australian Senate’s Economics Committee inquiry, are:

1. It would prefer that the code designate News Showcase as the designated remuneration mechanism, whereby it can reach “commercial agreements to pay Australian news publishers for value, rather than paying for snippets.

Meanwhile, Reuters described Google’s decision to revive plans to launch its News Showcase there as its “latest tactic in a high-profile campaign.” The launch was originally scheduled for June 2020, but the company subsequently delayed it, when the draft of the News Media Bargaining Code was published.

“The decision to push ahead with the launch was an apparent show of Google’s willingness to run its own content deals, negating the need for government-mandated legislation,” Reuters said. 

2. It would prefer a commercial negotiation process to the Code’s proposed “final offer arbitration model,” which Silva said has “biased criteria” that would subject it to “unmanageable financial and operational risk. … If this is replaced with standard commercial arbitration based on comparable deals, this would incentivise good faith negotiations and ensure we’re held accountable by robust dispute resolution,” Silva argued. 

“If Google can demonstrate that it can reach agreement with some publishers, then its aim is to show that commercial arrangements can be made in the absence of some kind of legislative intervention,” said Derek Wilding, a professor at the University of Technology Sydney’s Centre for Media Transition to Reuters.

3. It would prefer not to give publishers notification ahead of all algorithm changes, but, Silva said, the algorithm notification provision “could be adjusted to require only reasonable notice about significant actionable changes to Google’s algorithm, to make sure publishers are able to respond to changes that affect them,” she said. 

But the government has made other concessions along the way, leading News Corp executive Campbell Reid to say in The Australian: “There’s always the next problem, particularly with Google. So we can solve this problem that now, (but) there’s another issue. We have to wonder: Are they intending to negotiate to a conclusion?”

Bloomberg reported that Australia’s Treasurer Josh Frydenberg accused the tech giants of “shifting the goalposts” when it came to expressing their resistance to the code, after they rejected a final arbitration model, to now opposing the idea of paying for any clicks displayed under the search results.

The Australian response

Australian Prime Minister Scott Morrison said after a meeting with Sundar Pichai, Alphabet’s CEO, “Let me be clear: Australia makes our rules for things you can do in Australia. ... People who want to work with that in Australia, you’re very welcome. But we don’t respond to threats.” 

Australian Competition and Consumer Commission (ACCC) Chair Rod Sims, who has overseen the new rules, said he could not predict what the tech giants would do but said: “There’s always brinksmanship in serious negotiations,” reported Reuters.

“It’s not what we want to happen. But obviously, at the end of the day, you’re just not going to be able to have a negotiation, have proper public policy, if you have to do whatever they want. If they then left the country, that would be very unfortunate, but ultimately that’s got to be their call,” Sims said on CNBC’s Street Signs Asia. “Others will certainly want to come in. What you can’t avoid though is: You must have arbitration.”

What’s next

TechCrunch called Google’s proposed departure a threat that’s “hardly what it once was, given the plentitude of alternative search engines.” Nonetheless, it’s a threat that some believe is not empty: Montaka Global fund manager Andrew Macken, interviewed by The Sydney Morning Herald and whose company owns shares in both Google and Facebook, said: “Google would perhaps rather lose Australia (a relatively small global market) to avoid setting a precedent for its other larger markets.” 

On the other hand, Bloomberg suggested that the threat is “Google’s most potent yet,” but also one that could “hand an entire developed market to rivals.” 

Which might happen. Microsoft is stepping up in Australia. Company president Brad Smith spoke with Prime Minister Morrison and Communications Minister Paul Fletcher and released a statement saying Microsoft will invest further to ensure Bing is comparable to its competitors and that it fully supports the News Media Bargaining Code. 

It concluded: “One thing is clear: While other tech companies may sometimes threaten to leave Australia, Microsoft will never make such a threat. We appreciate what Australia has long meant for Microsoft’s growth as a company, and we are committed to supporting the country’s national security and economic success.”

The committee plans to release a report on its findings by Friday. The legislation is expected to pass Parliament shortly thereafter.

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