The brouhaha over Facebook and Google’s owner Alphabet being forced to pay for news is threatening to change the way the free world wide web has worked so far. The traditional business model of newspapers has been to package news alongside advertising and charge for newsstand copies or subscription. The advent of the internet turned that upside down as newspapers shed classified and display ads to tech giants, which were able to connect advertisers to readers they wanted to reach through precise ad targeting instead of casting a wide net. Is it payback time for Facebook and Google, or will they succeed in changing the narrative and make it all about “free” Internet?
These days, most news stories we read are not in print or from newspaper websites but in the form of a Facebook newsfeed or a Google link. Because they “show” news, users tend to stay longer on the internet giants’ platforms, which makes them more appealing to advertisers. Not surprisingly, the ads surrounding the newsfeed or web links generate money for Facebook and Google rather than for content creators or owners. This makes the internet giants powerful gatekeepers of news.
How powerful? Consider this: A total of 52% of all Americans now get their news from Facebook. The remainder gets it mostly from print newspapers or their websites. Unfortunately, a big chunk of that is routed through Google’s search engine. So, newspapers are getting increasingly smaller amount of advertising because their own websites generate a tiny portion of direct traffic.
What Facebook and Google have been able to do is to manipulate their users’ data and turn it into rivers of ad revenues. The kind of advertising that can target consumers with way more nuance than anything traditional print or TV ads were able to do. Though print journalism started with just street sales, the business model evolved over time to an overwhelming dependence on advertising. The most vulnerable are local papers, which rely on advertising from small businesses within their area. Programmatic ads and Facebook’s use of granular data to target readers have further tilted the scales against news publishers.
Micro-targeting of ads by Facebook and Google has not only gutted the newspaper industry but also changed the way news is distributed and what we get to read. Divisive and sensational stuff, such as live streaming of murders, dangerous conspiracy theories and fake news, attracts readers and helps drive engagement on internet platforms, making them stickier for users.
The New Global News Order is threatening democracies around the world. Witness how margins of victory in elections from Asia to Europe and the Americas in recent years have become narrower and the discourse less civil. Little wonder, then, that governments are waking up to the hollowing out of the news media and taking action.
The rumble Down Under
Last December, Australia proposed a law to force Facebook and Google to pay for news. Here is why Canberra was forced to move: Rupert Murdoch, the 90-year-old Australian-born billionaire owner of News Corp, which controls The Times of London and The Wall Street Journal, has long campaigned for Google and Facebook to pay his newspapers for newsfeed or links instead of just posting them on their websites free of charge. Murdoch controls 70% of total newspaper circulation Down Under. Because his newspapers have such incredible reach, he commands immense political power in Australia even though he now lives in New York and holds dual US-Australian citizenship. When Murdoch speaks, directly or through proxies, top leaders from the ruling Liberal Party as well as opposition Labor listen. Two former Australian prime ministers have accused Murdoch-controlled newspapers of having a hand in removing them from office.
The Australian Competition and Consumer Commission, the main regulator, in a report last year accused the internet giants of abusing their dominant positions to manipulate the digital ad market to their advantage, effectively setting prices and exploiting their users by sucking up all their data, which they promise advertisers would lead to more clicks, and then using that treasure trove of data as a weapon against any competition. The commission argued that news publishers are vulnerable because much of their traffic relies on Google searches or Facebook links. It noted that the two internet behemoths also control the technologies used to buy and place the ads.
Under the new law that was passed by the Australian parliament on Feb 24, if the internet giants publish a link that allows others to read any story from a news publisher, they must have a prior deal to pay the publisher before that link goes up on their platforms. Initially, the two media giants threatened to pull out of Australia altogether. Software giant Microsoft, which has been trying to boost its own fledgeling search engine Bing, welcomed the proposal, going as far as to say that Europe should adopt something similar. In an 11thhour gambit, Google sealed a three-year deal with News Corp and several broadcasters, to pay for local news content. Facebook initially baulked, banning anything news-related on its websites, thereby pulling all Australian news content. It vowed not to pay for news, only to reverse its original stand five days later, hastily agreeing to “pay” for news as its stock plummeted.
Facebook’s temporary pullout in Australia meant that, for a while, Sydneysiders could see baby or cat photos but no news stories since nobody was allowed to post news links. So, traffic to publishers’ websites plunged. Having lost most but not all of their advertising to Facebook and Google, Australian news publishers suddenly found they were on the verge of losing their last remaining revenue growth driver — online ads which are driven by web traffic.
Spanish experiment
For Internet giants, it was déjà vu all over again. In 2013, Spain passed a law that required Google to pay for news. Instead of paying publishers, Google’s search engine just stopped listing Spanish newspapers. News websites in Spain lost all the traffic that was coming through Google, which impacted their own digital advertising business. Within weeks, publishers were urging lawmakers in Madrid to immediately dismantle the law because instead of helping newspapers with additional revenues, it was actually hurting them.
As part of the compromise deal, one of the things that Facebook and Australia agreed upon was that there would be a mediation process before any arbitration between publishers and Facebook. Internet giants were worried that by going straight into arbitration with publishers, they would be forced to pay a lot more than they needed to. Facebook also wanted to enter into individual content agreements with publishers, which were not allowed under the original bill but had been included in the amended one that had just become law. Facebook was hoping that by entering into deals with a handful of large publishers, it would avoid having to pay tons of small publishers, which just do not generate any money for it anyway.
Another contentious issue in the legislation was that Google and Facebook had to give notice for any algorithmic changes — such as Google’s search rankings — to news publishers ahead of time. That part of the law was so onerous that the internet giants feared it would break their product. By doing deals with publishers in what is the 13th-largest economy in the world, the two behemoths have deftly extricated themselves from something that could have haunted them in other jurisdictions.
Why did Facebook pull out of Australia briefly only to get back in five days later? It just wanted to avoid the precedent of having to pay publishers in other countries. The social media giant claims that publishers benefit far more from having their news links on Facebook platforms than it does. If internet giants continue to pay Australian publishers, you can bet that every country in the world which has been pushing Facebook and Google on payments, will demand similar deals. And if Australian or Canadian publishers are getting paid, expect developing country publishers to ask for money as well. After all, it is the publishers in emerging markets that have borne an outsized brunt of Facebook’s and Google’s domination of advertising.
Usually, the way issues involving large global players get resolved is that the near-monopolies often drag things out in courts for years. Eventually, other technologies or companies gain prominence and market share, so attention turns to the new players or emerging technologies. Facebook and Google have been hoping that some of the new controversial fast-growing players like China’s TikTok will soon emerge as the threat that regulators and governments are more worried about and, as such, will move on to the next target.
Levelling the digital playing field
Different countries will eventually come up with different solutions to deal with Facebook and Google. The European Union recently developed a framework for member nations to take similar action. Canada will enact legislation this year to level the digital playing field so that “publishers are adequately compensated as they deliver essential information for the benefit of democracy”.
One big impact of the internet giants’ dominance of advertising is the transfer of tax to the US as it is Google and Facebook that take away an 80% share of advertising and they do not pay much in taxes outside the US. In 2019, Facebook paid A$16.8 million ($17.39 million) in taxes on revenues of A$674 million in Australia while Google’s tax bill was A$100 million on revenues of A$4.3 billion. The internet giants have gross margins of over 70%. So, governments around the world dealing with soaring fiscal deficits have latched on to the idea of a “digital tax”.
They could use the money. Australia already helps some “rural” newspapers with subsidies. Canada supported community newspapers and news sites, as part of a Covid aid plan last year and is working on a blueprint to help the long-suffering news industry. Across Europe, governments have aided several projects to help struggling news publishers. The choice is between more fake news or supporting serious journalism. “Real news costs real money to report,” says John Hinds CEO of News Media Canada. “The monopolies have used their chokehold on the internet to squeeze off the flow of revenues to finance that reporting.”
Three decades ago, Tim Berners-Lee, the inventor of the world wide web, declared that the “internet was for everyone” which became the mantra for the “free” Internet. Now, he is arguing for “data sovereignty” or giving users power over their own data to help wrest back control of the personal information we surrendered to the likes of Facebook. Clearly, the internet would not have grown as far, or as fast, if it had not been initially free. To continue building a viable, more sustainable internet and cohesive democracies over the next 30 years, we need to ensure that news publishers are paid for original content rather than ripped off by tech giants.
Assif Shameen is a technology and business writer based in North America
