Good morning,

I have a slight correction to this sentence in yesterday’s Daily Update:

Still, while Huawei could not hire TSMC to fabricate its own silicon, and couldn’t buy chips from Qualcomm (U.S. companies were forbidden from selling to Huawei without permission last year), there remained one option: MediaTek.

In fact, before this week’s executive order, U.S. companies seemed to be able to deal with Huawei via foreign subsidiaries selling parts produced abroad; what makes this week’s order so significant is that it basically shuts down anyone anywhere in the world from selling to Huawei.

On to the update:

Australia’s News Media Bargaining Code

From Bloomberg:

Google and Australia’s competition watchdog exchanged online fire after the U.S. company warned that an imminent law governing revenue-sharing with the media will force it to disclose sensitive data and jeopardize free services like YouTube. The Alphabet Inc. subsidiary said Monday the draft regulation will force it to share information with external parties and “put our free services at risk.” The Australian Competition & Consumer Commission fired back, saying the envisioned legislation won’t require Google to charge unless it chose to, prompting the U.S. company to accuse the agency of misrepresenting its views.

The draft regulation in question was published by the Australian Competition & Consumer Commission (ACCC) at the end of July:

On 20 April 2020, the Australian Government asked the ACCC to develop a mandatory code of conduct to address bargaining power imbalances between Australian news media businesses and digital platforms, specifically Google and Facebook. The ACCC released a draft code for public consultation on 31 July 2020…The draft code would allow news media businesses to bargain individually or collectively with Google and Facebook over payment for the inclusion of news on their services.

This, on the face of it, has a certain logic. Google and Facebook are two large advertising platforms, and presumably separate news media organizations want to form their own third advertising platform, but are worried about collusion, right?

Actually, no. This is a shakedown — just read the proposed regulation.

Breaking Down the Code

The actual draft code for this new regulation is here; this is a bit impenetrable, as Australian law is generally enacted by hard-to-follow directions on inserting and excerpting various lines of text into existing regulation. The Explanatory Materials that accompany the code are more helpful, but for the purposes of this Daily Update, I’m going to focus on this Q&A document from the ACCC. Here are some of the questions and answers from the document (I have not always quoted in full, for space reasons alone):

Which digital platforms would be covered by the code?

Digital platforms must participate in the code if the Treasurer makes a determination specifying that the code would apply to them. The Government has announced that the code would initially apply only to Facebook and Google. Other digital platforms may be added to the code if they hold a significant bargaining power imbalance with Australian news media businesses in the future.

What makes Google and Facebook different from, say, Twitter or email, when it comes to directing traffic to news media sites? The answer I suspect isn’t volume: it’s the fact that Google and Facebook make a lot of money, of which the Australian news media business feels entitled to (more on this in a moment).

Why is this code necessary?

The code seeks to address the fundamental bargaining power imbalance between Australian news media businesses and major digital platforms. This imbalance has resulted in news media businesses accepting less favourable terms for the inclusion of news on digital platform services than they would otherwise agree to.

Just to be very clear, these are the terms offered by the two companies:

• Google: content from your site shows up for free in Search and Google News. Google does not charge for any traffic it sends you.
• Facebook: your users may choose to share your content with their friends and family. Facebook does not charge for any traffic it sends you.

Do you see the absolute absurdity here? This language suggests that Google and Facebook are using their gatekeeping power to gouge news media businesses for sending traffic their way, when in fact they send traffic for free. As I noted in May, if anyone should be getting paid in this relationship it is Google and Facebook (although, to be clear, I am not saying Google and Facebook should actually be paid).

Who is responsible for this code?

The draft code has been developed by the ACCC in close consultation with the Department of the Treasury and the Department of Infrastructure, Transport, Regional Development and Communications.

This section forgot to list Australia’s own Rupert Murdoch, who after years of trying, including funding some of the loudest anti-Google and Facebook voices on social media, has finally convinced the government to tax the two companies and deposit the proceeds directly in his pocket.

One of the favored tactics of Murdoch’s shills is to accuse everyone that says schemes like this are ridiculous of being in the pocket of the tech companies. I generally despise this sort of tactic — attack an argument on its merits, not its provenance — but it is a particularly ironic one in this case; said shills — beyond failing to publicize their funding — are never quite sure how to handle someone like me who is completely funded by individual subscribers. And let me say clearly as a truly independent analyst, I think this regulation is absolutely ridiculous.

Did the ACCC consider other models for the code?

The draft code addresses the bargaining power imbalance between Australian news media businesses and major digital platforms through a framework based on negotiation, mediation and arbitration; and which also allows news media businesses to bargain collectively with digital platforms.

Again, what exactly are the terms to be bargained over? As I noted above, there is an argument to be made that publishing companies broadly would be well-served by banding together for advertising (except for the fact that most privacy regulation makes that impossible — oops!), but it is impossible to form a collective bargaining unit to determine the appropriate share of revenue that simply doesn’t exist. Google and Facebook help publishers, they don’t hurt them (and, relatedly, grew large well after the news media’s geographic-monopoly-based business model had been hollowed out).

Which news media businesses can participate in the code and how would they apply?

What type of news is covered by the code?

These two questions are going to create some hilarious loophole exploitation. The first one notes that news media businesses have to nominate sources that “predominantly produce ‘core news'”, “adhere to appropriate professional editorial standards”, “maintain editorial independence from the subjects of their news coverage”, and “operate primarily in Australia for the purpose of serving Australian audiences.” In addition, eligible news organizations have to have had annual revenue of at least $150,000 in the last financial year, or three of the last five.

First off, this last requirement really exposes these regulations for the incumbent-protection regulatory capturing racket that they are. Suppose some enterprising Australian reporter wants to pursue the Local News Business Model, and perhaps with the support of a Faceless Publisher take on incumbent news media organizations. Unfortunately they don’t get the government taking money from Google and Facebook on their behalf.

Secondly, though, once a news organization is approved, it can take money from Google and Facebook for anything! Here is the answer to the second question:

In order to be eligible to participate in the draft code, a news media business must nominate one or more of its news sources that mainly produces ‘core news’. The draft code defines ‘core news’ to include journalism about publicly significant issues; journalism that engages Australians in public debate and informs democratic decision making; and journalism relating to community and local events. Some examples are political reporting; court reporting and reporting on crime.

Once a news media business is eligible to participate in the code, they would be able to negotiate with digital platforms over all news produced by their nominated news sources―not just the ‘core news’ described above. The code’s minimum standards for dealing with news on digital platform services would apply to all news on participants’ news sources, rather than just ‘core news’. Some examples of content that is not ‘core news’ but would still be covered by the code when reported by an eligible news media business include:

• reporting about sport, such as interviews with coaches and players or investigative journalism focused on sports administration
• reporting about entertainment and the entertainment industry, such as news about new film releases or television shows.

I can’t wait for all of Australia’s sports websites to suddenly branch out into court reporting just long enough to get added to this scheme.

How and when would the code require compulsory arbitration?

If the parties have not reached an agreement for the inclusion of news on digital platform services within three months of negotiation, and the parties have attended at least one day of mediation, news media businesses can elect to commence arbitration…

Once arbitration has been triggered through either of the methods above, it is compulsory for the digital platforms to participate in the arbitration. The outcomes of arbitration would be considered binding on both parties.

Another tell — why is there only an allowance for news media to commence arbitration, and not Google or Facebook? The answer is obvious — because this is a regulation written expressly for the news media’s benefit.

Let me be clear: if Australia wishes to tax Google and Facebook and give that money to news media companies, it is free to do so. I could even entertain an argument that taxing Aggregators generally and funneling it to a public good like the media is good for society (although the media may not like the “fairness doctrine” type requirements that would likely accompany such a thing). What makes regulations like these so absurd is how dishonest they are. Don’t pretend like this regulation is some sort of honest attempt at collective bargaining when it is the extraction of money at the point of the proverbial gun.

How would the arbitrator decide between the parties’ final offers?

The draft code requires that in deciding between the two parties’ final offers, the arbitrator must consider:

• the direct and indirect benefit that the content of the news business (or news businesses’) provides to the digital platform’s service;
• the cost to the news business (or news businesses) of producing news content; and
• whether a particular payment amount would place an undue burden on the commercial interests of the digital platform.

This seems like a neutral accounting, but note that “indirect benefit” and “undue burden” are completely arbitrary. The first exists because Google and Facebook don’t really make any money off of news content (news articles rarely show up in monetizable search results, and there are no ads in Google News), and the second sounds like a license to take whatever the arbitrator wishes since Google and Facebook are rich.

What are the minimum standards under the code and why are they necessary?

In addition to the obligation to bargain in good faith, the draft code introduces a series of ‘minimum standards’ for digital platforms to meet in their dealings with news media businesses. These would require digital platforms to:

• give news media businesses at least 28 days’ notice of:
  • algorithm changes likely to materially affect referral traffic to news;
  • algorithm changes designed to affect ranking of news behind paywalls; and
  • substantial changes to display and presentation of news, and advertising directly associated with news, on digital platform services;
• give news media businesses clear information about the nature and availability of user data collected through users’ interactions with news on their services;
• publish proposals to appropriately recognise original news on their services;
• provide flexible user comment moderation tools for news media businesses; and
• allow news media businesses to prevent their news being included on any individual digital platform service.

Whew, there are a lot of bad ideas here. First, the idea that news organizations should have special notice of algorithmic changes is not only grossly unfair to basically everyone else on the web, but also provides truly terrible incentives for the news media businesses themselves, who will suddenly be in possession of invaluable data about Google and Facebook’s future plans.

Second, news organizations have the same data that Google and Facebook do about their interaction with their services on their websites: they know if a user clicked on an article just as well as Google or Facebook does!

I’ll address point four in a moment, but skipping to the last item, Google and Facebook already allow publishers to prevent their news from being included on their services. None of them actually utilize this capability, though, because Google and Facebook are too valuable to their business.

Why is 28 days the appropriate notice period for algorithmic change?

The ACCC considers that 28 days is a reasonable and appropriate notice period for significant algorithm changes that would allow news media businesses to adapt to these changes, without putting an unnecessary burden on digital platforms.

The code would also allow flexibility for digital platforms to implement urgent algorithm changes in a shorter timeframe under certain exceptional circumstances (e.g. to remove misinformation about COVID-19 or in response to events such as the 2019 Christchurch terror attack).

I mean, on one hand, if the ACCC is going to over-regulate, I guess it is nice that they are dictating engineering timelines to news organizations. The reason to note this question, though, is the reference to Christchurch. The last time I wrote about stupid Australian regulation was when the government was passing a law making all Internet companies, up-and-down-the-stack, liable if they didn’t remove offensive content within 24 hours. I guess the fact that Facebook and Google get 24 hours while news media organizations get 28 days is a testament to the regulator’s confidence in their abilities to figure out what algorithmic changes are urgent and what aren’t with zero guidance.

Would the code give news media businesses more control over news content and advertising?

The code would give news media businesses more control over their content and advertising to a certain extent.

News media businesses would be able to ‘opt out’ of having their news content featured on individual digital platform services against their will. News media businesses would also have more control over user comments made against stories they post or publish to digital platform services, with digital platforms required to provide flexible moderation tools that allow:

• removing or filtering user comments;
• disabling user comments against individual news items; and
• blocking user comments or accounts.

This segment obviously applies to Facebook, which remember, doesn’t actually list news items on their own — users do. This regulation says that news media organizations should be given the power to moderate comments on their news items no matter who posts them, anywhere on Facebook. This, to be clear, isn’t just an attack on Facebook, it’s an attack on the free speech of everyone on Facebook.

What do the non-discrimination requirements mean?

The draft code would prohibit digital platforms discriminating against the news content of news media businesses on the basis of their participation in the code.

Broadly, such discrimination would occur if a digital platform disadvantaged the content of a news media business that participated in the code when compared to another news media business that did not. For example, this may occur by a digital platform artificially lowering the ranking of a news media business’s content in search results or a social media feed.

A decision by digital platforms to place more reliance on international news and lower the ranking of, or cease carrying, Australian news content on the basis of participation in the code would also be considered discrimination.

Despite my invocation of free speech in the last item, this part of the code really brings home the fact that Australia doesn’t actually have an explicit grant of free speech; this item is compelling Google and Facebook to include Australian news media companies if they include international ones, even if the former require payment and the latter don’t.

This, again, gives away the game: neither Google nor Facebook actually need Australian news media organizations to make money, but this entire regulation is couched in the assumption that they do, in rhetoric if not in application. The application tells the truth: this is forcing Google and Facebook to display what the ACCC tells them to, and to pay up along the way. Again, perhaps this is the right policy: just be honest about that, which the Australian government is not being at all.

Australia’s Fake News

Look no further than this week’s spat; from CNBC:

In an open letter to Australians, the managing director and vice president of Google Australia and New Zealand, Melanie Silva, said the proposed new law would force the tech giant to provide users with “a dramatically worse Google Search and YouTube.” She also said it “could lead to your data being handed over to big news businesses, and would put the free services you use at risk in Australia.”

Rod Sims, chair of the Australian Competition and Consumer Commission (ACCC), said Google’s letter contained “misinformation” about the draft media law. “Google will not be required to charge Australians for the use of its free services such as Google Search and YouTube, unless it chooses to do so,” Sims said. He added that the tech company will not be required to share any additional user data with Australian news businesses unless it chose to.

The misinformation here is clearly coming from Sims. Google never said it was going to charge for its free services — this accusation appears to be made up out of thin air. Google’s argument is that the regulation’s requirements, particularly the 28-day warning about algorithmic changes, would make its free services worse, which is obviously correct. Again, though, this fits the pattern of this entire regulation: a tax on two American companies and a subsidy for Australia’s incumbent media companies is being spun as some sort of collective bargaining regulation, and the dishonesty runs so deep that it has now led to a blatantly false misreading of Google’s letter.

Let me be super clear. I am not arguing about whether or not Google and Facebook should be taxed by non-U.S. countries, or if there should be societal support for the media; I think there is a really interesting and legitimate debate to be had about both of those topics. What is so frustrating about this regulation, though, and the rhetoric around it, is the blatant dishonesty about the reality of news in the zero marginal cost world of the Internet, and it is the sort of dishonesty that appears to be viral in its own right.

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