New Australian code of conduct locks in payments from Big Tech for content

By Robert Whitehead

McPherson Media Group

Sydney, Australia

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Australia’s code of conduct to force platforms to fairly pay publishers for content has just become a big global deal for two reasons: 

  • The platforms will have no choice but to accept arbitrated fees.

  • They will be blocked from boycotting any Australian content by a carefully placed poison pill.

These much tougher terms appeared to catch the platforms off-guard and even surprised many news media executives when the final shape of the compulsory code was released on July 31.  

It is open for a last round of feedback for just a month, but it is destined to pass Australian Parliament this year and, in doing so, create a precedent for content payment that will reverberate around the world. 

It’s a “world-leading framework,” according to Australian Treasurer Josh Frydenberg, designed to level the playing field between news media and the digital giants. “It will increase competition, strengthen consumer protection, and ensure the sustainability of public interest journalism.” 

“Nothing less than the future of the Australian media landscape is at stake,” said Frydenberg, a moderate conservative politician who holds degrees from Oxford and Harvard. “Our regulatory framework has not kept up and, as a result, there is a very unequal bargaining position.”

The code includes: 

  • Approval for collective bargaining by news media. 

  • The use of the “final-offer” arbitration if talks fail.

  • A content valuation framework that takes in the benefit to the platform’s entire ecosystem, as well as the cost of creating it.

  • An effective boycott ban.

  • Eye-watering fines for each breach of the compulsory code. 

The biggest of the Australian news media companies, News Corp and Nine Entertainment, have estimated the code will unlock annual fees from Google and Facebook to publishers in the range of about US$500 to US$750 million, or about 10% of platforms’ regional revenues. 

Given the prize for an industry in structural tumult and the global ramifications for the platforms, it is worth stepping through the code in detail: what’s in it, what’s not it, and how it will work.

What makes up the code

The code is compulsory: It started as a voluntary mechanism but, as most in the industry knew, that was going to slide off the sloping playing field before the game began. In April, the Australian Competition and Consumer Commission (ACCC), the regulator overseeing the code’s creation after conducting a two-year inquiry, told the Australian government the voluntary approach was not producing results and flicked the mode to mandatory.

Finite negotiation: Any news media company that produces journalism to a specified professional standard is given a maximum 90 days in which to negotiate terms with each platform. 

Final-offer arbitration: If talks fail, they are automatically followed by compulsory arbitration, lasting no more than 45 days. Final-offer arbitration, also known as pendulum arbitration, involves both parties bringing their best offer to the table and the arbitrator simply selecting the one they prefer. (It has been famously used in the United States to resolve baseball pay disputes.) It is the addition of this mechanism to the code that now guarantees publishers will receive payment for content.

Authorised collective bargaining: Publishers have been granted approval to band together to bargain with each platform, much as has been sought by U.S. publishers through the safe harbor legislation. It is expected that all but the biggest media companies will take advantage of this. The ACCC chairman, Rod Sims, was quick to rebuff criticism of his authorisation: “We do not regard collective bargaining as anti-competitive when the party on the other side has superior bargaining power, has a lot of market power.”

Anti-discrimination/anti-boycott: Platforms cannot discriminate against publishers for participating in the code, and the platforms cannot discriminate against Australian content more broadly. These measures combine to effectively block boycotts by platforms. A boycott had been seen in Spain in 2014 when Google blocked local news, and also recently in France when Google reduced local stories to summaries to avoid an obligation to pay. If a Google or a Facebook seeks to take down content from one or all Australian publishers, the code would require it to remove all news media content — whether produced locally or overseas — or fall foul of the code’s discrimination provisions. The only way it could avoid the code would be to remove all news content from everything it owns — Google from its search and video streaming YouTube and Facebook from its feed and related social brands, as examples. The platforms couldn’t do it. This poison pill is seen as effectively blocking any future attempts by the platforms to boycott news media producers.

Fines: Taking a leaf out of the European Commission playbook, the ACCC ups the ante on penalties. It can impose up to 10% of the platform’s Australian revenue for each code breach. Facebook’s Australian revenue isn’t disclosed, but the regulator has secured the information through legal discovery and says the fines would amount to hundreds of millions of dollars per breached item.

Minimal standards in the code  

This will be seen to be a code of conduct about paying for content, yet it is much wider. It sets in stone a series of minimum standards in non-financial obligations. These, by the way, cannot be negotiated away through the bargaining process.  

Here are the five most important:

  1. Platforms must give 28 days’ notice of any algorithm changes that would hurt the news media company, including those that would materially affect traffic to news sites. The same notice period would apply to changes designed to affect ranking of locked news, as well as apply to any substantial changes to the presentation of news and advertising that is directly associated with news.
  2. Platforms must give news media companies full information about the data they collect through users’ interactions with news content on digital platforms — including visit duration, consumption of articles, and any other information that demonstrates engagement with news on the digital platforms.  
  3. Platforms are required to recognise and prioritise original news content.
  4. Google and Facebook need to allow publishers to control moderation of user comments. This includes providing an ability to switch off comments on articles that are posted to the platforms. (This step follows a recent Australian appeal court ruling that says publishers, not platforms, are responsible for any defamatory comments posted by readers next to the professional journalism.) 
  5. Publishers will have the right to deny a platform the use of their articles for whatever reason.
The ACCC's original report and INMA's Digital Platforms report, in which the ACCC and other worldwide government inquiries are detailed.
The ACCC's original report and INMA's Digital Platforms report, in which the ACCC and other worldwide government inquiries are detailed.

What’s not in it 

Much of the code of conduct addresses the checklist of issues raised in last year’s INMA survey (published in my report How to Decode the Publisher-Platform Relationship as part of INMA’s ongoing Digital Platforms Initiative) of what publishers want in platform deals and regulatory reform.

There are some notable omissions, but there is leeway, too, to include other matters during the course of the 90-day negotiation round.  

Here are the key things excluded from the code: 

  • Apple: The Cupertino, California-based company has escaped inclusion in the code of the conduct, for now at least. This is despite the growth in Apple News and despite the company’s ongoing dispute with publishers about its App Store policies on paid news content products (including the so-called “Apple tax”). “We decided that, at this stage, they don't have that substantial bargaining imbalance with the news media businesses because of the … amount of media on them,” said commissioner Sims. “But we’ll certainly be watching that.”

  • Copyright: The valuation process isn’t based on a copyright currency. At all. Rather it’s built on overall value that news content creates for the platforms. “I think the advantage we've had is we have seen what's happened, particularly in Europe, and how those arrangements in Europe have been avoided. [So] we haven't based this on copyright ... this is based on bargaining with a very effective arbitration process.”

  • Subscriptions: The code is focused on replacing the income that had flowed from advertising. Apart from the ranking of locked articles, there’s no mention of subscriptions. No mention of the power platforms have over subscription acquisitions, over the fees for acquisition and payment services, over app store services, or the direction of traffic to walled Web sites. Instead, the commission believes these items are in a bucket of “any other issues” the publisher could negotiate on during its talks.  

  • Existing payment deals: Existing content fee agreements may include those for Google’s “publisher curated news” product in Google News, or Facebook’s News tab. When asked by INMA what the code meant for the payment deals that some publishers had already struck, Sims said he believed these would be replaced by better terms. “The whole notion of … a mandatory code has led the platforms to offer [these] deals. But that's nothing like the deals that we believe will be done when the code’s actually in place, when you've got that forcing device of final-offer arbitration.”

  • Micro-news outlets: Start-ups and small news outlets with less than about US$100,000 in revenue are excluded from the code.

  • Public broadcasters: Australia’s two public networks, which have a strong presence across TV, streaming, online news and radio, are excluded from receiving payments from platforms for use of their content. The argument is they are publicly funded, don’t rely on advertising, and so shouldn’t receive further remuneration. They are covered, however, by all non-financial aspects of the code.

  • Stuff that isn’t news media: Entertainment video and sports broadcasting, for example, aren’t covered by the code. Just news media articles, images, videos and audio.

  • Ad tech obligations: No mentions at all. But more on this later. 

Reactions

News media companies enthusiastically welcomed the unveiling of the code, with executives from across the sector privately expressing their surprise at how aggressively the conditions had been drafted.

News Corp Australia, which has been the most vocal advocate for platform reform, said the code was a watershed moment. “It can force the platforms to play by the same rules other companies willingly follow,” said its executive chairman for Australasia, Michael Miller. “And it ultimately means they will no longer be able to use their power to walk away from negotiations with news creators.

“The tech platforms’ days of free-riding on other peoples' content are ending,” Miller added. “They derive immense benefit from using news content created by others, and it is time for them to stop denying this fundamental truth.” 

Nine Entertainment, the biggest TV network and also publisher of The Sydney Morning Herald, The Age in Melbourne and The Australian Financial Review, said in a statement it was pleased the code dealt with the bargaining imbalances that exist between Australian media organisations and the dominant global digital platforms. 

As a measure of the sophistication of the campaign for regulatory reform in Australia, even a body like the Public Interest Journalism Initiative is chaired these days by a former, high-profile ACCC boss, Allan Fels. He said the giants would be compelled to make serious offers for content payment: “The proposal for the code to be compulsory and to include final arbitration puts real teeth in the process.” 

On the other side of the arena, the strength of the tools unveiled took the tech giants by surprise. 

Google expressed deep disappointment. Its managing director for Australia and New Zealand, Mel Silva, said the government’s “heavy handed intervention threatens to impede Australia’s digital economy” and impacted the services Google could deliver.

Facebook declined to comment until it had evaluated the code’s full impact. In a recent statement, the company again rejected the need for the code. While Facebook wouldn’t be damaged if news content were removed from its network, publishers would “miss out on the commercial benefits” of reaching the wide Facebook audience, it submitted. 

What’s next 

“Hopefully,” Sims concluded, “the digital platforms will realise they have to mature as businesses. They can’t keep taking advantage of free content and have a sustainable business model. They have to actually embrace this … which I think they should realise is inevitable.” 

The code of conduct is open until late August for final comment and then the ACCC will prepare the legislation. The government has promised it will pass this year. And after that, the global precedent it creates should not be under-estimated. 

The ACCC’s crusade enjoys bipartisan political support across the two biggest, largely centrist, parties in the Australian parliament. It should also be noted the campaign to rein in platform power was kicked off at the very top of government three years ago, by the current prime minister, Scott Morrison, when he was the government’s treasurer and in charge of regulation.  

And while the French authorities close in on their content payment push — which is also attracting much attention — the Australians aren’t done with their wider agenda on digital power.  

The Australian competition regulator is unique because it combines the authorities of a market regulator and a consumer protection agency. In Sims, it is led by someone who is an ideological twin of Margrethe Vestager, the European Commission’s competition commissioner, and who has a deep grasp of the nuances and complexities of the issues facing the news media. Above all, Sims has a complete political mandate. 

The ACCC is mid-way through a massive investigation into digital advertising technology — a bigger version of the one the British competition regulator just decided to shy away from. And with the code of conduct nearly sealed, it is actually the Antipodean advertising powerplay that promises to be its most explosive yet.

About Robert Whitehead

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