Why government is moving to tame digital duopoly

In the past decade, Australia has lost more than 100 local and regional newspapers.

Just in the past few weeks, with COVID-19 driving a sharp fall in advertising revenues, publishers have announced further closures or suspensions.

Australian media businesses - such as News Corp, Nine Entertainment Co, Seven West Media, Australian Community Media, Foxtel and many regional broadcasters - are under pressure. Their profits and revenues are declining; if they are listed, their share prices are way down.

At the same time, the giant global digital platforms, particularly Google and Facebook, are thriving in the Australian market as they secure more eyeballs and advertising revenue from Australian media businesses.

Some would say this is just capitalism at work. If you are an innovator with an engaging product and a better business model, you win customers and revenue from those using older technology and approaches. But this was not how the competition regulator saw the issues after a detailed analysis in its world-leading Digital Platforms Inquiry. The ACCC found Facebook and Google have substantial market power, and there is an imbalance of bargaining power between them and Australian media businesses.

Much of the traffic going to media businesses' websites comes via Google.

For a growing number of Australians, their principal source of news is content generated by media businesses appearing in their social media feed.

As the ACCC found, Google is used by 19.2 million Australians every month, Facebook by 17.3 million. The ACCC described them as "unavoidable business partners" for Australian media businesses.

The Australian government wants vigorous competition in the market for the supply of news and other content, and the market for advertising services.

That is what will best serve consumers.

What we do not want to see - in this sector or any other sector - is players with substantial market power using that power to drive smaller competitors out of the market. It was based on this orthodox competition analysis that the ACCC last year recommended - and the Morrison government accepted - that there should be a code developed to govern commercial relationships between the digital platforms on the one hand and Australian media businesses on the other.

If News Corp or Nine Entertainment has published an article written by one of its journalists, and that article appears on one of the digital platforms, then there needs to be appropriate payment. After all, the digital platforms are monetising that content - they sell advertising, and lots of it, to advertisers who want to get in front of the millions of people who visit that platform.

This is but one of the many issues the Australian media businesses want addressed in commercial negotiations with the platforms. How does the content appear on the platform? What content is ranked highest - original content or rewritten content? If there is to be a change to the algorithm - which can materially affect how much traffic comes to their websites - how can they be given notice of that change?

But all too often a manifestation of the market power of the digital platforms has been a refusal to negotiate.

For some months there have been discussions between the ACCC, digital platforms and Australian media businesses about the contents of a proposed voluntary code - which was what the government envisaged when we responded to the ACCC's recommendations in December. But the ACCC has recently advised the government these voluntary discussions would not produce a clear outcome dealing with how Australian media businesses would be remunerated for the use of their content.

That is a key reason the Treasurer has directed the ACCC to develop a mandatory code to deal with these matters, with a draft to be made public by the end of July. The policy case for this substantial government intervention goes beyond the competition issues, critically important as they are. The risk here is not just that the digital platforms' smaller competitors are driven out, but that when we lose them we also lose the original content they produce.

We need high-quality journalism from diverse sources, giving Australians information, commentary and insights about what is happening in government, business, sport, the arts, and in all the facets of our society.

Content such as journalism costs money; it needs to be paid for. But Facebook and Google have a business model where they do not produce content - and do not pay for the content that attracts the eyeballs which they monetise. Their model is fabulously profitable, but it is eroding the supply of journalism in Australia.

Allowing that to continue is not acceptable as a matter of competition policy - nor is it acceptable given the vital importance of vigorous and diverse journalism to the life of our nation.