The Bulletin

News

The news media bargaining code could backfire if small media outlets aren't protected: an economist explains

  • Written by Simon Wilkie, Dean, Faculty of Business and Economics; Head of Monash Business School, Monash University

When I was the chief economist at the US Federal Communications Commission, we oversaw was the acquisition[1] of DirecTV, the satellite pay-TV platform, by News Corp in 2003.

Prior to the merger, DirecTV did not own significant content, and content-rich News Corp did not own a pay-TV distribution platform.

Economic analysis showed the merged entity would have the incentive to raise the price of certain TV channels, such as the Fox broadcast network and Fox sports channels, that were sold to rival pay-TV distribution platforms and cable companies such as Comcast.

To counteract this anti-competitive harm, we developed what is known as the FCC arbitration mechanism if firms could not agree on a price for a channel.

This is the same mechanism the Morrison government’s news media bargaining code[2] would impose on Facebook and Google in Australia to force them to compensate Australian media companies for linking to and using their content.

In the US context, the arbitration mechanism worked. In particular, News Corp founder Rupert Murdoch complained about his inability to raise prices and subsequently sold DirecTV to get out of the arbitration requirement.

Read more: Google's and Facebook’s loud appeal to users over the news media bargaining code shows a lack of political power[3]

But there are some stark differences between the US and Australian contexts. In particular, there were many other channels in the US that were not affected by the merger, so an arbitrator could use the market price benchmark for what was a reasonable price for a TV channel.

For example, a cable company such as Comcast could submit its contracts with broadcast television networks like ABC, NBC and CBS to benchmark the price for the Fox network.

In the Australian context, there is no such benchmark competitive price for the value of news content. Hence the government’s encouragement for parties to reach commercial agreements before the news media bargaining code takes effect, to better inform the arbitrator.

Although the aims of the bargaining code are laudable, Facebook responded last week with a drastic move: blocking the sharing and publishing of Australian news on its platform. Research indicates this could be devastating to the small news publishers in Australia.

The news media bargaining code could backfire if small media outlets aren't protected: an economist explains The federal government has announced it is pulling all advertising campaigns from Facebook in response to the tech giant’s move last week. Andrew Harnik/AP

What happened when Google News was shut down in Spain

In an important study[4], Stanford economist Susan Athey and her colleagues Markus Mobius and Jeno Pal examined the impact of the withdrawal of Google News from Spain in 2014.

Similar to Australia today, Spanish regulators required that Google pay publishers for news content. In response, Google shut down[5] Google News in Spain.

By studying the online behaviour of a large set of individual users who had agreed to be tracked, they found that overall online news consumption in Spain (as measured by page visits) declined by around 10%, which is consistent with other studies.

But thanks to the use of individual data, they were able to dig deeper and found the decline was concentrated on a specific set of users. People who specifically relied on Google News to initiate a news search reduced their news consumption by about 20%.

In a concerning finding, this reduction in news consumption disproportionately affected smaller publishers, who experienced a dramatic reduction in page visits. In contrast, large publishers saw an increase in visits to their landing page.

This was particularly true in cases of “breaking news”, where large publishers had the advantage of being first to report.

As a result, the authors wrote, large publishers likely saw their advertising revenues increase. And overall, there was also a change in the type of news people consumed, with fewer people gravitating toward breaking news, hard news and news from diverse news outlets.

Read more: Local news sources are closing across Australia. We are tracking the devastation (and some reasons for hope)[6]

If the role of Facebook in Australia is similar to Google News in Spain in terms of driving traffic to individual news outlets, then the consequences of Facebook’s recent action will be dire for public interest journalism — and, in particular, the diversity of the Australian media landscape.

It will likely increase the market share of entrenched major media outlets and reduce visits to smaller players. If this is the case, the goals of the news media bargaining code will not have been met. It will have backfired.

Fixed payments won’t lead to more investment

There is a second and subtle point of economics relating to how the bargaining code is implemented. The arbitration rules under the code now require a digital platform to make a fixed payment to a media outlet for two years of content.

A fundamental principle of economics is that a fixed cost — or a fixed sum of revenue — does not affect a firm’s decision on how much of a product it makes or the quality of what it produces.

As pointed out by economist Josh Gans[7], this means a fixed payment from Facebook or Google to news providers will not necessarily lead to any more dollars being invested in journalism by major media firms.

If the objective of the code is to drive a healthier public interest journalism landscape, this is a shortcoming that needs to be addressed.

Read more: The old news business model is broken: making Google and Facebook pay won't save journalism[8]

To ensure the best possible outcomes for small-to-medium-sized public interest news producers — an important element of media diversity — the government should consider using the revenue from Google and Facebook for short-term capacity funding in the first 12 months of the code.

This would be funding specifically earmarked for the small- and medium-size publishers who will be the most adversely affected.

However, the principles of economics also tell us that a fixed amount of costs or revenue does affect one decision by a firm — the choice to either shut down or stay in business.

So, the code may have a positive effect on Australian public interest journalism to the extent that any payments may keep struggling, small publishers in business with an influx of steady cash.

This further reinforces that the focus should be on small publishers, rather than the larger news organisations.

Most of the attention on the code, thus far, has been on larger players. But if the real issue is in the sustainability of small publishers, we must look beyond the code to introduce additional mechanisms to ensure the viability of public interest journalism, including regional news or journalism for hyper-local markets.

This could include, for instance, taxation reform[9] to fund public interest journalism.

Even with the best possible outcome under the code, measures such as this are necessary and must be implemented as a matter of urgency.

Read more https://theconversation.com/the-news-media-bargaining-code-could-backfire-if-small-media-outlets-arent-protected-an-economist-explains-155745

News Bulletin

Australia has a long history of coercing people into work. There are better options than 'dobbing in'

After heated criticism from several quarters, the federal government last month announced a meagre rise in the JobSeeker payment for people looking ...

Frances Flanagan, Sydney Fellow,  Discipline of Work and Organisational Studies, University of Sydney - avatar Frances Flanagan, Sydney Fellow, Discipline of Work and Organisational Studies, University of Sydney

Yes, export bans on vaccines are a problem, but why is the supply of vaccines so limited in the first place?

Cecilia Fabiano/APNews of the blockage of a shipment of 250,000 COVID-19 vaccines from Europe to Australia has caused concern and outrage. The immedia...

Deborah Gleeson, Associate professor, La Trobe University - avatar Deborah Gleeson, Associate professor, La Trobe University

Michelle Grattan on the royal commission into aged care, Christian Porter and Linda Reynolds

University of Canberra Professorial Fellow Michelle Grattan and Director of the Institute for Governance & Policy Analysis Dr Laine Dare discu...

Michelle Grattan, Professorial Fellow, University of Canberra - avatar Michelle Grattan, Professorial Fellow, University of Canberra

50% of Australians are prepared to pay more tax to improve aged care workers' pay, survey shows

www.shutterstock.comThe final report from the aged care royal commission this week was damning. Speaking of a system in crisis, it calls for an urgent...

Rachel Milte, Matthew Flinders Senior Research Fellow, Flinders University - avatar Rachel Milte, Matthew Flinders Senior Research Fellow, Flinders University

Scott Morrison can't get circuit breaker while Porter remains

Scott Morrison has a near obsession with control. But suddenly – in the course of only weeks – he has found himself presiding over a governmen...

Michelle Grattan, Professorial Fellow, University of Canberra - avatar Michelle Grattan, Professorial Fellow, University of Canberra

Where do we go from here with the allegations about Christian Porter?

originalA great deal has been written and said in the last few days about the next steps in the historic claim of rape against Attorney-General Christ...

Rick Sarre, Emeritus Professor of Law and Criminal Justice, University of South Australia - avatar Rick Sarre, Emeritus Professor of Law and Criminal Justice, University of South Australia

Patricia Sparrow on the Royal Commission into Aged Care

The Royal Commission into Aged Care has now delivered its final report, and its findings are an indictment of the inadequacies of the present system...

Michelle Grattan, Professorial Fellow, University of Canberra - avatar Michelle Grattan, Professorial Fellow, University of Canberra

Can Scott Morrison's rhetorical style cut through the rising tide of anger?

Darren Pateman/AAPThe word “sophistry” – defined as “the use of clever but false arguments, especially with the intention of d...

Annabelle Lukin, Associate Professor in Linguistics, Macquarie University - avatar Annabelle Lukin, Associate Professor in Linguistics, Macquarie University

Australia has a long history of coercing people into work. There are better options than 'dobbing in'

After heated criticism from several quarters, the federal government last month announced a meagre rise in the JobSeeker pa...

Yes, export bans on vaccines are a problem, but why is the supply of vaccines so limited in the first place?

Cecilia Fabiano/APNews of the blockage of a shipment of 250,000 COVID-19 vaccines from Europe to Australia has caused concern...

Michelle Grattan on the royal commission into aged care, Christian Porter and Linda Reynolds

University of Canberra Professorial Fellow Michelle Grattan and Director of the Institute for Governance & Policy Ana...

Writers Wanted



News Co Media Group

Content & Technology Connecting Global Audiences

More Information - Less Opinion