What you need to know:

• Meta’s confirmation that it will not be paying more to news publishers under the News Media Bargaining Code has brought what everybody knew into cold reality.
• Now government looks like it has been caught napping, per former coalition government comms minister and code co-architect Paul Fletcher.
• It has to decide whether to designate Meta – i.e. force it to pay via a mechanism that means Meta submits one bid, publishers another, and the arbitrator picks one. No negotiation, no halfway house.
• Meta intends to sidestep that by pulling news, as it has in Canada. Though it says publishers can still use its platform.
• Canada has descended into a morass of "misinformation" and Nine publishing chief Tory Maguire thinks Australia would likewise quickly become a “bin fire” of “disastrous” proportions.
• She disputes Meta’s assertion that only 3 per cent of traffic on Facebook is news links. She thinks Meta has attempted to engineer that outcome – and Meta’s own sums appear to undermine its arguments.
• News Corp Australia Executive Chair Michael Miller agrees. He says the ACCC will find that Meta has shifted news onto its other platforms.
• Likewise former Nine publishing boss Chris Janz, now CEO at Capital Brief – who urges swift action from government to avoid a collapse of New Zealand news proportions. He says the code has been a success, but needs expansion.
• Janz thinks it’s possible that Meta could take a scorched earth approach, pulling out of Australia entirely and walking away from $5bn in revenues to kill off any similar legislative attempts around the world.
• Will Hayward, CEO of Crikey publisher Private Media, agrees that the code needs an overhaul – but says the idea is has been a success is “laughable” given Meta has walked after the first round.
• Those “agitating” for the nuclear option should recognise the consequences for small business – which make up 50 per cent of GDP with many reliant on Facebook. “Disastrous,” per Haywood.
• If government does designate, says Paul Fletcher, it better not miss. Any chinks in its evidence will be exposed.
• Time to call Zuckerberg, he suggests. Whether he will pick up is another matter.
• Get the full download via the podcast.

Australia is about to find out if the News Media Bargaining Code actually works – and if not, what Facebook looks like without much news.  Facebook has already pulled news in Canada, which lawyer and Digital Rights Watch founder Lizzie O’Shea suggests has resulted in “misinformation and disinformation flooding the platform”.

Meta insists it hasn’t affected the platform’s Canadian growth and argues it won’t be much different in Australia. It claims “links to news stories … are less than 3 per cent of the content people see in their Facebook Feed”.

Yet Meta also claims it sent Australian publishers 2.3 billion free clicks in 2023 via the Facebook Feed, which equates to handing publishers $115m in value. Click through rates for news tend to be a little higher than 1 per cent at best for ads, but based on that figure, Meta may be undermining its own argument. It appears to confirm a lot of publisher traffic went through its platform – despite concerted efforts to reengineer it.

Per Meta: “Ultimately, there is a misunderstanding of how news content works on Facebook. Some have accused Meta of “taking” or “stealing” news content but that’s not the case. We don’t scrape or pull content from publisher websites, unlike other companies. We provide a free service which publishers voluntarily choose to use and can benefit from.”

Unheeded warnings

Either way, the last time Facebook turned off news, whether by accident or design, it cut off hundreds of small businesses and essential services. But it has had three years to come up with a plan – and it has no intention of coughing up without another fight.

That much has been plain for years. Meta, after shutting down negotiations with independent publishers in 2021 followed up in 2022 with a boycott of formal code review meetings with Federal Treasury and Australian publishers. Those that invested significantly in staff on the basis of similar ongoing cash injections – The Guardian and ABC both hired circa 60 journalists – were warned.

“The large publishers secured a significant new revenue stream and they have based investment decisions on that. In three years time they will have to gut their businesses if that is no longer available to them,” Broadsheet Media Publisher Nick Shelton said at the time. “At that point they may be pushing for designation.”

Some publishers took a different approach. Nine CEO Mike Sneesby defended FY 2022 publishing division financials that showed a $35.5m pre-tax profit gain directly as a result of the bargaining code cash. Nobody said it had to be spent immediately, per Sneesby, and profit overall would be used to “invest in our strategic initiatives to grow the business and ultimately [sustain] a healthy business”.

Nine publishing boss Tory Maguire said the firm has used the platform money to continue its subscription business build out. She underlined the importance of the platforms in filling the reader funnel for Nine to convert into paid subs.

Meta pulling news from its platform would therefore “have an impact” on that funnel filling, says Maguire, and by implication Nine’s subscription revenue growth. She thinks Meta walking away from $5bn in Australian revenues entirely would be “very extreme” with a Canada-style news exit “much more plausible”.

Maguire’s “professional view” is that Nine is “probably in a better position to weather something like that than a lot of other publishers” though some non-subscription titles more reliant on social traffic would suffer.

“But my personal view is that it would be disastrous, because of the misinformation and disinformation situation … it would very quickly become a bin fire. That has been proven out in Canada. As a nation it would be very dangerous for us to be in that situation.”

Either way, she says, “We don't really know how the code is going to perform because it hasn't actually had to be implemented yet. All those deals were done with the threat of implementing it. I think we're probably about to find out what that really looks like.”

Given all the warning signals, Paul Fletcher, former Communications Minister and co-architect of the News Media Bargaining Code in the coalition government, now Shadow Minister for Government Services and the Digital Economy, suggests the current government has been caught napping.

“These are things I think governments need to be watching and staying engaged on,” he says. “Or else it can all come up at you quite quickly, without you being properly prepared for it … What is troubling is that the current government does seem to have been caught by surprise.”

Money ball

Under the code, if Google and Meta can’t voluntary reach agreements with news publishers, they are formally ‘designated’. Which means going into arbitration and having the fee set independently.

While outgoing Seven boss James Warburton has called for Meta to be designated, News Corp Australasia boss Michael Miller says he would prefer Meta to rethink its stance. Designation, he says, brings risk.

The way arbitration works gives platforms an incentive not to be drawn into a “baseball” style negotiation, per Miller. Each party submits a figure and the arbitrator chooses the offer it deems most fair, he says. “There is no midpoint, no trade off.”

That mechanic is designed to reduce incentives for high- or lowballing by either party, though it could be argued that publishers currently have little to lose from going high.

$800m question?

Nine chairman Peter Costello last time around suggested $600m across the market was a fair sum, basing it on 10 per cent of Google and Meta’s estimated combined Australian revenues and calculating that circa 10 per cent of their business was as a direct result of piggybacking news content. Both platforms have significantly expanded revenues since 2020.  

News Corp’s Miller thinks it should be much higher based on Meta’s own “3 per cent” calculations.

Madison and Wall analyst Brian Wieser – and GroupM’s former global head of business intelligence – estimates Meta’s Australian revenue at circa US$4bn (A$6.2bn) in 2023. That seems broadly in line with data provided by the platforms to the ACCC that estimated Meta’s revenues in FY 22 were $4.7bn-$5.1bn (with caveats around where the revenue was booked versus the country in which ads were shown). IAB Australia calculates search and directories spend in Australia (vast majority Google) stood at $6.6bn in calendar 2023.

If Wieser’s estimate is right, even Meta’s seemingly low 3 per cent news claim would equate to $186m per annum (offshoring treatment aside). Applying Costello’s 10 per cent figure to Google would take the total annual figure north of $800m.

Miller points to the difference in Meta’s reported Australian revenues – $1.1bn in 2022 – and the ACCC’s $4.7bn-$5.1bn 2022 figures as a reason for the company to rethink its stance – and avoid the stoush with government escalating towards the risk of a full blown exit.

There is “a gap of two to three billion of unpaid taxes” per annum to consider in that situation, claimed Miller, “I would prefer them to come back to the table”.

Market manipulation?

Capital Brief’s Chris Janz was involved directly in code negotiations last time around when publishing boss at Nine. He has since been advising media companies internationally on similar legislative efforts – and also suggests Meta has engineered its way to a lower figure.

“Let’s just be honest. Three years ago, when these deals were struck, Facebook did not want to enter into a room where there would be two offers submitted and the value exchange would be discussed. It was a simpler, easier path … for them to say, let's negotiate and people came to commercial agreement,” says Janz.

“Since then, they have used their power to totally change the way news is consumed on their platform to ramp up misinformation. [As a result] I'm certain now they are coming in with a different set of numbers that show a different set of values. But [when] this legislation was enacted, they were terrified of having that conversation, which is why deals were done.”

Meta dismisses such claims, stating users’ Feeds are tailored to their preferences. But Nine’s Tory Maguire agrees with her predecessor’s assessment.

“One of the two biggest indicators of Meta’s market power is the way they have manipulated the use of news on their platforms to win this argument,” she says.

“They created the news tab to kill the news tab to pretend that people on Facebook don't read news.”

But publisher analytics tell a very different story.

“We know that millions and millions of Australians every week are actually interacting with news on that platform. And if they can't put proper journalism on there … God knows what's going to go on there. It would be a nightmare.”

Shifting platforms

News Corp’s Miller also thinks Meta has manipulated how news is shown and says the code, as a result, is now more important than ever.

“News needs to be discoverable. The ACCC found that Meta was an unavoidable trading partner,” says Miller.

“If you look at the background to the media bargaining code, it was [because] there was an imbalance of bargaining power. The essence behind the code was that they [the ACCC] found that there were tech companies profiting from the work of others, in this case, journalists, and restricting the ability of other businesses to grow.

“In Meta’s case, the deprioritising, the hiding, and the depopulating of the Facebook [news] tab – which they've announced they're going to drop – as well as their refusal to negotiate in good faith, contrary to the laws of the Australian Parliament. We’re seeing all that occur right now – and the code was designed to address that,” says Miller.

Meanwhile, he suggests that “the government needs to ask the ACCC to refresh the assumptions it made in 2020”. When it does, “they will find that Meta has maybe moved more content off Facebook [and] onto Instagram. They are growing substantially their news content on WhatsApp, they have launched Threads,” per Miller. “And they will find that while TikTok has entered the market, the total share for Meta and the total reach and the total consumption … have actually grown.”

Canadian club

Miller says the implications of Meta pulling out of news entirely has broader ramifications than the revenues of big, disrupted media companies – and like Nine’s Maguire points to Canada’s experience as a portent.

“Canadians are not able to access local community trusted news and information. And it’s not just news, but it's about your local sports results. It's not just about publishers, growing and finding an audience. It's about fashion brands, restaurants, schools, councils that need to communicate important information,” per Miller. “It will take time to see the true impact, but as a result, Canada will be a poorer nation for the lack of local news.”

Given Meta’s lack of serious competition, he thinks Australia faces a similar outcome if it is allowed to flick the kill switch.

“I fear that what replaces that news in Australia will be unverified, untrusted and no doubt unchecked. Not just fake, but misleading news, which will lead Australians to make poor decisions, and ultimately will make what is one of the world's oldest and strongest democracies weaker.”

Exit inevitable?

Will Hayward, CEO at Crikey publisher Private Media, thinks it’s time to accept Meta is done with news – and prepare accordingly. 

“We need to think about what happens once Meta leaves the news ecosystem. I think that is the most likely outcome,” he says.

“If Meta came back to the table and continue to provide money – even though I think the legislation is absurd – that would be good for Private Media. But I don't think that's going to happen. So I think the most meaningful thing to talk about is what happens next, and to assume that Meta as part of the code is going to leave.”

News Corp’s Miller thinks government should stop that happening by updating the legislation so that monopoly platforms like Meta can’t just walk away.

“If I was a miner and there was one train line running between mine and the coast, and the train operator says I am no long going to carry your resources – and not only that I am going to refuse to negotiate with you – you are out of business,” he suggests. “So what the code considered but didn't include is a ‘must carry’. And I think that's the scenario, given the market dominance that Meta has, that the government will probably need to consider.”

Antitrust issue

The legal and regulatory implications of forcing a platform to carry news and pay to do so are unlikely to be a rapid process. But the former comms minister, Paul Fletcher, thinks it can be done – if done properly.

“They certainly were difficult to deal with,” he says of Meta. “They, along with other big platforms, said that our proposal to introduce the Online Safety Act was unnecessary, that the Safety Commissioner was unnecessary. We went ahead and did it; we went through a careful process. And in fact, it has given Australians who are subjected to, for example online bullying, a means of having that resolved that wasn't possible before.

“It's part of the standard playbook of these giant US digital corporations to always be resistant to legislative proposals in countries like Australia, smaller countries … But I think the lessons of the last 10 or 15 years are that when the democratically elected parliament makes laws, if they're well designed and well thought-through and if you've gone through a proper process … then you can pass laws that the big platforms will comply with.”

Regardless of Meta’s view, says Fletcher, competition laws are there for a purpose – and other companies must also abide by them in order to do business. The News Media Bargaining Code is “a competition law first and foremost”, per Fletcher, which voids potential arguments about free market economics.

“Just as there is competition law that applies to the position of the big supermarkets, and there's a code that regulates how they deal with suppliers, just as there's competition law that applies to the telcos and how Telstra deals with the other telcos … it comes down to being a competition policy,” he argues.

“Both in the Australian economy, and in the US economy with antitrust laws, there's been a long tradition of looking at markets and analysing whether they fall so far short of being competitive that there is a case for policy intervention.”

Deadline looms

Problem is, says Private Media’s Hayward, the cliff edge is fast approaching both for publishers and the population.

“Government needs to move quickly to ensure that we don't see catastrophic outcomes for the news industry in Australia. We're seeing $70 million coming out in three-and-a-bit months. So I think the government should be considering all ways that can help plug that gap,” he says – and not just for the big publishers.

“I do think there is a degree of brinkmanship going on right now. If Meta is designated and it does decide to cut off news, that will be extremely bad, particularly for young Australians, who are the biggest news audiences on social.”

Capital Brief’s Janz agrees measured urgency is required.

‘There’s a challenging period ahead because of the amount of funding that's going to disappear from the ecosystem. That balance between acting with urgency and getting the right long-term answer is a real challenge for government right now,” says Janz. “Any response needs to consider the broader ecosystem, the existing players, the emerging players. But a response is needed. We can't just cover our cover our eyes and ears and pretend that this isn't happening.”

That approach, he warns, risks lasting damage.

“If you want to see what happens if a government sits on their hands rather than act with haste, you need look no further than across the ditch – because in the past couple of weeks, almost half of all TV news jobs have been wiped out,” says Janz.

“Local news media is openly saying they're on the verge of collapse. Legislation has been on the table for a couple of years – ever since the Australian legislation was introduced. But it hasn't been strongly supported by the current government, the current minister, the current PM,” adds Janz.

“In my view, it shouldn't take an extinction event for government to realise the importance of journalism in our democracy and the need for support when traditional funding models have really been upended.”

What next

Few think Meta would walk away from $5bn in revenue. But Chris Janz doesn’t rule out scorched earth.

“I've learned not to predict anything [Meta] is going to do because the most rational, logical path isn't necessarily the path they'll follow. But I'd say it would be true to form for them to attempt to hold the government to ransom and say, ‘Hey, we're worth 80 per cent of your GDP. All those rules don't apply to us, we'll do what we want’,” says Janz.

While 80 per cent is something of an overstatement (it's more like 8 per cent), “The implications for small businesses in the storm that would erupt are real,” per Janz, who describes suggestions large publishers are agitating for a full blown exit for their own benefit as “laughable … it would be handing a virtual small business ad monopoly to Google”.

Meanwhile, government can’t let a company “throw its toys out of the pram” and operate under its own set of rules.

“But, if [Meta] did withdraw from Australia, it would shut down this conversation in many other markets as a result. And that’s a real concern that shows the need for broader policy.”

That means extending and evolving the code, which was “groundbreaking” at the time, per Janz, but now needs updating, “because the bargaining imbalance that exists between Facebook and Google and news publishers hasn't gone away. If anything, it has intensified.”

Wholesale rewrite?

Private Media’s Will Hayward is not so sure. He thinks a major overhaul could be required, with more platforms captured – and suggests government may need to plug the funding gap in the meantime.

“Saying the code has been a success is laughable. At the first renewal, one half of it has walked away. And from what I can gather from this [podcast] nobody here thinks Meta is going to come back to the table. So the code has failed. We need to either radically rethink it – I certainly agree that it needs to be expanded and I think there are more technology platforms should be paying it.” says Hayward.

“But any reasonable bit of legislation, you would say, ‘we think public interest journalism needs additional support, we think the free market has failed, we think it is very hard to do, but it also provides a service. And therefore we're exploring ways to fund that.’

“The way the government would do that properly is by seeking additional income from technology companies and using that income to build some sort of fund that exists at arm's length from the government. And if it wants to, there is a very good mechanism for investing in public interest journalism in Australia – which is the ABC. So I think there are ways,” he adds.

“But the code is falling apart at the first renewal, so I think we need to look at an expanded version and I think the government should do it properly.”

News Corp is not renowned for taking a fond view of publicly funded journalism, but Michael Miller suggests that option is already open to government. He points to NZ on Air, New Zealand’s means of funding quality, diverse public media via which media companies pitch for funding each year.

New Zealand’s current media woes however suggest it’s no panacea. Miller suggests other “underlying” market issues are at play, with “ownership” one factor. “I think you need to unpack what is happening in New Zealand. It is concerning that there is a major news player that is no longer there. But what I am referring to is that there are alternative funding models that Australia has not reviewed for many years.”

Per ex comms minister Paul Fletcher: “Politicians have no shortage of people coming in suggesting that the taxpayer should pay for things.”

Designation diversity…

News Corp’s Miller thinks designation could solve problems for the smaller publishers almost immediately ghosted by Meta back in 2021 – and perhaps should have been imposed the first time around.

“Meta has not signed [deals] with enough Australian publishers. [If] you go down the path of designation, all of the independent digital publishers that do not have a deal today are suddenly going to be in the frame. And that is what the government now has to consider – in terms of the next iteration of the code – how to ensure that new publishers [are treated as intended], what threshold is there to qualify [etc.]. That is what I think the intention of the code was – but Meta has not played ball,” says Miller.

“Designation could have enabled a more vibrant media industry.”

… or disaster

Private Media’s Will Hayward thinks designation could lead to escalation that cripples small business. While Hayward is no big tech “cheerleader”, it’s a line Facebook has often used in the past when regulatory intervention looms.

“When I think about designation, there's the bigger media companies, the independent media companies and then there's the wider small business ecosystem of Australia, which is obviously critical. That represents about 50 per cent of GDP and about 70 per cent of total Australians work for companies with fewer than 200 employees,” says Hayward.

“My view is that big media is not particularly worried about designation, you take out Facebook, you take out Instagram, it's inconvenient but I don't think anyone's issuing profit warnings off the back of that,” he adds.

"I think there's even a bull case on designation for big media companies. So if you can really agitate this, if you can really draw the Prime Minister into it … Maybe you can get Meta booted out of the country. That's a lot of ad revenue that has got to go somewhere – maybe the situation looks even better for big media.”

Hayward says the nuclear option would have little impact on Private Media.

“We don’t make much money from the mass advertising that Facebook engages in …. So on a business level I’m not concerned. But on a personal level, designation would be potentially disastrous for Australia … If Facebook removes news, that is very bad for independent media companies, the small ones,” says Hayward.

“But if it withdraws entirely, which is what some people seem to be somewhat agitating towards, that will be very bad for small businesses. The vast majority of small businesses use Facebook advertising tools. So I would caution government to behave responsibly. I'm not advocating that we shouldn't expect these technology businesses to pay into the communities that they draw so much from, but I do not think designation on the bargaining code is the right way to go about it.”

Call Zuck

If it does decide to designate, government needs to tread carefully, warns Paul Fletcher. Any chinks in its evidence and logic will be exposed.

“What they need to be doing is engaging pretty closely on the immediate trigger issue, which is what Meta has said [i.e. we’re not paying] and working out pretty clearly what their plan is in response. I hope they are working very closely with the ACCC, given the importance of advice from the ACCC to the Treasurer before a decision to designate as made,” says Fletcher.

That appears to be the case, with the ACCC now asking publishers to quantify the audience and revenue impacts of a Facebook news block.

“The only caveat I would add is that an important part of the success we had was in the dialogue that was occurring between the government and Facebook at the very highest levels,” adds Fletcher.

“That factor is something that it would be good to see now.”

There's even more in the podcast. Get the full download here.

Meta's right of reply

“Most of the recent debate about how news content works on our platforms has included unfounded statements that not renewing commercial news deals would result in an increase in misinformation/disinformation on Facebook. There has been no evidence or data to suggest this," responds Meta ANZ boss, Will Easton.

"We are committed to connecting people to reliable information on our platforms. We have built the largest global fact-checking network of any platform by partnering with more than 90 independent fact-checking organisations around the world who review content in more than 60 languages. We have contributed more than $150 million to programs supporting our fact-checking efforts since 2016 to combat the spread of misinformation and we will continue to invest in this area. This includes our work with dedicated fact-checkers in Australia, including AAP, AFR and RMIT-Fact Check.”