Dynamic Competition in Dynamic Markets: A Path Forward – News Media & Competition Law: Analysis of Australia’s Latest Developments

Below we have provided the full text transcript from the first panel of our broadcast conference, Dynamic Competition in Dynamic Markets: A Path Forward, from August 6.

Allan Fells Speaker

Allan FELS AO:

I would now like to turn to our panel, actually, we have a really excellent panel of top people in Australia, to discuss the interview of Rod Sims and the general issues surrounding the news bargaining code. The speakers we have and I’ll present in largely alphabetical order, associate professor Julie Clark, who’s Associate Dean of the Melbourne University Law School with a special interest in digital technologies and competition law. She’ll be followed by Lucinda Longcraft, Director of government affairs and public policy for Google in Australia and New Zealand, who’s in Sydney at the moment. Julie’s in Melbourne, then George Siolis, partner in Australia of RBB Economics, and George you’re in Sydney, are you?

George Siolis Speaker

George SIOLIS:

Yup, Melbourne.

FELS:

Melbourne, sorry, George.

SIOLIS:

That’s all right.

FELS:

Then Luke Woodward, who is a partner of Gilbert + Tobin, a leading Australian law firm and Luke is a leading practitioner. And finally, we have Kate Reader, from the ACCC. Kate is the joint General Manager, digital platforms of the ACCC and played a really important role in putting the code together, also the big digital platforms inquiry. I’m going to ask each speaker to speak for about five minutes on this whole topic. And then after that, we’ll have a discussion for another 20 or 30 minutes. Over to Associate Professor, Julie Clark, Julie.

Julie Clarke Speaker

Julie CLARKE:

Thanks very much, Allan. I want to make three observations about the code. Now, the first is that it’s not a change to Australia’s approach to competition law. Second, that I think the minimum standards of broadly appropriate and third, that while there are some, I think genuine concerns about scope and unequal treatment, they perhaps shouldn’t be overstated. And I think Rod’s made this clear, but I think it’s worth emphasizing, that the code doesn’t represent any fundamental change or distortion to Australia’s competition rules when dealing with platforms. It’s also not inconsistent with the approach that is adopted in other sectors, where there’s a power imbalance or potential public harm that’s been identified. Rod mentioned, I think the ACCC is an agency with a very broad mandate and enjoys competition consumer and regulatory roles, has the power to authorize anti-competitive conduct. We’re doing so it serves public interest, and in overseas mandatory and voluntary codes of conduct that have been developed where public interest, demands some level of intervention to create bargaining and balances.

And this is, I think, particularly important given Australia has many concentrated market. This approach recognizes that while market focused competition is that sort of default approach in Australia, public interest based exemptions and regulations are not uncommon and recognized as sometimes needed in our markets. Second, I think the minimum standards are appropriate in principle. The code’s not all about bargaining and direct revenue exchange or compensation, although obviously that’s attracted the most interest, but I’ll leave others on the panel, I think to comment on that aspect in a bit more detail. The code’s also about setting standards of fairness on the use of media content and those standards are designed in part, at least to overcome information asymmetry, allows news to better promote and monetize their original content or at least to limit practices that might undermine their ability to do that.

Those standards include, as Rod mentioned, clearly explaining the information that platforms collect, notifying news and advance of algorithmic and display changes, facilitating better communication, negotiating some appropriate recognition of original content and giving media companies greater control over the use of their content, including the ability to moderate. And these are supported both by significant penalties for contravention, more than many other codes, as Rod’s mentioned, and an obligation not to discriminate between news businesses who fall within and outside the code.

Some of this obviously has already been volunteered or negotiated to a degree between the platforms and media, but I think the codes obligations generally are more extensive and provide some welcome ongoing certainty. And third, I think while there are risks regarding scope and equal treatment, they perhaps shouldn’t be overstated in terms of who it protects. The scope is at once potentially too broad and too narrow. It’s too broad perhaps in its definition of covered news content. I really love my sport, but I’m not convinced that protecting sport and entertainment news is critical to a well functioning democracy. Some obviously will like to debate that.

It’s also potentially too narrow. First it excludes the public media organizations from the benefits of bargaining, that’s of course a political decision and there are, I understand complex arguments for and against their inclusion. But second, the code also exclude smaller and startup media, both from the benefit of bargaining and from standards, unless they made a financial threshold. Rod mentioned that part of the rationale for that, is to avoid a flood of small upstart is qualifying, essentially requiring that they prove themselves before enjoying the benefits of the code. And I think this could reasonably justify their exclusion from bargaining until they meet that threshold. But I think failing to give smaller or nice and operators the advantage of minimum standards, where they otherwise meet journalistic and content criteria might put them at a competitive disadvantage and risk limiting diversity and innovation, particularly in regional markets.

In relation to the final offer approach to arbitration, one I know is largely in line with that proposed by News Corp. There is a risk that even with collective bargaining, it may make it difficult for smaller operators to reap a full or equivalent benefits of the code to the larger media operators, and that might help to entrench existing power dynamics. That perhaps is exemplified by the response News Corp’s expressed light with the proposed code, smaller media groups have expressed some concern.

In relation to its obligers, initially only Google and Facebook are designated platforms where they’ve expressed some concern about that. But I think given their role as necessarily trading partners and existing bargaining power disparity, I think that is not inappropriate. I do think it is a concern that the treasurer, has given himself a broad discretionary power to determine which platforms are designated. I worry that that risks unnecessary politicization of the process and some uncertainty in its original digital platforms inquiry. I note the ACCC recommended that ECMO should have that role.

And finally, I think, although taught by the platforms of the code dis-incentivizing innovation, seem to me to be exaggerated. There’s obviously the risk of unintended consequences. I think that said a not unreasonable policy decisions being taken that favors intervention over abstinence in this case. I think at least with some finessing, the code approach that’s been proposed, now particularly as it pertains to standards, represents a fairly solid and fair attempt to strike a balance between the various interests of news, the platforms and the public interest, thanks.

FELS:

Thank you very much Julie. That was a good start. Now Lucinda, what have you got to say?

Lucinda Longcroft Speaker

Lucinda LONGCROFT:

Allan, thank you. And thank you for the invitation to join this panel. It’s a pleasure to be part of a discussion and I’m sure the very diverse views that we’re having in this discussion. What I’d like to do, is to identify a few aspects of the broader context, in which this code sets or seeks to engage. And that is the evolving new system in Australia. I think first off to say that Google cares about the new system in Australia and cares deeply. The direct economic value of news to Google is small. Last year, less than 10% of revenue, not profit, of revenue was gained from news related queries by string users. The bulk of our revenue is gained from of course, commercial queries. Just about, or just over about 1.2% of total queries of Australian users had a news intent. The value while not economic, it’s not about economics, it’s about the value of news to the Australian users and consumers to democracy, to reliable information and to the making available of information, which is core to Google’s Australian global mission.

For that reason, Google strives to be a constructive partner with the news industry in Australia, particularly as they have sought to evolve their business models, to be sustainable and survive in the digital age. And particularly in the recent times, as we have all gone through the challenges of COVID-19 and the impact on our business, nonetheless, we are not the cause of the struggles that the news media business are going through. As the ACCC’s digital platforms inquiry report correctly identified, there are numerous causes to this increased competition, diversification of the sources of news, the ways in which we as Australians go to gather our news. And at the global level, of course, the reshaping of the ad markets that subsidized the news industries of the past. But when moving to a model where users willingness to subscribe and paid for content is key.

And Google has partnered with the news industry in Australia to drive users to their sites. In fact, last year, about 3.4 billion user clicks were directed by Google Australia to Australian news publishes, estimated in the value of about $218 million. In terms of the ACCC’s report, as a premise, we fundamentally disagree with the claim that there is a market power imbalance. In fact, the ACCC’s and the government’s own data, showed that we are only a small part of the traffic that news publishers received from Australian users. And in fact, it’s more a part of their engagement with audiences through their apps and other more innovative digital environments. Nonetheless, we do not in principle oppose a code. We recognize that in Australia codes of conduct, have proven to be effective ways to manage complex industry issues.

And for that reason, an evidence based carefully considered code has always been our goal and the source or reason for our constructive engagement with the atrial porcine, with the government throughout this process, from its voluntary origins through to its mandatory conclusion. We have so in good faith to provide the atria porcine with volumes of data, data from our Australian operations and from our global operations provided in both the public sense and also commercially in confidence where it couldn’t be made public to support and assist ACCC to factoring the value. The true and fair value exchange between Google and news platforms. Our hope has been and continues to be that we would have a forward-thinking code. One that is grounded in commercial reality, that creates incentives for both digital platforms like ourselves and the news media industry to negotiate and to develop ways to provide our services better and improved and innovative ways for Australians in the future.

But we are deeply concerned about the current draft of the code. We feel that it is a world first for all the wrong reasons. It’s heavy handed intervention does not reflect commercial reality and threatens to impede the digital economy and the Prime Minister’s vision of Australia being a leading digital economy by 2030. And it threatens to impact the services that we Google Australia can provide to Australians. This is a deep concern to the wider business community, not just to Google. Government intervention that fails to allow the markets to work, that overreaches into the ways in which businesses engage and negotiate creates disincentives for true innovation and does nothing to solve the fundamental challenges that are facing the news business industry, as it seeks to evolve in a sustainable way into digital age.

That concern is being expressed by the wider industry community. The co-founder Atlassian described the code as legalized theft. There is a two way value exchange between Google and the news media businesses, that was recognized by the ACCC and the government quite correctly, throughout the course of the digital platforms inquiry. The code purports to create a level playing field, but when negotiating position, the bargaining and arbitral framework that it provides, ignores the significant value that Google provides to publishers, that 3.4 billion clicks, $218 million worth of value that we have provided.

And the significant investments that Google does both in Australia with 1,700 employees and engineers all over the world and creating and innovating and proving our platforms to use and provide services to users, that they can use to access the news and be directed to new services. It establishes a negotiating model that takes only one side and risks undermining the benefits of a shared web. And it works against the interest of Australian users by favoring large media organizations over the small ones.

We believe there is a workable model for a code between Google and publishers that establishes and allows good faith negotiations and promotes innovative uses of news. We have been exploring and have discussed with the ACCCA and with government, a range of innovative deals that we are concluding with Australian and global news publishers. Innovative ways of licensing their content that gives the news media control of the way in which their content is accessed by consumers and users, and is a significant investment by Google, both in the development of this new licensing platform and in the ways in which we support users to access material between the high firewalls.

Our goal in this whole process is to provide Australians with the products that they love. As Treasurer Josh Frydenberg acknowledges, Australians love Google products, and we love providing them to Australians. But the code in its extreme form is deeply concerning. We don’t know how business can continue to operate in an environment with this level of uncertainty and overreaching intervention. For that reason, my supervisor, our Managing Director, has said that all options are on the table as we consider how to manage the code that’s been put forward. We are urging government and policy makers to ensure that the code is grounded in commercial reality, that it is designed to serve the interests of Australian users and preserve the shared benefits of the web and ensure that Australia is that leading digital economy that we all wanted to be. Thanks.

FELS:

Thank you very much Lucinda. I know turn to George Siolis of RBB.

SIOLIS:

Thanks Allen. And well done on interview with Rod. That was very good. I’ll start with a couple of caveats and then a full point from an economic perspective. The first caveat is that RBB has advised Google on a range of competition issues, mainly in Europe. I haven’t been involved in those, nor in any of the negotiations leading up to this code in Australia. The second caveat is that the views that I’m expressing here today are my views, not RBB’s. The first of the four points that I want to make today is that, and it picks up on something that Lucinda just said, is that there have been serious structural changes in the publishing industry. One of those has been a massive shift in advertising away from traditional print media, away from the old print classified advertising revenues to online advertising revenues. In real terms, classified advertising revenues went from 3.7 billion Australian dollars in 2001 to $225 million in 2016.

Now that change is really at the heart of the issues that we’re discussing today and was actually something that the ACCC set out nicely, I think in the original DPI report, digital platforms, inquiry report. Well done to Kate and the team on that, but what that means is that the business models, traditional print media have been seriously undermined. Those billions of dollars of classified advertising revenues, the rivers of gold have dried up and that’s crucial. It’s that structural change that has reduced the ability of some media businesses to fund Australian news and journalism. We seem to, I think, cross over that and we tend to blame the imbalance in bargaining power between platforms and publishers, for the inability of some publishers to invest in quality journalism. And I think that’s wrong.

The second point is that there’s a risk here that people are pining for the good old days. The days when commercial traditional print media made enough money to really invest in public interest journalism. I miss those days too, but the world has changed. There’s now a proliferation of new ways of creating and accessing news and journalism. And the traditional large commercial publishers are facing more competition than ever before. Some of that stuff may not be what we think is public interest journalism, but there are now more people accessing more publishers in more ways than ever before. That’s a good thing. That’s how markets and competition work, old business models fail, new ones pop up, and it’s never been the ACCC’s Job to prop up failed business models or to pick winners, even if the healthy functioning of their democratic processes is at risk.

The third point is that the reason for intervention here, I think is nebulous. Competition agencies I think should intervene when there is conduct that harms the competitive process or when competition has irretrievably broken down. And this code doesn’t really tick either of those boxes. I know that the chairman of the ACCC in the earlier session with you Allan, said that there was a market failure here, because of the inability of traditional print media to invest in quality journalism. But hat seems to me to be a mis-characterization. As I said out earlier, the inability to fund high quality journalism is due to those seismic structural changes that we’ve seen in this industry, classified revenues falling from 3.7 billion down to two to 5 million in real terms in 15 years.

Competition agencies, I think will have a job for life if they want to go around balancing up the bargaining power between firms. They probably should do that if competition in the relevant market has completely broken down or to help restore the competitive process. But, but here the reason for intervening is mostly about the achieving a fair outcome. And as an economist, I don’t really know always what fairness looks like. I suspect that the arbitrators on Eckermann’s panels might not know what that looks like either and that worries me.

The last point is that the rules of the game, final offer arbitration in this case, are really untested. The mechanism that governs the arbitration process matters. The model that’s been proposed, final offer arbitration, has been imported from overseas and has been applied over there in a very different context. The hope is, and the chairman, I think used that word in a chat with you Allan, I hope that it avoids epic claims and helps avoid the parties making the straight offers during the negotiations, but that’s all that is, it’s a hope.

Final offer arbitration may in theory encourage negotiating parties to make, instead of that are in the same bull pack, but is that actually what happens in practice? The empirical work coming out of the US suggested that that might not actually be achieving that in practice. This metric code, it’s a big deal. Has the ACCC actually tested to see whether that sort of model would work here? Does it have the evidence to show that the approach, the mechanism matters and the stakes are high, and I hope some serious work has been done in the background when coming up with this. That’s it from me.

FELS:

Thanks very much, George. Very good. Let us know turn to Luke Woodward, a partner of Gilbert + Tobin. Luke?

Luke WOODWARD:

Luke Woodward Speaker

Thanks very much, Allan and to the preceding panelist for your interesting observations, I’ll look forward to yours in a moment, Kate, and thanks to CPI. Look, I’m not as succinct as Julie, I’ve got five key kind of initial reactions. I’ll run through those and then I’ll tease out a couple of those and I’ll try and keep to the time, because I’m sure we can pick up some of these after. Firstly, I think as others have – and as Julie noted – this hasn’t come out of the blue< but still nonetheless, it’s a shock to see it in the detail. It is a big reform in the digital media space and no doubt will send real shocks through the digital platform environment. But I agree with Julie, it’s not necessarily a radical issue or even a radical solution.

If you accept the policy imperative around the impact of digital platform competition, in terms of advertising erosion on public interest journalism, then this at a high level is not clearly a bad option from the range of approaches that would be available. There are actually some clever ideas in here and they have proposed answers on some key issues, they haven’t dodged them all and they’ve also provided mechanisms to resolve others. They’ve drawn on experience that we’ve seen here in Australia in terms of, we’re in, if you like, regulatory or other determination frameworks haven’t worked well. And they’ve tried to address that, they’ve drawn on that. But as I sort of worked through the draft bill, it’s got a lot of detail to get across. It’s quite short, but there’s a lot in it and needs to be carefully reviewed. There are big and perhaps surprising calls that are made. There are some obviously contentious decisions taken in it.

My sort of fifth point is that it will definitely change incentives and it will create winners and losers, and we can expect commercial parties and a broad range of commercial parties will respond and adapt to those changing incentives. It would be surprising if it works out as simply and as smoothly as suggested and there’s very real risk of unintended consequences. Need to be carefully monitored. They’re my kind of five key points. I’m just going to start out really by sort of trying to explain why I think it’s a significant reform, but it really hasn’t kind of come out of the blue and it’s not actually that radical, certainly in an Australian context.

The issue of the impact of digital platforms, on the erosion of advertising revenue of our traditional news businesses for funding public interest journalism, that was the very reason that the ACCC was tasked with undertaking its original digital platform inquiry in 2018. The first three terms of reference were focused on the impact of digital platform, service providers in terms of exercise of market power, over creators of journalistic, level and choice of, and quality of news and journalistic content and media and advertising markets. Since then we’ve had the final report, which recommended a code approach to this issue.

A lot of focus coming out of that digital platform inquiry report has been on other areas, it’s been on range competition issues, consumer law issues, privacy issues, and the follow on monitoring report activities, the ACCC, but the question of unequal bargaining power on a fair outcome to the value of news content, that’s been rumbling along in parallel. Through the final report, treasury consultations, government’s response to the report, consultation to see if there’s a voluntary code that could be developed in the abandonment of that model of consultation, mandatory code. There’s a lot of news around this, but it really shouldn’t come as a surprise. I mean, look, it is a big reform, there is no doubt in the digital media space. But overall, I think I would sort of agree with Julie. I don’t think the issue is a radical issue in terms of issues around unequal bargaining power and unfair distribution of value. And nor do I think the adoption of a mandatory code is a radical solution.

I think it is important, I agree with Julie, to sort of distinguish this from a traditional competition law or monopoly access, or consumer protection issues, the typical remit of the ACCC. Like George, I do think there are some interesting competition dimensions actually at play here. In fact, one dimension here we shouldn’t lose sight of is that the digital platforms and the traditional news outlets are competitors for selling ads. And there’s a fair question as to how much of the world we’re facing today is just that actually, there’s been digital platform disruption to the advertising market and that’s been a beneficial thing.

It’s certainly not a competition law issue in terms of access to digital platforms, because the issue here isn’t about the traditional media news businesses gaining access, it’s actually just about, in effect, extracting some element of value out of that. There’s a range of commentary which tries to equate this, I think, to monopoly access issues and tries to put it within the kind of broader frame of, maybe somewhat over-hyped antitrust debate in the digital environment. But I actually think that misses the point and it is important to recognize that this is actually really about a bargaining position. And then in terms of that, we obviously have seen there are many areas of the economy where there’s unequal bargaining position and governments don’t intervene in those. The question is kind of why here, and I think the government’s given a clear answer and I think the agency gave a clear answer and it was in the Genesis of this report.

There is a concern about the ongoing funding of public interest, journalism and news. There’s a reason for the government to intervene here. And then the mandatory codes, they’re not an unknown solution here, they are elements to this which may be go further than others, but we have seen mandatory codes in horticultural products, the sugar, dairy and in basic retail groceries to address these very issues and unequal bargaining power. Then if you accept kind of the policy premise here, and I accept that’s still an issue. I don’t think it’s a bad option from the range of approaches and maybe the way to think about that, is that the experience in Australia of trying to have the determination of a price or a value exchange in many other contexts, we’ve seen it in monopoly access issues or in standard utility regulation or in copyright context, has proved to be highly contentious, with significant delay, significant disputation and legal challenges.

I guess we haven’t tested this model, but we know it’s not those models. And so it’s not clearly a bad option, but I think George is right, It is an experiment. And we’ll come back and talk more about how the final offer arbitration aspects to it might work. I said that the draft bill has a lot in it. I mean, I think some of the ideas are clever, whether they turn out to be good, clever ideas or bad, clever ideas, we will have to wait and see. I think, there will be some of these issues that will be worked out between the draft and the final, but in the end, there are going to be contentious issues at the heart of this code. There will be decisions about who is in, what platforms are in, what is called news that will inevitably have to be made and there’ll be issues around the principles, for which the remuneration determination by the arbitrator will have to make, which will fundamentally mean, not all issues can be worked through between the draft and the final in a way that will make everyone happy. There will be a residual and significant contentious issues.

I think some of those are just obvious. There’s no inclusion of value derived by news media businesses from the referrals that they might get. There’s a consideration of the costs of producing news content, but not otherwise any kind of consideration of the revenues that those news businesses might derive themselves through their advertising. It has some significant features that will certainly surprise competition lawyers in this country. I mean there appears to be a unilateral ability for the news businesses to ask for relevant information from Google and Facebook, and they would have to provide it and that’s quite a significant matter.

And we can come back to it, but there will be significant challenges with the arbitration framework. There are very tight frameworks, there are a lot of issues at play. I really don’t think that parties will quickly converge to a common basis. There’s a tale in that if you have a look at the bill, that the final proposals that the arbitrator has to choose between can be no more than 30 pages. A panel of arbitrators will be choosing between one set of 30 pages and another set of 30 pages. It will be complex. ACCC’s involvement, probably a good thing, but that will inevitably complicate things. And so there’s a real risk that the arbitrator isn’t comparing apples with oranges in terms of the remuneration proposals, we can come back to that. And I think there’s a real prospect that we’ll get variability from one panel to another.

There’s also, I think, sort of potential risks for challenges. I think they’re probably limited in terms of challenges to the legislation. It relies on the constitutional corporations power. There might be issues about whether or not actually this is not regulating the digital platform activities of corporations, but it’s actually regularity digital platform businesses. There might be an issue there. There might be an issue that we’ve seen raised in the past around some of these regulatory environments, around expropriation of property of the non just terms. Those things, they might have a lot of heat about them, but whether they’ll be successful, I don’t know. It will be an arbitrator will have to make a determination and you can see just reading through the bill, there are legal issues still in there that will have to be resolved by the arbitrator in choosing one or the other. And so there will be the potential for challenges to the arbitration.

Just quickly wrapping up. I mentioned, I think it will just necessarily change incentives, create winners and losers, and high risks of unintended consequences. Hopefully though, I think Allan it’s placing a small bit. It has some in built flexibility here. There are only one year determinations and I think Kate mentioned yesterday that it’s envisaged that the regime would be reviewed after two or three years. Hopefully, it’s a bit, but hopefully it’s a small bit. Fr our global audience, I’d say here in Australia to bold initiative. I think we’re probably in front of the world on this, so we don’t get the benefit of seeing how it plays out. Now the jurisdictions, they will get the opportunity to see how it plays out here. It’s like here to white March. While I’m saying that I don’t think it will necessarily work as intended, but maybe, and I think this is sort of an English phrase, maybe we’ll just have to suck it and see. Thanks Allan.

FELS:

Thank you very good. And now we turn to Kate Reader of the ACCC. Kate?

Kate READER:

Kate Reader Speaker

Thank you. I might just open with some background comments. I know Rod gave a bit of background in his talk, but I might just take the opportunity to do that as well. The original digital platforms inquiry commenced in 2017 and was specifically focused on the impact of digital platforms on news media, both as businesses and also on the journalism they produce. As part of that inquiry, we looked to understand and explain the commercial relationships between the parties. In the original report, we set out a lot of the historical changes to the media industries and why they’re important to understand. It’s problematic to focus too much on the past, I think at the expense of understanding the current commercial arrangements.

We did find that digital platforms are unavoidable partners for many news businesses, which creates an imbalance of bargaining power. That is the digital platforms do not need any one particular news media business, as much as those news media businesses need to have access to the digital platform services, which are gateways to consumers and businesses. The original inquiry had complaints about a lack of transparency in ranking of news content, algorithms that devalue original news content, restrictions on the top of the advertising available in certain formats and conduct of the platforms, including the first click free policy and changes to algorithms that impacted the viability of a number of news businesses. The original inquiries recommendation was for the relevant digital platforms each to produce a code, which would be overseen by the Australian media regulator. The Australian government decided instead to give this task to the ACCC and earlier this year we oversaw the voluntary negotiations on the code until April, when the process switch to a mandatory one and the draft code is a result of this process.

The interest in this extends beyond Australia. In the UK, the Kane Cross Review recommended a code of conduct between publishers and large companies, which would ensure that the tech firms treated publishers fairly. That review was followed by the CMA review last year, which also recommended a much broader code, covering a much broader number of industries. But in relation to media, it also suggested that the CMA enforceable code, which it proposed, could be a suitable vehicle for the codes under the Kane Cross Review. In the US context, a bill was introduced into the Senate in June, which would provide a safe harbor for news media publishers, to collectively negotiate with platforms for better business arrangements. And as many of you would be aware who are listening to this, Europe is also pursuing this issue in a copyright context.

There’s broad interest in this issue. And in Australia, we have produced a draft code that puts commercial negotiations at the center, which is obviously not the only way to address this issue as we’ve discussed, but having listened to the stakeholders, particularly the digital platforms, Google and Facebook, we were of the view that tailored commercial agreements with recourse to arbitration, was the best model at this time. There are a few other issues raised that I’d like to make some comments on. In relation to Julie’s point about the definition of news and who’s in and who’s out, it’s definitely very complex. We think boundaries are required. We don’t think it’s necessarily appropriate for the platforms, to have to deal with hundreds of different smaller providers when they’re negotiating. We think that we need boundaries, but we do welcome feedback on the issue of whether we’ve got the balance right, whether the $150,000 is the right amount and whether the criteria that we’ve set out as appropriate.

I take the point about the treasurer. They’re designating the platforms. That is a fair point. I think if you consider, the alternative might be the ACCC. I don’t know how certain digital platforms would feel about that, whether they think that would be more or less preferable. I suspect not. And the other point that I just wanted to acknowledge in relation to Lucinda’s comments, is I think we do understand, and certainly our discussions with Google and Facebook indicate that they are striving to be partners with media and they are taking steps on a number of these issues. For example, the recognition of original news content. And a lot of the things that are expressed as minimum commitments in the code are actually things that the platforms have been working on in the background. I think our hope is that none of those things are particularly shocking or egregious to the platforms given. They’ve been doing a lot of work on these issues and we’re well aware of that. And that was all I had to say, Allan. Happy to spend further discussion.

FELS:

Okay. Well, thank you very much, Kate. And thank you all for your excellent points and contributions. Personally, I agreed with every single point that was made by speaker. I’d like to know that. But what I thought we might do is have another round of comments on the general questions, as to whether anyone wants to add anything on the case for or against this broad intervention. Is there a problem and is broadly an appropriate kind of solution to it? The questions seem to be at the core of it are, is the unequal bargaining power and it’s being used in a harmful manner?

And also, has there been an adverse impact on public interest journalism? Or is that a separate problem as a couple of the speakers have suggested. Have we diagnosed the policy problem properly and then, is a policy approach warranted? I think you’ve all had a fair bit to say on this already, but maybe I will quickly run around each member of the panel in the same order. Let’s say and then we’ll also do a similar look at the code after that and whether it’s appropriate, etc. Julie?

CLARKE:

Yeah, thanks Allan. I think, yes, that there is a problem both in relation to the power in balance. And I think relying on a lot of what was said and thrown up in the original digital platform report, did canvas this fairly extensively and obviously it’s fairly complex. Because we’re not just dealing in one market. There are multiple overlapping markets that impact on where the media can monetize and Google and Facebook obviously have advantages perhaps in multiple markets. I think that was fleshed out pretty well in the report. I think, just to respond to what Lucinda said, perhaps about the benefits that are given or the indirect click free benefits that are given that, that somehow not recognized. I think that was fairly well canvassed in the report, and it is recognized that there is this sort of symbiotic relationship, that the report concluded based on the evidence that it had. That was very much, in terms of the balance, it very much fell in favor of Google and Facebook and that’s what led to the imbalance of power.

And that by extension was leading to revenue problems that the media agencies that were causing closures and a reduction in public interest journalism. I think the flesh that out fairly well. But I think the other thing that it did do, the final point that I’ll make is, it did fairly clearly acknowledge that the problem in public interest journalism and in media in Australia, was not caused by a Google and Facebook at first instance, that they were problems before, perhaps advertising crisis and the challenges that were discussed in the paper. But that is the challenge that confronts it at the moment. And so that’s what we’re dealing with at present. I think that those things weren’t ignored or overlooked, they were discussed and then put in the appropriate current context.

FELS:

I wonder if in the Australian public who stand back from all the details that are of great interest to us, there’s a feeling, this is rough justice. The newspapers have a problem. They need a bit of help and Google and Facebook are big targets, they probably got something to do with it. That would be the code. I wonder if that’s been to a degree, an additur at a political level. Anyway, over to you Lucinda.

LONGCROFT:

Thanks, Julie. I agree with many of those points made, but in the proposition that you had put Allan, whether this is a situation of an equal bargaining power and have an adverse impact on public interest, journalism results, no, Google would fundamentally disagree. There is current difficult challenge facing the news media businesses in Australia. We understand, we are deeply concerned as members and participants in the Australian news seeker system, but it is not as Julie just mentioned and in fact, just ACCC in the government recognize through the digital platforms, inquiry, not the fault of Google. Rough justice or a success tax, as we might see it, is not a fair and even handed way to address a public interest concern that is our Australian need for a reliable, sustainable public interest journalism. And seeking to put that onto Google as one of the leading digital platforms, but only merely addressing Google and Facebook at this stage is indeed misdiagnosing that public policy problem.

And as such, fails to address the root of the problem and fails to provide a basis for encouraging and incentivizing innovation. In fact, it perversely acts as a disincentive to innovation in the news media business, and it is a disincentive to give us freedom and the ability to engage in the positive bilateral negotiations. But innovative uses of content that we are engaging in and sought to engage in recent months and have arrived here at this scene with the government, are those considerable interest among Australian news publishers in these innovative ways of licensing their content. But broadly speaking outside of this, we fully respect the Australian copyright law and the balance that it strikes between users and creators of information. And to mischaracterize that as theft or misuse or unfair use of any published content is to misdiagnose the problem.

In this heavy handed code, I noted that George and Luke in particular talking about an untested code, an experiment and high risk of unintended consequences. That may be of interest. And I’m sure it will, to a global audience, to look to see if Australia is in fact going in the wrong direction, but for companies like Google, it is fundamentally threatening to our ability to continue to provide services to Australia. And as we know is of a deep concern to wider businesses who       see the uncertainty and the threat of this overreach by government as a threat to their interest.

FELS:

George, did you want to add anything?

SIOLIS:

Yeah, just a couple of comments from two perspectives, one, from a legal and economic perspective, or more from an economic perspective, I should say. There’s no legal or economic requirement for firms to have equal power when entering into a commercial negotiation. We see imbalances in bargaining power all the time, and we don’t intervene in all of those. Secondly, from a public policy perspective, what we’re saying isn’t new. We see structural changes all the time and we see firms at the wrong end of those structural changes. Here we’ve seen the business model of the traditional media, essentially having failed or been undermined. As firms whose business model fails as a result of structural change, as you suggested, Allan, they go to the government and seek support. That’s what firms do and I get that. Usually, we rely on organizations such as the Industry Commission or Productivity Commission to stare down those sorts of requests for assistance. I don’t think that’s happened to you, but I guess we’ll see.

FELS:

Okay. The fact is that like it or not, the government has decided on some action. I wanted to throw a question at Luke. Have you any thoughts on the fact that they chose to go down the path of a bargaining code, rather than say there’s a policy problem, we the government and ACCC will fix it, we will assign rightly elements of the behavior required, also regarding payment, we’ll determine an amount or we’ll have some independent public body arrive at a number and also decide who gets it. What about those policy options? How do you see their pros and cons?

WOODWARD:

Sure. I mean, this model that’s been adopted, I think works well if the premise is that you understand both sides of the equation. Who they are, that’s a relatively defined set of, I know one party on one side and you could probably a relatively sort of stable product and relativity a stable kind of use of it. In effect, you’ve just got a bargaining issue, the entire kind of underlying principle of this is to say, I want to create an incentive for people to put their most reasonable offers forward. And I do that by actually having a circuit breaker if they don’t do so in some risks to them, they don’t do so. That’s a simple and kind of neat idea. And I think it’s been explored Allan, because to sit back and then conceive more broadly about how I would deal with this, sort of a broader public policy level about how you kind of fund use, core news director to issues. That’s the focus here, would actually be a challenge.

At its essence, there is a value exchange issue here. I don’t have an independent view about it, but basically there’s two people contributing value and somewhere in the middle, someone gets more or less of that. I think that’s sort of okay. But actually when you look at the policy discussion and I don’t have an independent view about this, I just have the benefit of reading the ACCC digital platform inquiry report, and it’s excellent, Kate. But when you read that, you realize this is actually a much more complex issue. There’s many more parties. On the digital side, there’s many more news parties, the issues around kind of the news and what’s kind of core news and what the policy objective is. I mean, at the moment, key elements of the value exchange are just being left out of this determination.

The value that is being delivered back to the news is not part of the arbitrator’s consideration. Look, I do think there’s some benefits with the idea and I understand why it’s pursued. I do think that to stand back and to develop a broader policy framework, much like we might sort of see it. I know we haven’t gotten down the copyright angle, but in the copyright space or something like that would be very complicated. To have independent sort of determination of that could become very protracted. I suspect there’s a bit of regulatory fatigue around those things in our country, Allan. I think people have just seen this as a sort of straightforward way to deal with issue. Yeah.

FELS:

Kate, I just wanted to go on while we’re talking about the merits of the code versus say a government approach or whatever. What can you say to alleviate the concerns of people who say, well, we’ve got some very big players here. On the newspaper side, we have people like News Corp, 9 News, channels, all of them. And by the way, I’ve got a few minnows and a few innovators, the real strong bargaining power and the arbitration is held on the publisher side, the big players. And they’ll just be a few little crumbles left for the smaller players. Could you address that point please?

READER:

Yeah, sure. Allan. Look, I think we were very aware of that issue and we’ve tried to address that by allowing the smaller players to collectively bargain, to start to get together in a group, the draft code or the rough legislation allows for collective bargaining. They don’t have to go through the process In adjudication over buying, so that the smaller players could get together and sort of, If you like, collectively pool their resources to go through the arbitration process or at least to negotiate with the parties, if that’s what they want in order to get a better outcome. And we think that might solve some of the problems of I guess, the resource implication, and also the fact that they might not get access to the kind of remuneration that they think is appropriate.

Just on George’s point, I think I would take and agree with his point that not all bargaining imbalances are addressed. And I think the reason this is being addressed in this instance, is because it is journalism and that impacts on the democratic process. We certainly would not want to be intervening where there was a bargaining balance in every circumstance. I actually agree with George in that circumstance.

FELS:

Let’s turn to the final offer arbitration process, and I’m not sure who to start with here, but maybe I’ll pick on Julie. Have you any other thoughts on besides, well, do you think this is an incredibly clever way of solving a very difficult problem? It will force an outcome, probably a middle outcome between parties with completely different views, and it will also save the government having to make the decision incidentally, or is it something very risky, unknown or designed circumstances where all the players, a lot more information? And then I’m going to ask all of you for comments on the final offer arbitration.

CLARKE:

I come from a very uninformed position in relation to arbitration in particular, in relation to final offer, or baseball arbitration, which I’d never heard of until a couple of days ago. In a sense, I’m with George in saying that I think it’s very risky absent, this having been fully explored in terms of the circumstances in which it might work best. It seems to me from my uninformed position, that it’s something that’s very risky. It’s something that also would seem to favor the bigger players, even if you have the collective negotiation, the smaller ones just because of it. News Corp and Nine are not small businesses.

I tend to accept that in a specific context, there’s a power imbalance, but they’re not minnows. And it does seem that there’s so much of an information gap in relation to, that the factors that needed to be considered in arbitration. It just seems very risky that players are not already fairly close to a position and you just have the outliers and one of the outliers is going to win. As I think Luke mentioned as well, may come down to the particular arbitrator or arbitral panel at a time. It seems risky, but I say that very much from a position of not having studied this type of arbitration in these types of contexts.

FELS:

Let me, George and then Lucinda and say, well, just accepting the government has taken the view, there is an equal bargaining power and something has to be done, either we step in and set the criteria and set up ourselves on independent body to get some financial numbers. This may all be anathema to you, but is that the best path to go down? Given the judgments that they made. Maybe George, what would you do if you were working for the government and the government told you, this is our view of what the problem is, now we want a solution. Would you go down final offer arbitration, or would you have some regulate or independent body figuring out the answers?

SIOLIS:

What would I do? If Kate’s right, If the article says right and this is so important, fundamental to the healthy function of our democratic processes, then I wouldn’t be waiting for parties to sort it out. I’d have the organization get its hands dirty and set the price. If it’s that important, if there’s an exemption for leaving things to commercial negotiation, because it’s so important to our democracy, then we should set the price. I should get involved in actually setting the price. I don’t think anyone’s really saying that. I think what we’re trying to do here is try to get parties to be nice and to play fair together. And that’s not really how markets work, even when the outcomes are important to our functioning democracy.

Final offer arbitration, it came out of America in the sixties and it’s been used in two settings. One is major league baseball, which is why it’s called baseball arbitration. And the other one is public sector dispute. It comes from essentially a labor economics settings, where firms haven’t got very many options. In baseball, they’re not able to use free agency so that they have to stay with their clubs and in the public sector disputes there’s no right to strike in those areas.

It comes from particular settings in the States and it’s intended to achieve a certain outcome, which is to encourage concessions and to avoid amber claims. That’s the theory, and it’s not a bad theory, but the question is, does it do that? And the empirical evidence suggests that it may not. And as I said in my opening comments, the rules matter. I think what you need to do here is put in place a model that’s going to generate an outcome you want. I’m not sure the ACCC has got that right. They’ve looked at something that looked good in theory, but is completely untested. I think the stakes are too high to experiment, particularly when the nature of the problem is I think quite nebulous.

FELS:

And Lucinda, I won’t put to you those and that’s all my questions, but do you have any responses to what has just been said on this topic about, particularly about whether the code, well, in principle I think, you are not opposed to a code, but you don’t like this one. But anyway, would you like to comment a little more on this?

LONGCROFT:

Thank you, Allan. I would agree with many of the comments that Julia, George and in fact Kate and Luke have said on this matter. There is a concern and a legitimate issue that the Australian government is seeking to address. And we are all invested in the importance of a viable, sustainable news industry for Australia and for Australians. This draft of the code is not the right vehicle to achieve that. Even this small panel have identified the uncertainty, the risk, the untested, the ACCC. Itself has said it seems to be a world first. And as I said before, we don’t want to be a world first for all the wrong reasons. This code is playing in a field of high stakes, where business certainty and the shrewdness of the enabling environment in Australia, is critical to our continued business operations as Google of the broader community in Australia, a business community and investor community.

The final offer arbitration model in particular, that was the core of your question is deeply concerning to us. We are also not familiar with it. We are looking in and trying to understand what it means. As an experiment, It’s a risky one. We understand it works best where the parties come to the arbitration, close in position on much of the areas in dispute. That is not the case here. We’ve heard from News Corp that they claim that the value that Google owes them is close to $1 billion.

As mentioned, we’ve provided data that demonstrates that the value of news related queries in terms of general revenue, not even profit to Australia is around 10 million. And with parties that widely apart and conditions or criteria set for an arbitrator, that fail to take recognition of the value exchange, of the value that Google provides to news publishers, we see a deeply flawed model with uncertain consequences, with uncapped arbitral awards and therefore unlimited liability for companies like Google. This is not the model that the Australian government should be addressing or seeking to implement, to create that thriving leading digital economy for Australia.

FELS:

Luke, you have already made quite a few comments on this.

WOODWARD:

Yeah. Look, I have made a few points. There’s a lot that could be said about this, actually, when you look at the range of different news sources that we’re talking about, and the range of different uses on the platforms and the range of different pricing models. And the point I would make, as I understand the final offer arbitration, baseball, the other circumstances George mentioned, real estate, for example, it’s where you’re really talking about a very known product, two sort of opposing parties. And you’re really talking about one price really. This just doesn’t like that. I’ve touched on it already, but to me, the principles that the arbitrator has to take into account, look a little one sided, they don’t seem to reflect all of the issues that were ventilated in the digital platform about where value is moving backwards and forwards, but I’ll leave it at that Allan.

FELS:

Thank you. I just wanted to turn finally briefly to one or two enforcement matters, maybe I will ask Kate, something that I didn’t raise with Rod terribly much, the enforcement side. And bearing in mind we have a global audience. Could you just describe the enforcement questions, what your role is and what the penalties are and so on?

READER:

We have an enforcement role under the code and the penalties do are similar to our Australian consumer law penalties. They range up to $10 million or 10% turnover. What we do in relation to our enforcement actions, that would be measured depending on what the actual likely breach was. For example, in terms of the minimum commitments, if one of the digital platforms was obliged to tell people that our awarding changes in 28 days, and they told them in 27 days, it’s pretty unlikely that we would be seeking the maximum penalties in that scenario or that we may not seek penalties at all. There’s also the capacity to issue infringement notices in those circumstances. I think in those, the enforcement of the code would be no different than how we would treat our other enforcement matters across the ACCC.

FELS:

And Lucinda, I wanted to ask you if you had any additional comments on Rob Sims’ remarks about why he thought it was unlikely, that you would not comply with the code or in some way take steps to withdraw from the market.

LONGCROFT:

Thanks, Allan. I wouldn’t presume to be inside Rod’s head or understand his perspectives on this code. Google is a law abiding company. We respect the role of the regulators and of the government, but our overriding hope, our overriding goal is to continue to provide the services that Australians love and that we provide to them so well. We will be seeking to stay true to that goal, to explore how this code in its draft form and how it might evolve, would impact or impede our ability to provide those services to Australians and to make, of course, the business decisions that are required, to keep innovating and to be able to operate in this Australian digital land.

FELS:

Well, thank you very much. Now, in the absence of any further comments, I think I will bring it to a close. I’ve decided that I won’t try to make a consensus style, final statement. I believe that all the panelists have done a great job and I thank them very much. This has been really important on this really important topic, and I hope it’s been useful for CPRS, hundreds of viewers and listeners around the world. They will have to watch this space further developments, which I think are very likely to come soon, within a year, and probably quicker than that. I personally think there will be significant outcomes. Thanks to you panelists, to Rod Sims and also to Competition Policy International for turning on this very timely and interesting event and to all your viewers and listeners for having listen to us. Thank you.