EXPLAINER

Facebook is back but where, exactly?

It's not a replacement for the 'rivers of gold' but it's helpful. It goes directly to public interest journalism. It's not to be sneezed at but it doesn't make unviable newspapers viable again.

Dr Rob Nicholls

A week ago, Facebook dropped its bombshell: it would stop allowing news sites to be seen or shared on its platform in Australia.

As the government pressed forward with its News Media Bargaining Code, which would compel Facebook and Google to negotiate to pay news companies, it picked up the ball and walked off the field, some said petulantly.

This week, it reversed its decision. Links to news sites will be back on Facebook and users will be able to share them.

The tech giant has already struck a deal with Seven West Media. More will follow.

The other target of the code, Google, withdrew its threat to pull its search engine from Australia. It has done deals with Australian Community Media, which owns this paper, and with News Corp, Nine Fairfax and The Guardian.

Some of the deals were done way before the current row. Google had long been prepared to negotiate and pay - it just didn't like the compulsory arbitration, which it will now accept.

As ACM put it: "Google News Showcase, announced last year as part of the internet giant's $US1billion global investment in news partnerships, went live on Friday morning across a number of Australian news brands, including ACM's Canberra Times, Newcastle Herald and Illawarra Mercury."

So, what's going on?

Did the government back down?

In the face of the Facebook ban on news sites, the government did agree to change the code the companies objected to.

Treasurer Josh Frydenberg's changes can be summed up as:

  • He won't impose the code and its arbitration on Facebook if it's already done deals with media companies.
  • The government will give a month's warning before imposing the code.
  • There will not be an attempt to make Google or Facebook do similar deals with similar media companies. The money they agree on can be different.
  • Arbitration will be a last resort.

This is not backing-down, according to Dr Rob Nicholls of the Business School at the University of New South Wales and a former official at the Australian Competition and Consumer Commission which drafted the code to which Google and Facebook took exception.

He reasons that there would be no need to impose the code if the deals are already done. The whole point of imposing the code would be if there was no agreement.

And on the other points: the month's notice doesn't alter very much of anything; companies can negotiate secretly without divulging the commercially sensitive final sums - but that always seemed inevitable; and arbitration always was a last resort.

What do the deals mean for the news companies?

The money's nice to have but far from a life saver, is the view of Dr Nicholls.

The ACCC estimated that "Australian commercial media, and in particular traditional print media (now print/online media), first suffered a significant reduction in advertising revenue through the unbundling of classified advertisements from newspapers". "This resulted in a decline from $2 billion in classified advertising revenue in 2001 to AU$200 million in 2016."

Adjusting for inflation, that's an annual drop of advertising revenue to papers and other commercial media companies of $3.5 billion since the beginning of the century ($3,500,000,000 to write it out in full).

The amount of money Google and Facebook will pay the media companies isn't known (and they aren't telling) but the ball-park figure in the industry is $150 million to $200 million.

That is less than 5 per cent of the lost annual revenue and so not a game-changer, and certainly not for smaller independent papers not covered so far by deals.

"It's not a replacement for the 'rivers of gold' but it's helpful," Dr Nicholls said. "It goes directly to public interest journalism. It's not to be sneezed at but it doesn't make unviable newspapers viable again."

There was a risk for Facebook of companies pulling their advertising. Picture: Shutterstock

There was a risk for Facebook of companies pulling their advertising. Picture: Shutterstock

Why did Google settle and Facebook hold out?

Their situations are different. Google has more competition than Facebook. Google may look over its shoulder and see Bing, and it's relatively easy for people to switch from one search engine to the other.

Facebook, on the other hand, is more like a telephone network. In an imaginary world of several telephone networks, you want to be on the same network as the one all your friends are on. The rival network may be cheaper and have better lines, but without users, it's not attractive. Facebook is the network with the vast majority of users.

According to figures from the ACCC, four in five Australians over the age of 14 use Facebook. The company has the market power of a utility. Facebook has more than 16 million active users in Australia. It is, in effect, a monopoly with monopoly bargaining power.

But a more important factor may be that the Commonwealth government withdrew its advertising from Facebook.

Only on Monday, Finance Minister, Simon Birmingham, said: "My expectation is that we will pull back from advertising while they undertake this type of terrible activity of pulling down sites inappropriately, seeking to exert power or influence over our democratic systems."

That raised the prospect of others following the government's decision. "There was a risk that the states and territories would follow suit," Dr Nicholls said.

There was then a risk for Facebook of companies pulling their advertising. Questions might be asked by activist investors in Annual General Meetings. A boycott might have taken off.

If Facebook was blacked by advertisers in Australia and beyond, the cost would have been high. Dollars talked.

This story Facebook is back but where, exactly? first appeared on The Canberra Times.