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Australia’s media code won’t allow fair negotiations

September 27th, 2020

Over the past month, we’ve outlined our concerns with Australia’s draft News Media Bargaining Code: a new proposed law that would impact the way Australians use Google Search and YouTube. We don’t oppose a code governing the relationship between news businesses and digital platforms—but right now the way the law is drafted isn’t fair or workable.

Last week, we proposed changes to help move us forward. Today, we want to go into more detail about one of our biggest concerns—the highly unusual, largely untested, one-sided arbitration system that would determine commercial arrangements between Google and news companies.

Here are the issues.

Unprecedented in Australia

The system being proposed is called ‘binding final-offer arbitration’, referred to in the United States as ‘baseball arbitration’. It isn’t used in any of the eight other mandatory codes in Australia. In fact, without the two parties’ consent, it’s never been used in Australian law before.

In a standard negotiation, two parties negotiate a price for a product or service after assessing its market value and the value each side provides the other. If the parties can’t reach an agreement, they might ask a mediator or arbitrator to decide on what’s fair.

In baseball arbitration, if the two sides can’t reach an agreement, each puts forward a single final offer and the arbitrator picks one, guided by set criteria.

Unreasonable claims 

This system is usually put in place if there’s not much dispute over the value of the product or service being discussed and the parties are already close in price. But with the media code, some of the amounts being suggested by news businesses about how much we should pay to provide links to their stories defy commercial reality.

One news business has already claimed digital platforms should pay $1 billion every year, despite the fact that only 1 percent of all searches by Australians last year were seeking news—equating to around $10 million dollars in revenue (not profit).

Clearly, both sides have very different ideas of what the prices should be—and asking the arbitrator to pick a ‘final offer’ is an extreme way of resolving that. The reality is that baseball arbitration often fails and doesn’t produce quick outcomes. Independent economists have raised questions about its effectiveness here.

The results are also unpredictable, and no business can operate with that level of uncertainty.

The playing field is not level

The fundamental idea of baseball arbitration is that both sides present their evidence— like the player’s contribution, the team’s recent performance, and comparable salaries—and the arbitrator decides the appropriate offer.

But the draft code doesn’t provide a level playing field.

As it stands, the arbitrator isn’t required to consider the value Google provides to news media businesses in the form of traffic to their websites, which in 2018 was estimated at more than $200 million per year.

Not only is that unfair—it goes against what the Australian Competition and Consumer Commission (ACCC) itself said should happen when it was preparing the code: “Negotiations around compensation for the use of news should also take into account the value that Google and Facebook already provide to news media businesses for using their news content.”

News media businesses can also make enormous financial demands of Google based on the vague and flawed concept of the ‘indirect’ value that news content provides (our data shows that the direct value of news to Google is negligible). Even the ACCC itself hasn’t been able to put a number on the indirect value of news, after several years of inquiry.

When the playing field is set up to favor one side, then that side is encouraged to make ambit or exaggerated claims.

A question of costs

But that’s not the only one-sided rule here.

The draft code also says the arbitrator should consider news businesses’ production costs — but not Google’s.

Again, that’s a significant amount of money, givenwe invest $1 billion each year in Australia to improve the services 22 million Australians use daily. This investment includes initiatives to directly support Australian news companies, like our digital skills training program for local newsrooms.

The only other factor the arbitrator must consider when deciding on a payment is that it must not place ‘an undue burden’ on Google. It’s a vague and undefined condition and an insufficient substitute for being able to talk about our actual value and costs.

A fair and workable solution

In all of the submissions to the ACCC, only one news business proposed binding final-offer arbitration be used in the code. Many requested that the code use standard arbitration—a method regularly used for resolving disputes in Australia and around the world. We are happy to negotiate fairly and, if needed, see a standard dispute resolution scheme in place. But given the inherent problems with baseball arbitration, and the unfair rules that underpin it here, the model being proposed isn’t workable for Google. It wouldn’t be workable for many Australian businesses—no matter how large or small they are.

As we’ve said, we are committed to finding viable solutions, and we will continue to engage with the ACCC and the Government to ensure the final version of the code is fair and workable for all.