Insights and impacts of the ACCC Digital Platforms Inquiry

Speakers: 
Mr Rod Sims, Chair
Conference: 
IIC Australian Chapter Half Day Seminar
11 February 2019
Transcript: 

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Good morning and thank you for the invitation to speak with you today. I will use this time to explain some of the issues we are exploring in our Digital Platforms Inquiry, in particular the impact on news and journalism.

As you know, last year the Federal Government asked the ACCC to investigate the impact of digital platforms like Facebook and Google with particular regard to the media and advertising markets and the supply of journalism. In December we published our preliminary report which included 11 preliminary recommendations and identified eight areas for further analysis.

One of the key issues we identified is a problem with the commercial model for the funding of news and journalism. Information from media companies indicates the number of journalists employed in the traditional print sector fell by 20 per cent in the three years to 2017.

I recognise that the reduction in this sector, which now includes online media, is not solely due to the growth of the major digital platforms like Facebook and Google, but their commercially focussed and highly effective advertising businesses are clearly part of the issue. At the same time, Google and Facebook are very important sources of referral traffic for media websites.

Today I will focus on four key issues that I think are most relevant to the Australian media industry.

Firstly, the acknowledgement that news and journalism perform a critical role in society and therefore we cannot rely solely on market forces to deliver this important service.

Secondly, the impact of digital platforms on news and journalism. Clearly there is the financial impact and the concern that some media businesses are struggling to fund quality news and journalism.

This is, however, not just about taking advertising revenue; it is as much about digital platforms adversely impacting media business models in many ways. There are also other concerns such as the potential risk of filter bubbles and less reliable news.

But it is not all negative. The internet and digital platforms in particular have lowered the barriers to entry and delivered a wider range of news, particularly international news, to Australians.

Thirdly I will address how media concerns fit in with the other issues we are looking at. As we’ve gone through this inquiry we have realised just how interconnected a range of issues are: market power, advertising, news and journalism, consumer data and privacy protection.

Finally, I will highlight the proposals we have identified in the preliminary report which aim to address some of the media issues. I am particularly interested in your thoughts on these either here today or as soon as possible.

1. News and journalism as a public good

News and journalism are different to many other commercial activities in that they benefit both the individual and also society as a whole.

Individuals benefit through the consumption of news, information and opinions which increases their knowledge and understanding of issues and events which affect them. Society clearly benefits from having citizens who are able to make well-informed economic, social and political decisions. But news and journalism also contribute to the public interest more directly. Some examples include holding decision makers accountable through investigative journalism and exposing misconduct; acting as a journal of record for public forums such as courts, local government meetings and parliamentary sittings; and acting as a forum for debate through trained journalistic commentary and the exchange of ideas and opinions.

It is vital to note that it is not just in-depth public interest investigations that contribute to society and generate public benefits. Many forms of journalism from reporting on local council hearings to parliamentary sittings contribute to our society.

Given these benefits, we cannot simply leave the production of news and journalism entirely to market forces. Successive governments both here and overseas clearly recognise this with many countries including Australia having publicly funded national broadcasters.

But society also benefits from a diverse range of media sources. Plurality of editorial voices contribute to the public interest and we should not be in a position whereby we rely on one or even two news sources.

Given all this, it is also vital that media businesses are not disadvantaged through the exercise of market power or other mechanisms that make it difficult for them to compete on their merits.

2. The many impacts of digital platforms on news and journalism

Google and Facebook are stunningly successful commercial businesses that have rapidly gained significant market power.

The impact of the digital platforms on the traditional financial model employed by media businesses which was reliant on advertising to fund news and journalism has been the most significant. The advertising revenue of the traditional print sector has migrated online, but has largely not migrated to the online news sites of traditional newspaper businesses.

Most of the growth in online advertising expenditure has gone to Google and Facebook. Excluding classifieds, it is estimated that for a typical $100 spent online by Australian advertisers, $47 goes to Google and $21 goes to Facebook. In the past three years, Google and Facebook are estimated to have captured 80 per cent of the growth in digital advertising.

This shift in advertising revenue online, and to digital platforms, has reduced the ability of media businesses to fund news and journalism.

As I mentioned before, journalist numbers have fallen sharply in recent years. Census data shows this trend over time: from 2006-2016, the total number of people in journalism-related occupations fell by 9 per cent but the reduction in the number of journalists employed in what were traditional print businesses has fallen by 26 per cent.

We are still exploring the extent to which this reduction in journalism numbers has led to an ‘under-production’ in news and journalism.

There has of course been a number of new entrants with the growth of the so-called ‘digital natives’. The Guardian Australia, Crikey, Buzzfeed and The Daily Mail are all now actively reporting on Australian news. As set out in our preliminary report we recognise that the digital platforms have played an influential role in enabling the entry of these new providers and that has increased the diversity of news sources available to Australia.

However, these digital natives typically operate very small newsrooms and collectively, the number of journalists employed by digital natives appears to be much smaller than the number of editorial job losses among print publishers. The financial viability of these businesses is also not assured as demonstrated by Buzzfeed and Vice recently announcing redundancies in Australia, as well as worldwide.

A secondary impact comes from the practices of the digital platforms which make it hard for media businesses to, as I have mentioned and in the jargon of a competition regulator, “compete on their merits”.

As an example, one allegation is that the lack of clarity around the ad-tech supply chain disadvantages media businesses’ ability to monetise their content via advertising opportunities on their sites. In particular, it is argued, the opacity around the delivery of programmatic advertising; where, and to whom it is shown, and what cut the intermediaries owned by the digital platforms take, prevents advertisers making informed choices and hampers the ability of online publishers to take appropriate advantage of their quality offering.

Further, Google and Facebook are the key gateways to Australian consumers, making them critical business partners for media businesses (as well as advertisers) seeking to reach Australian consumers. It is because of this role that media businesses have concerns with certain practices of Google and Facebook. For example, in the course of our Inquiry, we have heard complaints about: digital platforms’ failure to act quickly to address copyright infringement complaints; a lack of transparency in the ranking of news content; ranking algorithms that do not appropriately recognise original news content or unfairly treats content which sits behind a paywall; restrictions on the types of advertising available in certain formats; as well as the impact of policies such as first click free and the potential impacts of so-called ‘snippets’ on traffic to media websites (the last one in particular is a tricky issue).

In addition, the atomisation of news delivered via digital platforms makes it difficult to maintain brand awareness and product differentiation for publishers. This also leads into the next issue.

The digital platforms have not replaced media businesses as creators or producers of news and journalism. If they had, we may simply treat this as an example of creative destruction: innovation and technological change creating a more effective or efficient product. While this view could be taken in relation to the advertising opportunities offered on the digital platforms, it cannot be taken in relation to news and journalism.

Google and Facebook are not creating news stories in Australia. Rather they select, curate, evaluate, rank and arrange news stories produced by third parties, disseminating other parties’ content.

This is a critical role with 50 per cent of traffic to Australian news media websites coming via Google and Facebook. These platforms, therefore, have a significant influence over what news and journalism Australians do and don’t see.

This is why there are concerns globally with the risk of filter bubbles and unreliable news on digital platforms and the impact this is having on citizens and society more broadly. While concerns with citizens living in a filter bubble or consuming unreliable news are not confined to journalism only accessed via digital platforms, these problems may be magnified in part due to the incentives for the production of emotive ‘click bait’ stories. This is an issue we are continuing to explore.

Holding such critical positions in both the media and advertising markets results in special responsibilities. All companies which obtain a substantial degree of market power, are subject to the special responsibilities of dominant firms. What I mean by this is that conduct by a non-dominant firm that is benign, may become problematic when a dominant firm engages in the same behaviour.

However, we consider that in each of Google and Facebook’s case, the special responsibility should go further, given the extent of their market power, the opacity of their operations and the critical roles they perform in what news and journalism is read/watched/listened to by citizens. Certain proposals contained in the preliminary recommendations and areas for further analysis aim to recognise this.

3. A number of interlinked issues

As our inquiry has progressed, it has become clearer how closely interlinked the issues are.

Media and advertising are two sides of the same coin – advertising has traditionally funded journalism. Commercial media - newspapers, commercial radio and television - are the classic example of a two-sided market.

Digital platforms are also multi-sided platforms: Google and Facebook are hugely successful at attracting consumer attention. The platforms attract consumers due to the value of the services they provide: primarily as a source of information in the case of Google (including news stories) and in the case of Facebook, as a social network. The more users they attract, the more valuable they are to the other side of the platform, the advertisers. Importantly, the amount of data collected from users also increases the attractiveness of the platform, as more relevant ads can be sold to advertisers.

Facebook and Google have market power; we’ve established this. Their market power in consumer facing markets translates into market power in advertising markets.

Google’s substantial market power in online search translates into substantial market power in online search advertising.

Facebook’s substantial market power in social media (and the significant amount of time users spend on this platform) leads to substantial market power in the online display advertising market.

Facebook and Google’s market power in advertising markets also relies increasingly on the extensive amount of data collected from consumers, enabling them to offer highly segmented or targeted advertising. More and more of what consumers do, say, or where they go is recorded by the digital platforms.

For consumers there are issues with a lack of transparency and meaningful options in terms of how, and how much, data is collected about them. This prevents consumers making an informed and genuine choice over the amount of data collected by the digital platforms, and how this data is used. Without transparency and well-informed consumers, markets can fail; and also there cannot be competition between digital platforms on this increasingly important element of competition.

Indeed, we see privacy, the limitations on how much data is collected and how it is used, as one variable of competition; no different to price or any other measure of service quality.

The close connection between market power and competition concerns, data collection, and consumer privacy is highlighted in the recent decision of the German competition authority. The German Federal Cartel Office found that Facebook’s extensive collection of its users’ data, not only from Facebook owned sites but also from third party websites and apps, amounted to an abuse of Facebook’s dominant position. The decision effectively prohibits Facebook from combining such data unless voluntary consent is obtained from the user.

In addition, other potential concerns associated with digital platforms, such as increased exposure to unreliable content and filter bubbles, are potentially a substantial issue because of the market power of the platforms: the algorithms of Google and Facebook would be much less of a concern if these platforms were not the dominant search engine and dominant social network and if they were not a significant route for many media businesses to reach their audience.

Digitalisation and the increase in online news sources also highlight inconsistencies in the current sector-specific approach to media regulation. Virtually no media regulation applies to digital platforms and this contributes to regulatory disparity between media sectors that would appear to provide the digital platforms with an unfair advantage in attracting advertising expenditure because they operate under fewer regulatory constraints and have lower regulatory compliance costs.

As mentioned above, concerns over the differences in measuring advertising performance and delivery also highlight the potential of unfair comparisons between advertising on traditional media and advertising on Google and Facebook.

Narrowing our focus to only some of these issues, and excluding others, such as consumer concerns about privacy and the use of their data, will lead to poor public policy outcomes. These issues simply cannot be addressed through a segmented approach.

4. Proposals to consider

Finally, I want to speak to the three key preliminary recommendations most relevant to the media sector and news and journalism.

First, we’ve proposed increased regulatory oversight of the ranking practices of digital platforms in relation to news and journalistic content, with the aim of identifying which criteria affect competition in media markets or incentives for production of news and journalistic content (PR 5).

This recommendation involves a regulatory authority (not necessarily a new one) having a particular investigation and reporting function in relation to digital platforms which meet certain objective requirements. The regulated digital platforms would be required to submit to the regulator information on the criteria that influences how news is ranked on a search engine results page or newsfeed. The regulator would also need the power to compel the provision of certain information and initiate investigations.

The aim is that the regulator would provide transparency about how media content is treated by the algorithms: for example, is advertiser funded content ranked higher than paid content? How is news content which substantially reproduces other original content ranked? The regulator could then report, at a high level, on the results.

Second, a separate independent review by government to design a regulatory framework to consistently regulate the conduct of all entities which perform comparable media functions – including the production and delivery of news and journalistic content, whether they are digital platforms, publishers, broadcasters and others (PR6).

Why should the online world be treated so markedly differently to the offline world?

Third, a mandatory standard (to be determined by the ACMA) involving improved take down procedures by digital platforms in relation to copyright infringing content (PR 7).

Our inquiries indicated that media businesses faced difficulties in requesting digital platforms to take down copyright-infringing content in a timely manner. This is in part due to the uncertainties involved in establishing the digital platforms liability for authorising a copyright infringement. The mandatory standard is proposed in order to improve the enforceability of copyright protections online.

In addition to these three key preliminary recommendations, we have addressed more difficult issues in the ‘areas for further analysis’.

Proposals aimed at providing people who consume news and journalistic content via digital platforms with greater transparency and certainty about the quality of the news produced. Effectively a ‘badge’ or signal would appear in relation to news content produced by news media businesses which have signed up to certain standards for the production of journalistic content. The ACMA would have oversight of these codes.

There is a proposal suggesting a broad industry supported campaign (with the ACMA) to improve news literacy online.

There are also proposals aimed at improving the ability of news media businesses to fund the production of news and journalism; particularly those types of news and journalism which are at risk of being under-funded. We have identified three broad proposals on which we are looking for feedback:

  1. A review of the Regional and Small Publishers ‘Jobs and Innovation Package’ which had only a three-year funding profile
  2. Tax offsets for the production of certain types of news and journalism
  3. Making personal subscriptions to news media tax deductible. Only those media businesses which are party to an ACMA-registered code would benefit from this proposal.

Of course there can be concerns with introducing and implementing tax incentives and subsidies, but they should be considered where externalities exist. I welcome feedback on these proposals but I am also interested in other new ideas which will maintain the incentives on news media businesses to produce news and journalism, particular those examples which may be at risk of under-production (e.g. local or regional reporting or court reporting).

Other proposals covered in our Preliminary Report are also relevant, for example some of the proposed changes to the Privacy Framework and the introduction of any prohibition against unfair practices. We also welcome feedback on these and other issues.

As many of you will know, submissions in response to the Preliminary Report are due this week, on 15 February. We hope to publish the submissions soon afterwards.

We believe our Inquiry is fundamentally important across many dimensions. We welcome any contribution you can make.

Thank you.