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Economics Legislation Committee

LONGCROFT, Ms Lucinda, Director, Government Affairs and Public Policy, Google Australia and New Zealand, Google [by video link]

SILVA, Ms Melanie, Managing Director and Vice President, Google Australia and New Zealand, Google [by video link]

Committee met at 10:00

CHAIR ( Senator Brockman ): I declare open this hearing of the Senate Economics Legislation Committee for its inquiry into the Treasury Laws Amendment (News Media and Digital Platforms Mandatory Bargaining Code) Bill 2020. The Senate referred this inquiry to the committee on 10 December 2020 for report by 12 February 2021. The committee has received 55 submissions. The committee may determine or agree to a request to have evidence heard in camera. Information on procedural rules governing public hearings and claims of public interest immunity has been provided to witnesses and is available from the secretariat.

I remind all media representatives listening to follow the media guidelines and any instructions from the committee secretariat.

I advise that questions on notice are required to be returned by close of business Monday 1 February 2021.

We now welcome representatives from Google. Thank you for appearing before the committee today. I would like to invite either or both of you to make a brief opening statement if you wish to do so.

Ms Silva : Thank you, senators, for your time. It is a pleasure for us to be here today and, as I've said, Lucinda leads our government affairs team and I'm the managing director for Australia and New Zealand. I would like to start by saying that Google is committed to achieving a workable news media bargaining code. In its current form the code remains unworkable and, if it became law, would hurt small publishers, small businesses and the millions of Australians that use our services every day. There is a way forward that allows Google to pay publishers for value without breaking Google Search and our business here in Australia.

There are three concerns, which I will touch on shortly, but the most critical of these is the requirement to pay for links and snippets in Search. This provision in the code would set an untenable precedent for our business and the digital economy. It's not compatible with how search engines work or how the internet works. This is not just Google's view; it has been cited in many of the commissions received by this inquiry. The principle of unrestricted linking between websites is fundamental to Search, and coupled with the unmanageable financial and operational risk, if this version of the code were to become law it would give us no real choice but to stop making Google Search available in Australia. That would be a bad outcome for us but also for the Australian people, media diversity and the small businesses who use our products every day.

Google is known for answering queries and helping people find what they're looking for on the web, and one of the misconceptions at the heart of this debate is that our users only come to Google because they can find news or that news is a disproportionate driver of our popularity. News and journalism are a critical part of any democracy, and we don't disagree with that view, but, in the context of Search, the ability to show results from a diverse range of news sources is as important as the ability to show results on a diverse range of childcare centres in your suburb.

Each year, we help more than 19 million Australians find information online. The fact that we offer a useful search engine provides the platform for 1.3 million businesses, large and small, in Australia to be discovered by users both here and around the world. The fact that you can search for everything from recipes to the weather or news means that you also come to Search for your local cafe or a great plumber near you. Relevant results for all kind of queries are what brings users to our search engine, and this is what enables those 1.3 million Aussie businesses to get discovered and also create hundreds of millions of connections with their potential customers. This has benefits for the entire Australian economy. It's something that has been incredibly important for businesses as they navigate COVID and find new ways to connect with customers in the digital world.

This lies at the heart of our concerns with the code that requires payments simply for links and snippets, just for news results in Search. The free service we offer to Australian users and our business model have been built on the ability to link freely between websites. This is a key building block of the internet. Withdrawing our services from Australia is the last thing that I or Google want to have happen, especially when there is another way forward. We are proposing technical amendments in three areas to address the key problems that we've outlined. These would all allow Google to pay publishers for value without breaking Google Search.

First, rather than payments for links and snippets, the code could designate News Showcase and allow Google to reach commercial agreements to pay publishers for value, in addition to the valuable traffic that we send them through Search. News Showcase launched in 2020. It has a global budget of $1.3 billion over three years, and it pays news publishers for their editorial judgement, curating panels of news that would appear daily in Google services. It also pays to grant users access to selected stories behind the paywall, not linked to Search. Google can pay a wide and diverse range of news publishers, including smaller and regional publishers, and we've already reached News Showcase agreements with 450 publications globally, including seven in Australia.

Secondly, the code's final offer arbitration model, with biased criteria, presents unmanageable financial and operational risks for Google. If this were replaced with standard commercial arbitration based on comparable deals, this would both incentivise good-faith negotiations and ensure that we are held accountable by a robust dispute resolution process.

Finally, the algorithm notification provision could be adjusted to require only reasonable notice about significant actionable changes to Google's algorithm. This would make sure that publishers are able to respond to changes that affect them.

In closing, there is a clear pathway to a fair and workable code. With only slight amendments, the code can support Australia as a world leader in news innovation, media diversity and consumer choice without sacrificing the benefits that Google provides to large and small businesses in Australia. Lucinda and I look forward to taking your questions.

CHAIR: Thank you very much for that. I'm conscious of the fact we do have a large number of senators participating, so we will need to move through the questions as quickly as reasonable. There is just one from me to start off with, and then I'll go to the deputy chair. The original formulation of the code was not to be mandatory, but there was a lack of progress in the commercial deals eventuating in the marketplace. Can you talk us through, from your perspective, why you think that was the case? Why did those commercial deals not eventuate in the way that I guess everyone expected?

Ms Silva : Senator, just to clarify, are you talking about the process from a voluntary code to a mandatory code?

CHAIR: Yes. Why wasn't there progress in the commercial space under the thought of having a voluntary code?

Ms Silva : We received the government's recommendations back in December with the goal of developing a voluntary code of conduct by the end of November 2020. The first significant milestone was the production of a progress report or a substantive report to the ACCC, which was due in April. We had held 27-ish meetings with publishers—discussions to try and figure out the process and the content of what that voluntary code would look like. Obviously it was a very disruptive year with COVID. However, two weeks before that substantive report was due, and despite several progress reports made voluntarily to the ACCC, we received word that the government had made the decision to move to a mandatory code. This happened on 18 April, two weeks before our substantive report was due. We were surprised. We thought there was progress. It was not ever going to be easy process, but we were making progress and our goal was to have a voluntary code in place by November.

Senator GALLACHER: Thanks for that opening salvo. It's pretty impressive. I just looked at your 2018-19 results. I think the advertising and reseller revenue in 2019 was about $720 million. Isn't this an area where a rising tide can lift all boats? You are substantially growing your revenue. Is there no easy solution here? Is it your way or the highway?

Ms Silva : Absolutely not. Hopefully what you took from the opening remarks is that we feel there is a workable path forward. The intention of the code and of the recommendations from the Digital Platforms Inquiry was to set up a framework for commercial negotiations between news media businesses and Google. We have put forward a solution where that can be the case. We are not looking at this as a redistribution of wealth from Google to another party, rather a framework to create good faith negotiations.

Senator GALLACHER: We've been at this for a fair while. You're unable to convince the bureaucrats or the government representatives of the merits of your case, or they're not willing to move or there's no negotiation?

Ms Silva : We've been actively engaged with the government, the ACCC and the publishers trying to get deals done. We're buoyed by the fact that in other markets News Showcase has proven to be a good, viable solution. We're also buoyed by the fact that we have seven deals that're already closed. We do feel like this is a workable way forward and a forward looking way to approach commercial negotiations with news media businesses.

Senator GALLACHER: This has been a very long running exercise. We're now getting down to what potentially could be a legislated outcome. Have you done the sums? Do you know what this would cost you at the mandatory code outcome?

Ms Silva : We're working on a number of scenarios. Part of the concern, and the heart of the financial risk for us, is that inability to calculate the outcomes from open-ended and one-sided arbitrations. The criteria that sit underneath the prescribed arbitration format are very, very vague and one-sided. For example, the costs of publishers production is included, not the costs for Google. Even despite the inclusion of a two-way value exchange, there is effectively a method for a news media business to discount the value of the traffic that Google sends them. It is nigh impossible for us to calculate the risk and exposure that we would be exposed to if the code were to pass in its current form.

Senator GALLACHER: That seems like a very cogent view. What is the response from the government in respect of that?

Ms Silva : My sense is that this form of final offer arbitration has been chosen specifically to ensure speed and efficiency in a process. This is a very one-sided and untested approach. It has never been used in a mandatory code before without consent of both the parties. It's typically used when there isn't much debate between the price. What we're talking about here is something that no website has ever been paid for and no search engine has ever had to pay. Our approach with our workable code is that we would have standard commercial arbitration based on comparable deals. This is a standard way of resolving disputes in any sort of commercial negotiation, and we think that would work.

Senator GALLACHER: If we go into the decimation, I suppose, of the small regional newspapers: the basketball, football and softball results draw advertisers to small regional papers, which have all but disappeared. Is there any room to move in that area? Are you able to help in those areas?

Ms Silva : The deals that we've actually already signed are with some of our incredible regional publishers. I think we look around even in one of the submissions that have been put forward from the Bundaberg news, there are a lot of digital-first publications sprouting in regional areas. There are new ways to generate revenue and News Showcase is really one of them. Where proud of the deals we've done with the smaller digital players for Showcase already.

Senator GALLACHER: What I take from your answers is that your exposure is almost unquantifiable, and that's the main thrust of your objection to a mandatory code.

Ms Silva : Yes, that is a really important element. I think any organisation facing new legislation needs to assess both the risk to its product and operations and the financial risk. This code as it stands poses untenable risk in all three of those areas for us.

Senator GALLACHER: That's despite your expertise in algorithms?

Ms Silva : We have a workable solution, and I think we can get there. We're not opposed to a code and we're not opposed to paying publishers for value, but the details matter.

Senator BRAGG: Good morning, Ms Silva. I might just take you through the scope and size of your footprint in Australia. How much of the search engine market does Google currently have in Australia?

Ms Silva : It's an interesting question. We look at our business in a couple of different ways. The ACCC has cited 95 per cent of searches. We also look at the businesses that we operate, which is an advertising business—we look at share that way—but let me step up a level and explain how we look at the business. When you think about all the queries that people type into Google every day, we actually show ads on about 20 per cent of them. So there are 80 per cent of the queries that we have to service, and there are costs associated with doing that, for the ability to monetise about 20 per cent of them. The ones that we monetise are in categories that show real commercial intent—travel, retail, financial services, cheap car insurance and local. In that monetisable space we actually face considerable competition. There are travel aggregators like Expedia. There is Amazon, where people go to start doing a retail search, or Gumtree or eBay. So, whilst looking at the number of searches in totality is one way of looking at it, we actually look at it in several different ways internally at Google.

Senator BRAGG: So what's the number in terms of market share in Australia that Google would have for services?

Ms Silva : The ACCC have issued in their reports that it is a 95 per cent share of general searches.

Senator BRAGG: Turning to your tax affairs, how much corporate tax did Google pay in Australia last year?

Ms Silva : Last year Google paid $59 million in tax, and we comply with the tax laws of the land. We restructured our business in 2016 in line with the government's shift and the change to MAL, the multinational anti-avoidance law. We shifted to a reseller model from then, and last year's tax was $59 million.

Senator BRAGG: $59 million in corporate tax?

Ms Silva : $59 million in corporate tax.

Senator BRAGG: What's your revenue in Australia?

Ms Silva : The gross revenue was $4.8 billion, and the profit before tax was $134 million.

Senator BRAGG: $4.8 billion, and you paid $59 million in corporate tax.

Ms Silva : Yes, because when the changes to the multinational anti-avoidance laws came into place we shifted our model to account for all of our Australian revenue in Australia. We're a reseller. That's the way that the tax laws have been written, and we comply with the laws of the land when it comes to tax.

Senator BRAGG: In broad terms, where does the bulk of the revenue come from in Australia?

Ms Silva : The bulk of revenue is from advertising—$4.3 billion from advertising.

Senator BRAGG: That's online ads, right?

Ms Silva : Correct.

Senator BRAGG: In terms of regulation, generally, would you regard big tech companies like Google as being heavily regulated in Australia compared to, say, a telecommunications company or a bank?

Ms Silva : I won't claim to be an expert in regulation in other areas. However, what I would say is we are very open to smart regulation, consultative regulation and, just like we've engaged in this process, we would always be open to consult with governments as they contend with issues that are faced by the tech industry.

Senator BRAGG: Do you have capital requirements?

Ms Silva : No, Senator.

Senator BRAGG: And are you licensed?

Ms Silva : No.

Senator BRAGG: Do you have to face minimum service standards?

Ms Silva : No.

Senator BRAGG: So it would appear to me to be quite a light regulatory burden, given the size and scope of your business in the lives of Australians and certainly in terms of the revenue that you derive from the Australian marketplace.

Ms Silva : What I would point to is that the government even recently has implemented new laws which Google is required to comply with. So 18 months ago there was a social media abhorrent content law that was passed. We were engaged in the Prime Minister's workshop and we are now subject to that law. As issues pop up and similar to this process, we engage and we want to make sure that we're part of that process so we that we can comply.

Senator BRAGG: Let's go to this links and snippets issue. Effectively, you don't want to pay for links and snippets—that's right, isn't it?

Ms Silva : Essentially, we would love to have a workable code where we can engage with publishers and pay for value. The concept of freely linking on the web is important to not just how the web operates but how Google operates, and that creates an untenable risk for our business.

Senator BRAGG: So what do you want to pay for if you don't want to pay for links and snippets to news articles?

Ms Silva : Firstly, I'd point to the fact that we do have multiple commercial arrangements with news media businesses already. There are many publishers who actually resell Search advertising and we share revenue with them. There are multiple commercial arrangements around YouTube. What we're talking about here is specifically the payment for links and snippets. That is untenable for our business. There is, however, a workable solution for Google where we would pay publishers for value, they would create and curate content and panels that would exist across several Google services. As I pointed out in my opening remarks, these are deals that are being done all around the world—450 so far.

This product is designed to showcase high-quality content, allowing publishers to put a brand on top of it and showcase the stories that they want readers to see. We pay for beyond the paywall access so that users can see and explore that content. We still pass the user back onto the news media business so they can generate advertising revenue or turn that person into a subscriber.

CHAIR: This will need to be the last question, Senator Bragg.

Senator BRAGG: Effectively, there's no reason that the Showcase product that you have couldn't comply with the code. The way this legislation works is you could deploy Showcase and do your deals through Showcase and that would obviate the need for the code. So I find it a bit troubling that we haven't seen what this Showcase product could use. You've been in these discussions with the government for an extensive amount of time. The way the legislation is drafted, as I say, would allow you to use Showcase, to do commercial deals, ultimately, to pay journalists for their work. Can you explain why you can't just use Showcase as a way to resolve this extended discussion?

Ms Silva : We would love to and we've been trying to do those deals. The connection of Google searches that designate a product as well as its tie to the arbitration criteria means that it's nigh impossible to get those Showcase deals done. What we have proposed—

Senator BRAGG: There are sections in this legislation which allow you to use Showcase, which obviates the need to use Google Search, as you say, so I'm struggling to understand why you can't just do a deal through Showcase.

Ms Silva : We have done deals through Showcase, but the way that the code is written right now is that a publisher can look at that and, if we don't make an offer that's valuable for them, they can go and arbitrate on Search in a one-sided process, with costs and criteria that are heavily skewed in their favour. Even in our discussions to date—we've had several conversations which are: 'I'd like to do a Showcase deal. Now I might just wait and see what I can get through the code.' We would love to get those deals done. Our workable way forward is that we would designate Showcase for the remuneration and arbitration provisions of the code and allow Google Search to be designated for the minimum standards, allowing the algorithm transparency and other minimum standards to apply to Google Search.

Senator BRAGG: But we can't even see Showcase. It's not available in Australia.

Ms Silva : We're actively working to launch that product. We've done several deals before the code—

Senator BRAGG: It makes it very hard. If people can't see what it's going to look like, it makes it impossible for the other people, whether it's the government or whether it's the media organisations, trying to negotiate with you, given your very strong market position. It feels like it's a pillar of smoke, to be frank.

Ms Silva : I absolutely hear the question. It has launched in several other countries. It's also a matter of having a minimum amount of deals done so that the product can exist. But, Senator, we are committed to launching Showcase, and our version of a workable code provides that, if Showcase doesn't launch, we have alternatives. We are committed. It's a global program. It's launched in countries already, and there are more to come. Australia was actually supposed to be part of the first tranche, but we had to put that on hold. We've been paying the publishers who've done deals with us 25 per cent of their monthly allowance in good faith, and we're committed to News Showcase in Australia.

CHAIR: We will need to move on. Thank you, Senator Bragg. Senator Patrick.

Senator PATRICK: Just a bit of housekeeping to start with: you said that you were proposing technical amendments, yet you've presented us with a very high-level submission. Is it possible for you to help the committee by, perhaps from a legislative perspective, showing us what sorts of changes you think would be reasonable?

Ms Silva : I'd be happy to take that on notice. We have definitely got a version of the workable code that we could provide to the committee.

Senator PATRICK: Basically: what ought to be changed in the legislation, in a legislative manner?

Ms Silva : Yes—our proposal for a workable code, drafted.

Senator PATRICK: Thank you very much. In relation to the experiments that you've been running over the last week or two, they seem inconsistent with the philosophy of Google to present a search that best matches the query terms of your customer. Firstly, can you tell me why it is that you've conducted those experiments, and I'd also be interested to find out whether those experiments have touched on our national broadcaster. Has the ABC been included in the experiment?

Ms Silva : I'm happy to explain. The experiments were part of our scenario planning. We've had this code since 8 December, and we've seen various versions of it since July. There are a number of scenarios that we have been planning for at Google. The worst-case scenario, which I've outlined, is the withdrawal of our service. That is something we want to avoid. We've also been planning for how we would operationalise and comply with a workable code, because that is a significant shift in our operations. Getting deals done, compliance regulations—all of this we have planned for.

There is of course an area where we have, in our proposed workable code, the need to understand the value between Google and news publishers, and the experiments were designed to help build out that scenario. The timing of those experiments was also, honestly, forced upon us. We received a code on 8 December, with legislation that could pass as quickly as 15 February. For us to be able to go into any sort of arbitration that would exist in our workable version of the code and the arbitration process, we needed that data and that insight to prepare. I would also like to highlight that this is a very small experiment; it impacted one per cent of users for each arm. These are experiments that we run consistently to help make our product better. The purpose of these experiments was to help us prepare for a workable code solution.

Senator PATRICK: Did it touch the ABC?

Ms Silva : I would have to double-check the details. My understanding is that there were several arms aimed at understanding that value between Google and news media businesses. I can take that on notice and come back.

Senator PATRICK: Alright. You said in your opening statement that, with the code, what's being proposed here is not compatible with your search algorithm and it's not compatible with the internet. I put it to you that that's just technically not correct. It's almost like saying, 'The government's introducing a speed limit, and that's going to affect the way a car works at a technical level.' Would you accept that your argument is, in some sense, distracting and, in the way it's distracting, is misleading?

Ms Silva : I absolutely reject the concept that it's misleading. We have built a business on the concept of freely linking between websites on the web and, as I explained earlier, our business model has been built on top of that. The concept of paying a very small group of website or content creators for appearing purely in our organic search results sets a dangerous precedent for us that presents unmanageable risk from a product and business model point of view. It's not misleading.

Senator PATRICK: It's a commercial precedent; it's not a technical precedent for you. There's no technical effect on the TCP/IP protocols. There's nothing that this legislation does to affect anything in any of the international working groups that deal with the internet.

Ms Silva : No, but we would have to look at that from the fact that we would be paying a very small number of people who appear in our search results. How we would offer a product fairly and how we would also manage the precedent that that creates is a very big risk for us. The ACCC itself highlighted the downside of including links and snippets as a form of payment or payment mechanism in their Digital Platforms Inquiry preliminary report, and the reason they cited was that it creates a perverse incentive for people to create low-quality content. I think all of us would agree that the intent of this code is to protect and support the future of public interest journalism. When you create a system where people are incentivised to throw links up onto the internet, you create an incentive to create low-quality content and again, as the ACCC pointed out, an incentive to republish other people's work. It creates perverse incentives. It doesn't meet the intentions of the code. So it's far from misleading.

Senator PATRICK: I'm going to put it to you that this is, in fact, your real business. You offer customers the ability to search for everything. That's basically what Google is about. They come to you. They put a query into a search spot on your very simple-looking and very effective page, which is used to search an index that you hold of the internet, and it presents them with the highest-matching response to their query. That's technically what you do, but your business model is something completely different. Your business model is about bringing people to your page so they can search everything. You know exactly what they're searching for. You've got cookies that understand what the person is about, and you narrowcast ads to them, and that's how you make money. This whole code is not about in any way breaking the internet. It's about breaking your revenue streams. It's about breaking your bank account. That's what this is about. It does not touch the internet and the way in which it works.

Ms Silva : If I may, there are a couple of things I'd like to say in response to that. The vast majority of our advertising business is Search. This is based on an advertiser choosing a set of key words—so a local cafe, searching 'local coffee near me', or a large retailer of running shoes showing an ad when someone types a query for running shoes.

It's also important for me to point out that news-seeking queries do not generate revenue for Google. It's very unlikely that an advertiser would like to appear next to news content on Search, as opposed to a query with high commercial intent. News queries are about 1.25 per cent of the queries that we see on our search engine. So to the extent that this code is requiring us to pay for links and snippets in Search to a small group of people who participate in our search results, where it's always been the publisher's choice to appear in those results and they are the beneficiaries of valuable traffic, that is the model of Search. The advertising business is very targeted. It has enabled small businesses who previously couldn't access advertising to reach audiences all over the world at a budget they set for themselves. There is enormous benefit in being able to show up in a Google Search when a consumer is searching for the product that you sell. We see that time and again with Australian small businesses and large businesses that the results they get; that is our business model.

Senator PATRICK: I would just like to take you back to the Prime Minister announcing that Australia would like to see an inquiry into the origins of COVID-19. The Chinese response to that was to threaten our market, to threaten our trade. We've got a similar situation here, where the Australian government is leading on a proposal in relation to the 'Wild West web' and trying to wrap some regulation around it. Our government steps out first and the very large organisation that is Google threatens to leave our market. Do you think that's the proper conduct for a large international corporation like Google?

Ms Silva : We've made the worst case scenario to everyone we have been engaged with. There has been a lot of speculation in the media. We, like any rational business, need to assess the impact of any legislative change on our business, our product and our operations. It is the only rational choice, if this law were to pass, for us. We have a workable solution but we believe in its intention—

Senator PATRICK: It's going to go world-wide. You are going to pull out of every market, are you? Or is this about stopping the precedents?

Ms Silva : Respectfully, we have assessed the impact of this legislation on our business and it is untenable risk for our Australian operations.

Senator McDONALD: Good morning. Look, I just want to go back to this concept that you're floating, that it is only about paying for news content, when during the ACCC inquiry there was already quite a bit of data that the market share of Google that you have achieved through taking the advertising dollars of small business has been directly converted primarily from newspaper and radio and other news outlets. So I just want to step you back to that. How can you separate that it's okay for you to take advertising dollars from small businesses and that it's somehow a completely different function to the news articles that need to be paid for by these news outlets?

Ms Silva : Thanks for the question. I would like to just talk through the changes in the Australian ad market because, in an independent economist report commissioned from AlphaBeta, the Australian advertising market has grown from about $8.9 billion to $16 billion from 2002 to 2018. So the total advertising pie has grown substantially. In addition to that, the way that consumers consume media has changed considerably since the development of the internet. They have access to a lot more information than they used to, and digital advertising holistically, including for news media businesses who have strong digital advertising parts of their business as well, have grown equally. There have been declines in print newspaper revenue. But the economics behind this are actually more driven by the debundling of classifieds from newspapers, the rivers of gold that we all used to hear about. Those used to be owned, operated by newspaper businesses. They are now in the hands of a lot of Aussie success stories, like SEEK, Domain and Real Estate, which are still owned by Nine and News Corp. Ninety-two per cent of the decline in newspaper revenue is from classifieds. Google does not operate in the classifieds market. We answer a query and we send the user off to a website. In addition to that, we don't use news content on our website. We show a link and a snippet and we send the user to that website.

Senator McDONALD: Sorry to interrupt you, but, as a previous advertiser on a wide range of platforms as a retailer, I think that again you're shortcutting the reality, which is that, in order to come up on the Google searches, the advertiser, the retailer, the business, needs to pay. Yes, you may then direct them back to a website, but they have paid to be on that link. What portion of the $16 billion of the advertising market does Google hold currently in Australia?

Ms Silva : If I might just correct: we don't get paid to show the ads in response to a—

Senator McDONALD: No; you get paid—

Ms Silva : We get paid for the user clicks—

Senator McDONALD: Ad search words, Google search words, clicks—

Ms Silva : No, not for the ads to appear—

Senator McDONALD: You're not on [inaudible]

Ms Silva : We can have pages with ads on them where nobody clicks on an ad and Google does not make any money. We only make money when a user clicks on an ad and actually ends up on the advertiser's website. This is the pay-per-click model of search advertising. You don't pay to appear.

Senator McDONALD: Well you do, to get to the top of the page so that somebody will click on you.

Ms Silva : They ask to do that.

Senator McDONALD: You are skipping over the reality of how you get to the top of the page to be listed, to be clicked upon.

Ms Silva : Are you talking about advertising or the organic search results? You can bid to appear at the top, but Google doesn't get paid unless a user clicks on your ad.

Senator McDONALD: Yes, but, in order for somebody to click on your ad, for Google to be paid, you have to appear somewhere near the top of the search results—correct?

Ms Silva : No. Let me take a step back. There are two types of results—

Senator McDONALD: Alright. I'm going to run out of time, and if I'm barking up the wrong tree I don't want to waste time on a technical response. I'm trying to get to the bottom of: what portion of the advertising market does Google hold now, of the $16 billion market?

Ms Silva : It's a difficult one to calculate. We would estimate somewhere in the vicinity of 20 per cent of the total advertising market.

Senator McDONALD: If you care about Australians and Australian businesses, why would you make this threat to leave the market?

Ms Silva : Again, this is a worst-case scenario for us. It's not a threat. It's a reality. We have had to conclude, after looking at the legislation in detail: we do not see a way, with the financial and operational risks, that we could continue to offer a service to Australia. It's the last thing we want to do. We've equally been preparing for other scenarios, and we think we have a very clear, workable path to get there.

Senator McDONALD: You say that the code is unworkable, but the legislation the government has introduced provides you with an opportunity to do commercial deals with media companies outside the code. So why won't you do these deals, instead of making threats that seem designed to intimidate not just media companies but all Australians?

Ms Silva : The combination of the forced payment for Google for links and snippets with the arbitration criteria, which are open-ended, creates an unmanageable risk for us. So, even though deals can be done outside of the code, there is an inability for us to ensure that those get closed.

Senator McDONALD: Isn't there a clear link that making this threat will have an impact, and it would be fair to say that it does speak to the market power identified by the ACCC in the Digital Platforms Inquiry?

Ms Silva : Once again, this is our worst-case scenario. We do not want to be in this situation. We would love to get to an outcome where there is a workable code for all parties that meets the intention that the government set, which is to provide a bargaining framework for commercial negotiations in good faith between news media businesses and the digital platforms. We think we have a workable solution to get there.

Senator McDONALD: In Australia, we have a significant number of compulsory codes that have been able to address the small market that we have, and where we have unfair market conditions. You've talked a bit about Google News Showcase and that it's something that you're developing. We've not yet been able to see how that's going to impact Australia. You specifically talked about the Bundaberg example. Can you tell me if you've actually paid money to a regional news supplier in Australia? Start with that, please.

Ms Silva : We've done seven deals. As we were preparing to launch News Showcase in Australia before the draft code was released, we had actually closed seven deals with the likes of ACM, InDaily, Solstice, Private Media. Those deals are done. ACM, as you would know, covers a wide range of regional mastheads. We had to put the program on hold while the code was being finalised. We would love to restart it and we've been having very active negotiations. When we put the product on hold, we provided all of the people and all of the publishers who had signed deals with us a 25 per cent good faith payment. We have been paying them since the draft code came out in good faith, because we are committed to launching this product in Australia. So those deals are done, and they've been paid for the last eight months.

Senator McDONALD: So is News Showcase a subscription model?

Ms Silva : Absolutely not. It's a licensing program that pays for editorial curation of panels that would appear on Google services similar to any licensing program. It also uniquely pays for beyond the paywall access. So a publisher can choose to showcase stories that they may have that highlight their authoritative voice and quality journalism and they can allow a user for that day to see a particular story, be exposed to the type of content that they produce and then turn them into a subscriber once they land on their site. It's a way to help publishers drive subscription revenue on their own.

Senator HANSON-YOUNG: Senator Bragg asked about profits, the tax you pay, the regulatory environment in which you work. Is Google opposed to further regulation?

Ms Silva : Absolutely not. We're not opposed to regulation. Where the government sees a specific problem to solve that can be solved, we are happy to engage in consultative processes around that.

Senator HANSON-YOUNG: Today you've come to this inquiry and argued that what is before us as legislation won't work for you. But, effectively, you're saying: 'It's Google's way or the highway.' It seems to me that you just want to keep putting roadblocks in the way. We have to do something to secure the viability of public interest journalism in this country. Some people have given submissions. Commentators out there would argue that this is just old media being upset that Google has disrupted the market. But you're an advertising company, aren't you? You're not a news agency?

Ms Silva : We don't produce news. What I would say to the earlier part of your comments is that we have engaged constructively for three years. We are not opposed to a code. What we are putting forward is a proposal for a workable solution that we believe meets the intentions that the government outlined, which are payments to news media businesses and commercial arrangements between digital platforms and news media businesses, and the ability to work more closely with respect to the minimum standards so providing more information and engaging more constructively. Our workable code is an alternative that we believe meets the intentions of the government.

Senator HANSON-YOUNG: But you've just come here this morning and told us that only 1.25 per cent of search results are news and yet, if this legislation passes, you will shut down Search for everybody for everything across the country. That's a hell of a threat, and it doesn't seem to add up with the facts that you've presented about the impact that this would have just on news content in Australia. Why come here and threaten the Australian people with cutting off all of their search results because you haven't been able to negotiate?

Ms Silva : What we're outlining is the worst-case scenario. We don't want that to be the outcome. The code as it stands sets an untenable precedent for us that puts our Australian operations at risk. Today we're talking about payments for links and snippets in our organic search results. People—publishers as well as small businesses and every website owner—choose to appear in Google's search results because they get value from that. Payment for links—

Senator HANSON-YOUNG: So it is the precedent that this sets that you're worried about. You're actually not worried about what this means for users in accessing information; you're worried about the precedent this sets for the profits of Google going forward, across the board.

Ms Silva : Our ability to offer the search service to our users is supported by a business model, and that's not something that we have ever denied. This code sets an untenable financial and operational precedent for us, and any rational business would look at a piece of legislation and evaluate the technical and operational risk and the financial risk associated with it. This inquiry is designed to surface those issues, which is why we've been focused on a workable solution, and we believe we've put one forward. We're not opposed to a code of conduct at all.

Senator HANSON-YOUNG: YouTube's been excluded from this code, hasn't it?

Ms Silva : I might pass to my colleague Lucinda on the YouTube front if I may.

Ms Longcroft : Thank you, Senator Hanson-Young. Indeed, yes. We support the government's position and clarification that YouTube is not covered by the code.

Senator HANSON-YOUNG: How much does YouTube bring into profits for Google?

Ms Longcroft : YouTube's operations are not disaggregated in terms of Australian profits or revenue.

Senator HANSON-YOUNG: You must have some idea.

Ms Longcroft : Indeed. Globally, YouTube brings about $30 billion of revenue to the creators—to the operators, artists and media companies that use that platform.

Senator HANSON-YOUNG: What about to Google? How much does YouTube earn Google?

Ms Longcroft : I don't have that information, but I could provide it to you.

Senator HANSON-YOUNG: If you could, that would be helpful. Is YouTube growing in usage or downloads? Is your advertising base growing on the YouTube platform?

Ms Longcroft : YouTube is proving to be a very popular program with Australian users and Australian creators. In fact, there are over 200 Australian YouTube creators that have over one million subscribers and about 3,500 Australian creators that earn between $1,000 and $100,000 every month.

Ms Silva : If I might just jump in off the back of that, YouTube is a very different business model to Search. YouTube is a place where content creators upload their content and they have choice over whether they monetise that content, and there are existing commercial arrangements where we revenue-share all of the advertising on YouTube with the creators of that content. Those arrangements are in place, and the majority of that revenue share goes to the content creator.

Senator HANSON-YOUNG: But, just to be clear, that is exempt from this code. So it's a growth area of your business. It is part of your advertising revenue base. It's growing, and it's exempt from this code.

Ms Silva : The government has made it clear that YouTube is not going to be designated for the purposes of the code. YouTube competes in a very active and competitive space in the entertainment space. Broadcasters have broadcast video on demand. There's subscription video on demand. There's a highly competitive market that YouTube operates in, and we have been advised that YouTube would not be designated as it currently stands.

Senator HANSON-YOUNG: Did you ask the government for that exemption?

Ms Silva : In our response to the draft code, yes, we did request that YouTube not be designated.

Senator HANSON-YOUNG: So the government has compromised already with Google?

Ms Silva : You would have to ask the government this question, but I think on balance we were looking at where there is a perceived market power imbalance.

CHAIR: Senator Hanson-Young, we will need to wrap up soon.

Senator HANSON-YOUNG: I'm interested in what you think about how Australian users feel about Google's attitude towards this. There was some polling released earlier this week that said that three in four Australians agree that the algorithms search engines use should be publicly available so users can access them and that less than half of Australians agree that search engines are private companies and should be able to manage their users and algorithms, while two in five disagree. You have amazing market power—incredible market power—in this country. You've run an experiment. People aren't happy about it. And now you come to the parliament and you're trying to say, 'Either change all of this or we will shut everything down.' How do you justify that in the public interest?

Ms Silva : Respectfully, again, throughout this process our goal has been to analyse the proposed legislation as it comes to hand, assess the impact on our product and know that we would be able to comply, as well as assess the financial risk. When we do all of those three things the only rational decision is to withdraw the service. It is the last thing that we want to do. However, that's the situation we find ourselves in and that's why we are so committed to putting forward alternatives and solutions that we think meet the government's intentions.

Senator HANSON-YOUNG: You don't really pay that much tax in Australia, given the massive market share you've got, the massive profits you make and the offshoring of profits to places like Singapore. Would Google simply commit to paying more tax?

Ms Silva : That is a proposal that has never been put to us. I would just like to say again: We comply with the Australian laws. It's not for Google to decide how much tax it pays; it's for Google to comply with the tax laws in Australia. We haven't had a conversation about a digital services tax. We pay digital services taxes in other markets, and we've never withdrawn from a market—

Senator HANSON-YOUNG: Would you be arguing against it?

Ms Silva : We've never withdrawn from a market for paying tax, and it exists in a number of countries.

Senator HANSON-YOUNG: Someone's got to pay for the content that's created. At the moment, Google takes content created by other people and makes profit off it. You either have to share that profit or you've got to pay some tax, surely.

Ms Silva : We do not use news content. We do not show full articles on our website. We show people how to get there and we answer their question. We've never shown full articles on Google, and we help publishers by providing them with free traffic every day.

CHAIR: Senator Hanson-Young, we will need to move on.

Senator McALLISTER: I want to ask about the process that's led to this point. The government received the ACCC report 18 months ago and they announced their intention to develop a code 12 months ago. Why is it that we are still debating these detail in 2021? Why is the process to implement a code taking so long?

Ms Silva : Respectfully, we are not in control of this timeline. As I outlined earlier, we believe we were making good progress in the development of the voluntary code and had a deadline of November 2020. The process shifted back in April 2020 to a mandatory code, and we've engaged very constructively, and swiftly in many cases, in terms of responding to drafts and responses. The timeline is in the control of the government.

Senator McALLISTER: You've indicated on a number of occasions that you are providing constructive solutions and suggestions about various questions of detail. Has the government been responsive, and responsive in a timely way, to the concerns and suggestions that you've put forward as a stakeholder?

Ms Silva : We've had very effective and constructive conversations with Treasury and with the ACCC so, yes, we definitely feel like we've been heard. Again, we acknowledge the changes that have been made but some of the more fundamental issues have not been resolved.

Senator McALLISTER: When did you first make clear to the government that in your view the proposals were not workable? What is your understanding of why the government failed to address those concerns?

Ms Silva : We outlined very clearly in our submission to the ACCC's first draft code that the implications for Google were existential and that withdrawal is one of the rational options. That was first discussed privately in July of last year. That has since become a public document. We have been consistently sharing the implications on our business and putting forward solutions throughout that process.

Senator McALLISTER: You've indicated today that the worst-case scenario, from your perspective, is a circumstance where you withdraw Search services for Australian citizens. Is that the only response? I'm trying to understand what that means practically. Does it simply mean that as an Australian user I wouldn't be able to even land on your home page or utilise it in any way? Is that how it works?

Ms Silva : Yes. The preparations that have gone into, unfortunately, preparing for that worst-case scenario would result in users landing on a Google Search page when they put that URL in, but being presented with a screen that tells them we're unable to offer the service in Australia.

Senator McALLISTER: You say that you communicated that possible outcome to government representatives last year?

Ms Silva : Yes, in private conversations as well as in our submission to the ACCC that was issued in early August or July. As I believe, the ACCC's report came out in July and we responded by 28 August—apologies, I'd like to correct that.

Senator McALLISTER: Would an Australian business still be able to list themselves for advertising and be able to be viewed by users who reside outside of Australia?

Ms Silva : We need to work through how the ads business would exist, but right now there would be no access to domestic users for Australian advertisers.

Senator McALLISTER: So an Australian advertiser may be able to advertise, but the value of that would be substantially diminished, because Australian domestic users wouldn't be able to see their information?

Ms Silva : Correct.

Senator McALLISTER: I'm trying to understand the description of a process you've both provided. You say that you've been communicating your concerns regularly to government. You say that they've responded to those concerns in part. If they are promptly responding to your concerns, why are we still in a position where the practical elements of this haven't been landed with government? Can you explain this to me, given the risks that present for Australian consumers if this can't be landed in a workable way?

Ms Silva : All I can do is offer a perspective. I think this form and scope of legislation has never been put forward in any other legislation or jurisdiction around the world. There are multiple stakeholders. We have consistently gone back to what we believe are the intentions of the code and provided solutions that we think meet those intentions to the government and all of the key stakeholders. So I guess the question is probably more for the government.

CHAIR: I'm conscious we have gone significantly over time now. Senator Bragg, you had one quick final question, I believe.

Senator BRAGG: Thank you, Chair. I will just conclude my line of questioning before. It seems very peculiar to me that effectively Google wants to blackmail Australian consumers and policymakers with threats to go and leave this jurisdiction when these discussions are happening all around the world, including in the US itself. But the proposal you put on the table, which is Google Showcase, isn't even available in Australia for us to look at, let alone for the market participants on the other side of the transaction to you. So I struggle to reconcile how your proposal is a serious one when you haven't even put the proposal on the table. No-one can see Showcase, so how can we take your blackmail and your threats seriously?

Ms Silva : The product has launched in other markets. We do need to get the deals done. I think that in our workable solution we've also offered a backstop solution if we do not launch Showcase and do not have a news product where we can make a commercial offer to a publisher. We are committed to launching Showcase in Australia. It was supposed to be one of the first countries to launch, and we've done seven of those deals to get us there. We're confident that that's a very constructive and forward-looking solution to what we're trying to solve with the code. We're happy to have a workable code.

Senator BRAGG: Maybe you could provide this on notice to the committee, because we have nothing to deal with. As I say, we're grappling with your column of smoke, and all we've got today is effectively your threats and your blackmail. So, if you could take it on notice, that would very much help in our deliberations.

Ms Silva : Absolutely. I believe I've already taken that one on notice to provide you with some technical changes.

Senator BRAGG: Thank you.

CHAIR: We do need to leave it there. I appreciate the fact that senators still have questions. However, we are already half an hour over time, so I think we do need to move on. I thank Ms Silva and Ms Longcroft for appearing before us today. I would ask that you disconnect from the videoconference. You can continue to observe the hearing, should you wish to do so, through the live stream from the parliament's website. Thank you very much.