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Economics Legislation Committee
22/01/2021

COWDROY, Ms Emma, Chief Executive Officer, Australian Associated Press

JANZ, Mr Chris, Chief Digital and Publishing Officer, Nine Entertainment Company

LAUNDERS, Ms Rachel, General Counsel and Company Secretary, Nine Entertainment Company [by video link]

REID, Mr Campbell, Group Executive Corporate Affairs, Policy and Government Relations, News Corporation

STINTON, Mr Daniel, Managing Director, Guardian Australia

TAYLOR, Ms Lenore, Editor, Guardian Australia [by video link]

[12:20]

CHAIR: Welcome. Thank you for appearing before the committee today. I thank you for your patience. Information on procedural rules governing public hearings has been provided to witnesses and is available from the secretariat. Questions on notice are required to be returned by 1 February 2021. I'm going to ask for your forbearance on opening statements—keep them as short and punchy as possible. If you think they can be tabled that would be of great assistance to the committee so we can get to questions as quickly as possible. However, if anyone does wish to make some quick opening remarks we are happy to hear them. We'll go to Mr Janz to kick things off.

Mr Janz : Thank you so much, Mr Chairman. Senators, thank you for the opportunity this morning. Over the past two decades Google and Facebook have built businesses of almost unimaginable scale and dominance. Together they're valued at more than the entire Australian Stock Exchange. They're well north of the GDP of our entire nation and they hold effective monopolies in search and social media. They're the gatekeepers to the broader internet.

As the Treasurer said last month, they collect 81 cents in every digital advertising dollar in Australia. Their market credibility, business models and substantial valuations have been built on having free and unfettered access to quality journalism and content, content that is created by and funded by others. Their market might is only growing. Just 19 cents in every digital dollar is left for media organisations, such as the ones appearing before you today, that invest in journalism that is vital to our democracy. Without strong regulatory intervention, the sustainability of our diverse local media sector is at risk and our society could be beholden to decisions made by two men in Menlo Park and Mountain View.

Just last week Google decided to remove local news from the search results it presented to some Australians. It did so without giving any notice to the people affected. The impact of its decision was instant. It was disturbing. Instead of receiving critical updates from the ABC, Nine News, The Age, The Sydney Morning Herald, The Guardian or The Australian, some people searching for 'coronavirus New South Wales' received just a single news story at the top of their results—a three-week-old update from Al Jazeera. Searches for 'Sydney news' deprioritised crucial, accurate information about the public health emergency. Instead, the most prominent story Google served up was about exciting things to do. It was followed by a report about the sale of an abandoned driveway and links to videos on YouTube. YouTube, of course, is owned by Google.

Google's ability to execute this so-called experiment demonstrates a truth at the core of the digital media ecosystem: you either play by their rules or not at all. For media organisations, this means having to accept your content appearing on Google's platforms. This provides Google with significant commercial returns without paying a single cent for the creation of that journalism, and, if you don't play ball, Google have shown they're not afraid to effectively make you disappear from the internet.

For the broader community, it shows in very stark terms that Google controls the information people can access and it can manipulate this information according to its own commercial objectives. Given its effective search monopoly, Australians have little choice but to accept whatever Google decides. Google claims to be open to paying for news by pointing to its Showcase product, a product that was recently announced but is yet to launch in Australia. Showcase is exactly what you would expect from a monopoly: it works at a price set by Google and based on an opaque global formula; the take-it-or-leave-it terms are set by Google, and it doesn't address the bargaining imbalance of Google's core Search product, as identified by the ACCC.

This legislation is a good first step in addressing the significant bargaining imbalance recognised by the ACCC's groundbreaking Digital Platforms Inquiry. Australians deserve continued access to accurate, informed local news on the internet. Without this legislation, digital platforms will continue to refuse to pay for the content they've used to secure their monopolies or live up to the responsibilities that come with such power. Nine strongly supports regulatory intervention and wishes to thank the ACCC, the government, the parliament and this committee for their recognition of the serious issues at stake. We are of course happy to answer any questions.

CHAIR: Thank you. Mr Reid?

Mr Reid : I will truncate my remarks because—

CHAIR: Please, do.

Mr Reid : unsurprisingly they agree with what Chris has said. Firstly, I should start by acknowledging—as Google and Facebook mentioned in their remarks—how groundbreaking and world-first this is. I would like to take the opportunity to congratulate the ACCC, the Australian government and Australian politicians on all sides, including members of this committee, for their leadership in recognising this problem and seeking a way to fix it. The ACCC's work to investigate this issue and then formulate this bargaining code has generally been described as groundbreaking, and it is. Equally, the leadership of the Prime Minister, the Treasurer and the communications minister to confront this global problem and take it on here, rather than wait for other jurisdictions to show the way, is incredibly important for the future of Australian journalism.

I stress that, as Chris has eluded to, this is an urgent problem. To back up Chris's view, in the past 12 months we have all seen audiences turning back to our sources of news in record numbers in the face of the COVID epidemic. At the same time, the organisations providing that real news have never been more fragile. The code you are considering can play a vital role in securing the future of real news for all Australians. There may well be opportunities to improve the code, but we can't allow refinements to undermine its core intention to provide a framework that creates an environment for successful commercial negotiations between media companies and tech platforms. Resorting to the powers of the deadlock-breaking procedures of the code is certainly the last port of call, not the first.

We have said publicly, on behalf of News Corporation, that we have been in negotiations but are yet to reach agreements. We sincerely believe that the new media ecosystem must make journalism viable, whether a publisher is large or small. A changed ecosystem is not about a single publisher; it is about all publishers, all journalists and, indeed, all of society. That said, the code's requirements on algorithms need to be workable for all parties. The data provisions need to be as practical as possible. But, I stress, open commercial negotiation that results in an equitable deal for the use of news content is what we are all trying to achieve.

The coming code has been a catalyst for discussions that have already had a positive impact not only in Australia but around the world. News supports the code and urges that it be legislated as soon as possible. We are genuinely open-minded if there are clear opportunities to enhance it, but we are staunchly opposed to attempting to undermine it either in spirit or in its effectiveness.

Ms Cowdroy : Thank you for having AAP here to address you on this important issue. AAP supports the passage of the bill in its current form, as it assists retail media—that is, news media who have a direct-to-consumer news model—at a time when the industry is in a state of deep and prolonged crisis. AAP has been the collateral damage of that crisis, culminating in its near closure in March last year.

In introducing the bill to parliament, the Treasurer stated:

Public interest journalism plays an important role in our society. It is critical to the functioning of our democracy. This role can only be fulfilled by a strong, diverse and sustainable Australian news media sector.

Never a truer word has been spoken.

The bill will provide a lifeline to consumer facing news media services. However, whilst the bill helps AAP's retail media customers it does not contemplate a critical pillar of competition and media diversity in the news media industry in Australia—namely, wholesale providers of news. One of the most important wholesale suppliers of news content in nearly every country is the national news wire. In Australia this independent wholesale news wire service is fulfilled by AAP, which has been covering the news continuously for over 85 years. It is critical for diversity and competition that Australia's media continue to have access to a strong and sustainable wholesale news source. A strong and sustainable wholesale news supply chain is especially important for small to medium outlets, who rely heavily on being able to source their news as part of a cost-efficient pooled arrangement.

Around the clock, 365 days of the year, AAP writes core news stories and captures images that document areas of high public interest, including national and state level politics and policy, court reporting and breaking news from around the country. Indeed, just this week one of AAP's full-time award-winning photographers travelled with the Prime Minister through regional Queensland, documenting his trip as a matter of public record and for the public good.

AAP's news content is drawn from its correspondents at home and abroad as well as from some of the world's leading news wire agencies. This ensures a breadth of coverage that would not otherwise be available to a vast number of Australian outlets. For many of our customers the cost of covering all the news across the nation with their own internal resources would be prohibitive, and the absence of a wholesale news source would threaten the very viability of their businesses.

AAP's content is licensed by hundreds of websites across Australia, including half of the top news sites in the country. It is printed in major newspapers throughout metropolitan and regional areas and is broadcast by radio networks across the country. We have a shared audience of millions who consume our news daily in various formats, yet under the bill we will not receive any remuneration for the significant cost of the creation of public interest news content. While our content surfaces on digital search engines and news aggregator sites, we ourselves do not operate a news source as that expression is defined in the bill. The bill is not structured to compensate wholesale news media. The unique position of the news wire, as the trusted source of public interest journalism for over 400 outlets in Australia, must be addressed alongside the passage of the bill.

A sustainable independent news wire provides significant public good. Supporting the national news wire means supporting the entire industry. Almost every other country in the world recognises the important role that the national news wire plays and provides a level of support, whether by way of subscribing to the service or through recurrent funding. AAP receives one of the lowest forms of recurrent support from the government anywhere in the world.

If all the Australian government does is pass the bill then it will not have achieved its goal of protecting media diversity in Australia. In order to truly achieve the objective of the bill, namely to help support the sustainability of the Australian news media sector, the government must urgently consider additional measures to assist the wholesale news industry such as the provision of an appropriate form of recurrent government support for AAP.

Mr Stinton : Thanks very much to the committee for inviting us to appear here today. I'd also like to start, if I could, by acknowledging the outstanding work that Rod Sims and the digital platforms branch of the ACCC have carried out, first with the ground-breaking 18-month long digital platforms inquiry and the subsequent development of the bargaining code. Contrary to what some have claimed and what we have heard this morning, this process has involved extensive consultation with industry and deep analysis of the digital advertising market. It's resulted in a considered code that, in our view, is a pragmatic way to facilitate fair negotiation between Australian news publishers and the digital platforms.

If this code becomes law, it will provide the necessary dynamics to facilitate commercial agreements with Google and Facebook, which will result in us employing more journalists in Australia—again, contrary to what we heard from platforms this morning—covering issues of national importance and that's obviously the intent. We believe that the code will facilitate commercial agreements for smaller publishers as well, indeed anyone earning as little as $150,000 a year, which will contribute to ensuring that more news sources emerge to add to Australia's very concentrated media landscape.

A dominant theme of those objecting to the code is the notion that forcing platforms to pay for the benefit they receive from publisher content will somehow undermine the principles of an open internet. Many of these submissions were made by people who were either on the Google payroll or were organisations that were lobbied by the platforms and dependent on their traffic. Putting that aside, opponents of the code are defending an open internet that ceased to exist years ago and, instead, has become dominated by a small number of very, very large US tech companies. In fact, Google and Facebook are the internet for most Australians, or at least the key gateway to it. As we heard this morning, Google has a monthly audience of 19 million and Facebook of 17 million. Where people go online is largely determined by these two companies' algorithms. These algorithms remain opaque despite their central role in the news and information that people see as well as the wider digital economy. This makes them unavoidable trading partners for news publishers—to use the technical language of the ACCC.

The minimum standards in the code require that platforms give at least 14 days notice to publishers of material changes to their algorithms. This is a welcome step in the direction of mitigating the impacts of these decisions, which are currently made in secret in Silicon Valley. There is nothing to prevent Google making these decisions public and available to all, and we would also welcome this step. There are, however, two main reasons why news publishers and our content should be treated differently by the platforms. Firstly, as I hope is obvious to everyone on the committee, journalism is a public good. Just imagine trying to navigate the challenges of last year without news publishers informing the public about the bushfires or the pandemic and instead being reliant on the misinformation that is so prevalent on fringe websites, YouTube and social media. I acknowledge the difficulty in moderating such large volumes of spurious content, and we've heard a bit about this this morning, but surely the best antidote is ensuring that the public has access to fact-based journalism. This is what makes Google's so-called experiments—throttling access to news content—so dangerous. Yet the business model that funds this important journalism has been fundamentally undermined by the substantial market power of Google and Facebook. Which brings me to the second reason why digital platforms should pay publishers for the benefit they receive from our content—that is, due to a market failure, where the platforms compete with us in the digital advertising market in a way that they don't compete with other businesses they are linked to.

As we heard this morning and according to the ACCC, Google and Facebook have a combined market share of the digital advertising market of 81 per cent. That's up from 73 per cent just a year earlier, which, as we've heard, leaves just 19 per cent of the market for publishers to scrap over. As a result, Google made $4.3 billion in advertising revenue while Facebook made $0.7 billion in 2019—and I suspect it is much higher for 2020. It is our journalism that provides some of the main benefits that have allowed Google and Facebook to grow their businesses to such huge sizes.

So what are those benefits? I will finish with just three points. Firstly, our content drives engagement on Google and Facebook properties. As the ACCC found, there is tremendous benefit in aggregating news and information, both as a huge well of attention to deliver advertising but also in creating user trust in these platforms. This is evidenced by the fact that we and most other publishers have commercial agreements with other news aggregators that do not enjoy the substantial market power of Google and Facebook, who refuse to pay.

Secondly, Google and Facebook collect troves of consumer data from consumer engagement with our content on their products and also from publishers' use of their tech on our websites. This data is used to power their respective targeted advertising businesses. Putting aside the significant privacy concerns from harvesting this data—and it is worth noting the ACCC has ongoing action against both Google and Facebook for misleading customers about its collection—it is clear that data has value yet publishers receive no compensation for this.

Third and finally, almost all publishers use Google's leading advertising technology to power their digital advertising. Every time you visit a publisher website, Google tech is almost always responsible for the advertising you see yet we do not have a complete picture of the fees that Google earns from their control of the digital advertising supply chain. This makes it impossible to know whether we are getting a fair deal. Just imagine running a business with this much power. The digital platforms aggregate our content to drive engagement on their products. They determine how much traffic they send us with completely opaque algorithms and then collect advertising revenue and data from consumers who visit our websites to power their targeted advertising businesses. The news media bargaining code will be a world-leading effort to help level this very distorted playing field and give news publishers a fair crack at receiving fair compensation for the value our content delivers.

I'll leave it there for now, but Guardian Australia's editor, Lenore Taylor, is on videoconference. I welcome any questions from the committee.

CHAIR: Great. Thank you very much. We will go straight to questions.

Senator GALLACHER: I will just go to AAP and recap your submission there. This proposed code doesn't have any benefit to AAP?

Ms Cowdroy : No, it doesn't. Whilst we are a news business and fulfil a lot of the criteria, such as the fact that all we do is public interest journalism and we also comply with all of the codes regarding journalism, we do not operate a news source as defined in the act. We don't have a public-facing website, we don't have a radio or TV station and we don't have a printed newspaper. We supply to them, but we don't operate one ourselves.

Senator GALLACHER: So what should the Australian government be doing to ensure we have a strong and sustainable news wire?

Ms Cowdroy : I think that the Australian government should follow the lead of pretty much every other government anywhere else in the world and either provide a form of recurrent support—so funding—or take the AAP news wire service as a subscription and provide essentially a subsidised version of that, which is what happens everywhere else.

Senator GALLACHER: So there'd be no trickle-down benefits of this code to AAP?

Ms Cowdroy : I've looked at the trajectory of our revenues over the last few decades I've been with AAP. I think it would be naive to assume that our customers will all of a sudden want to pay us a whole heap of money once they have it.

Senator GALLACHER: Thank you. The next few questions are to all parties, so just throw your responses out individually or get through them as quick as we can. How has the regulatory uncertainty and delay around the development of this proposed code impacted revenue flow to the media in Australia—or has it?

Mr Reid : I will state at the outset that the phrase 'regulatory uncertainty' is interesting to me. It seems what we're going towards here is regulatory certainty. That's what is actually the objective.

Senator GALLACHER: I'm talking about the 18 months we've been doing it.

Mr Reid : Yes, the 18 months. As is evidenced by the growth in Google and Facebook's traffic and the expansion, as we've talked of, of YouTube and Instagram as sources, I would say the trajectory of revenue for all Australian media business has continued to decline, perversely at the same time our audience numbers are growing.

Mr Janz : I wholeheartedly agree with Campbell's view that it is urgent that we move forward and provide regulatory certainty as quickly as possible, because we are facing incredible structural challenges within the news media business.

Mr Stinton : I would echo those comments. It's urgent, and it's becoming more urgent because Google and Facebook are obviously gaining an increasing share of the digital advertising market, and this goes some way, at least, to address that.

Senator GALLACHER: Has this sort of impasse in the code coming into effect impacted on commercial deals that were being concluded or were being negotiated? Can you come onto the record there?

Mr Reid : It's on the record, as I said, that we—and, I'm sure others at the table—are in quite intense negotiations with both platforms to try to reach a deal. That is ongoing as we speak. We're not there yet—not for the want of trying.

Mr Janz : The platforms absolutely have engaged with us to discuss commercial agreements. I think it's fair to say the terms that they put on the table are immaterial to our business, in terms of both the revenue of our journalistic business and the costs of producing that journalism.

Mr Stinton : Again, I have a similar theme. It is exactly the same scenario for us. We've discussed commercial deals with both Google and Facebook, but they haven't progressed very far, and the terms—so far at least—have not been satisfactory for us.

Ms Cowdroy : I would say that we've also been in discussions, but they were put on hold and we have not been able to progress anything with Google directly.

Senator GALLACHER: The government indicated that it would get a mandatory code in place last year. We're still debating it in 2021. Why is this process to implement the code taking so long? Is it intransigence on your side or someone else's side? What's the real issue here?

Mr Reid : I think, as we've heard today, the code has been both an impetus for conversations and now, as you've heard this morning, a roadblock to those conversations proceeding. So we think that there is absolutely a negotiable outcome, and we are open-minded, but, particularly as you heard from Google this morning, their core problem now is the fact that the code applies to Search, and one of the problems I think we might have all faced is that there is always the next problem, particularly with Google; so we can solve this problem, but now there's another issue. You have to wonder: are they intending to negotiate to a conclusion?

Mr Janz : The stark reality is: both of these organisations are monopolies. They set their own rules, and without a legislated outcome here there won't be any funding going to any of our news organisations from either of them in a material form.

Mr Stinton : And, to go to your question, to some extent the time is appropriate. This is a pretty complex market that we're all operating in and this is world-leading legislation as far as we are concerned. So I think extensive consultation, while frustrating at times, is probably appropriate. But again I would just make the point: While this legislation is world leading, from Australia, the regulatory pressure on Google and Facebook is building around the world. To be clear: there is absolutely no way that there will be talks of doing deals on Facebook News or Google Showcase if that wasn't the case. So this is just another step in increasing that pressure and I think a really important one from Australia's perspective.

Senator GALLACHER: Have stakeholder concerns been overly varied and complex or are you consistently presenting the same concerns?

Mr Reid : I think we are consistently presenting pretty much the same concerns.

Mr Janz : And we have had a great audience with the ACCC, Treasury and Communications. I think they understand those concerns. They have been consistent. It is a rare sight to see News, the Guardian and Nine absolutely united, but I think that is very much the case here because we are concerned about the industry more broadly.

Mr Stinton : I have nothing to add.

Senator GALLACHER: How important is this code to addressing the imbalance in the bargaining power? Is it the only way forward?

Mr Janz : I think, clearly, yes. We have seen consistent behaviour from Google and Facebook. They walk and talk and act like monopolies because they are monopolies. Without this code being legislated we will not see an outcome that sustains the news industry in Australia.

Mr Stinton : I share that view. As I said earlier, I think the reason why we're having these commercial conversations is because of the regulatory pressure. What worries me is that, if this code does not become law—I certainly hope that's not the case—all possibilities of us being able to negotiate commercial agreements which are sustainable over the long term will disappear and we'll be taking whatever terms Google and Facebook propose to us, which is exactly the scenario we have been in for the last decade, and that's not sustainable.

Senator GALLACHER: Nods don't get on to the Hansard, unfortunately, Mr Reid.

Mr Reid : I agree. Let me say: I think the challenges you've heard this morning are that we are all open to open negotiations and have an open mind, but, as to those objecting to, say, the algorithm changes or the data provisions or the arbitration, the ball's in their court to tell us what specifically does not need to be changed. It's almost now a cliche: 'a workable code'. Well, let's get to the detail. What actually does that mean to you? I don't think the platforms have answered that well enough to this point.

Senator GALLACHER: They were brutally clear—at least, Google was brutally clear—that there was an unquantifiable risk to their business. Do you accept that? Do you accept that they don't have an algorithm which would produce a figure as to which amount of revenue would be attributable to the news organisations?

Mr Reid : No, absolutely not. Their experiment shows how well controlled their machine is. One of the massive problems we face, particularly with Google, is their entire machine is a black box. How do you negotiate when they hold literally all of the information? They know more about our businesses than we know about them ourselves, when it comes to being online. So that is again evidence of the bargaining imbalance. The notion that this will break the internet or that because Google and Facebook's business model has existed for 20 years or so it is now sacrosanct—no other business enjoys that kind of set in stone operation.

Senator GALLACHER: If I can get the other parties on the record?

Mr Stinton : As I said in my opening remarks, I see absolutely no reason why forcing Google and Facebook to pay for the benefits that they receive from publishers and our journalism would result in Search or Facebook no longer working. That would be a decision for them if they were to change their businesses, but that's no reason for them not to pay fair compensation to news publishers to that end. Again, I would echo what I said at the beginning—keeping in mind this idea of an open internet is a fallacy—that where people go online is effectively controlled by Google and Facebook's algorithms and we have no idea what decisions drive those algorithms. We have no idea.

Mr Janz : At the end of the day they're a trillion dollar corporation. They told you this morning that they're generating $2.3 billion a year in digital advertising revenues in Australia. There is no, I think, contemplatable outcome here financially that will make a dint in them as a global corporation.

Senator BRAGG: I want to briefly run through the main statements made by Google and Facebook this morning—I'm assuming people were all watching that. Effectively Google said that they didn't want to pay for links and snippets, even though that's not mentioned in the code, and their solution was to go for this Showcase concept, which is something that they say they have in two other markets. I'm keen to get your views on this. Their position is: we don't like the code, our position is we want to have Showcase but we're not prepared to show Showcase in Australia. To me that appears to be a bit like a column of smoke. It's very hard to grapple with if the other side of the negotiating table is not even prepared to put it on the table. I'm keen to get your views on that.

Mr Janz : I'm a director of the International News Media Association, which is a body that comprises news organisations all around the globe. There isn't a single news organisation that I am connected with as part of that body that is happy with the Showcase outcomes that've been put on the table. It is take it or leave it. This is incremental revenue. If you don't take the offer that's on the table you can take us on. They've shown that they're not afraid to bully, intimidate and make changes to their service. For Showcase to be a credible product that solves the public purpose of this legislation is not a credible argument.

Senator BRAGG: Isn't it frustrating to you that the position that they're putting as the solution to the Australian issue they're not even prepared to put on the table in a tangible way?

Mr Janz : They have absolutely had conversations with Australian news publishers about Showcase even though it doesn't exist in this market. The financial outcome there is not something that would sustain more than a handful of journalists over an extended period of time. It is not significant or material to our businesses as far as I've seen to date.

Mr Stinton : If I could jump in I'd echo those comments. I want to touch on that point you made at the start of your question, which is this notion that Google and Facebook are just paying for links and snippets. What we're asking to pay for is much more than that. If you look at just how news is displayed on Google Search and Facebook news feeds it is far more than just links and snippets. Many consumers simply consume their news within these environments without coming to news publishers at all. As I mentioned in my opening remarks, there are other benefits as well, such as the data that they collect from consumer engagement with that content, both on their products but also critically on publisher websites. In the case of Google, Google also gets a substantial benefit from every publisher's use of their advertising technology, which is effectively the only option if you want to run digital advertising.

Senator BRAGG: Are there any other views on that? Well that's a good segue onto the second point. I asked Facebook about the value of having credible news. I think I mentioned a few of the companies online—The Australian, The Guardian, the ABC, Sydney Morning Herald, for example. My sense of it was that there would be value for Facebook in having news from those credible and diverse news sources on their Facebook platform but they said there was no commercial value at all. I would have thought, given that Facebook in many respects is the home of fake news, that that would have been very important. What is your view? I mean, is your content effectively valueless, as Facebook would say?

Mr Reid : I think that goes to the heart of our understanding of news value, as traditional publishers, that the platforms are either choosing to not understand or, because they are technology companies, maybe they genuinely don't understand. But there's a great phrase in newspaper publishing of 'the value of words unread', which is the presence of credible news. Even within a newspaper environment, a lot of consumers don't actually read it but they are very reassured that Joe Biden's full transcript of his first speech as a US President is contained there. And a news consumer of a traditional publisher might actually pick it up every day and go directly to the race results. So in that environment, the news, the page 3 lead of that day—to use that definition—is of no commercial value. But if you are returning to a news source where you are expecting to encounter reliable news of society then, of course, where Australians and people globally are literally living their lives on these platforms, the presence of credible news, we would all contend, I think, is of immense value to the platforms.

Mr Stinton : If I call out one more specific point we heard from Facebook this morning. I can't remember the exact words, so I will paraphrase it as I remember. It was something along the lines of people don't advertise against content on Facebook; they advertise to audiences. I think that's quite a misleading statement because the way you advertise on Facebook is within the Facebook news feed, and news content does provide at least some of the engagement that the Facebook news feed delivers. So I'm surprised that they say 'see no value in journalism within the Facebook news feed'. It just doesn't stack up. When you see how their business works, that is where the ads appear and that is where our content drives engagement.

Mr Janz : They've also used news for over a decade to build them to the businesses and monopolies they are today. They have clearly shown the value of news to their platforms. The statement that they made this morning is entirely inconsistent with their behaviour elsewhere, where they admitted to creating a news-specific product in the United States. They wouldn't do that unless there was a solid commercial outcome. And they also admitted to not launching that in Australia and preferencing the United Kingdom. Facebook, through its own actions, not just historically but today, showed that news does actually provide value to their business.

Ms Taylor : If I could add something there. However we calculate the commercial value of news to Facebook, I would just urge legislators to think about what would fill the void if factual news was not available on Facebook anymore, what would fill that gap and what the consequences of that would be for democratic debate.

Senator PATRICK: I just have one question but to each of the entities. Google has contemplated leaving the Australian market, so obviously that's something that's on the table. If they were to leave the Australian market, what effect would that have on your organisation in respect of funding public interest journalism? Secondly, what are the logistics in those circumstances of getting your news to the Australian public?

Ms Taylor : For us—Guardian Australia is fairly new in the Australian market, about 7½ years old—Google is an important source of referral to our news but it is a much bigger source of referral for unique browsers than clicks and that difference tells us that lots of people are finding us through Google Search. So as we try to grow the Australian market, increase media diversity in Australia, provide a new voice for Australians, Google is one of the ways that people find us and we are able to grow. People here will discuss the consequences for all media organisations, but I would suggest it has a particularly severe effect on media organisations that are trying to grow and discover new audiences.

Mr Janz : I agree with Lenore. I think the people who would feel the impact of Google exiting the market would be new and disruptive entrants who create diversity in the Australian media mix, and that's bad for the broader societal outcome. The one thing that I'd add, though, is that Google is the gatekeeper to the internet right now. Over two decades, they have trained Australians to access the internet through Google as the front door. If Google were to disappear, given that there's $2.3 billion of advertising revenue up for grabs, I imagine another entrant or a number of entrants would see the opportunity that exists within Australia, and I also imagine that traditional publishers like Nine—with The Sydney Morning Herald having been around for 189 years and built trust over that time—would see a resurgence of people coming directly to our sites rather than coming to our sites via Google. That isn't necessarily a great outcome for the broader media market, but I think it would be a side effect of them exiting.

Senator PATRICK: I just remind you that the second part of my question was about the funding of public interest journalism.

CHAIR: Is there anything else to add? You don't need to. We are short of time.

Mr Reid : This is a scenario we hoped not to encounter.

Mr Janz : They don't pay for public interest journalism today, so, if they were to exit the market, I don't imagine the funding problem that currently exists—

Senator PATRICK: But doesn't that give you the opportunity to get more advertising? Does it create an opportunity for advertising funding?

Mr Reid : Hypothetically, as Chris said, it would make the direct competition that a masthead like The SMH has always enjoyed in the Sydney market, with The Daily Telegraph—in a way, we would be back to head-to-head competition, without both having to go through the gatekeeper of Google. So, bizarrely, it could be a 'back to the future' kind of scenario. But search engines like Google are of immense value to people in making choices and accessing information. That's the good part of them. The bad part about the situation we're in is the commercialised monopoly. Now, in a genuine monopoly statement, they're prepared to punish the whole of the country.

CHAIR: Senator McDonald, do you have any questions?

Senator McDONALD: I do. Google and Facebook kept making the point that they were driving users to your webpages by promoting news articles. I just wonder if you could talk to that particular assertion.

Mr Reid : That's true, and, when people do get to our webpages, the opportunity to consume more of our news and potentially subscribe is there. But, as I think Dan mentioned, if you think about how people actually consume news during the course of their day, often you hear something on the radio or, as you're searching for something else, you see the latest Victorian update run by The Herald Sun, which appears as a snippet on Google. So, for many, many people, just their daily activity on Facebook and Google serves their news needs. The hypothetical sort of promise is, 'Well, we direct traffic back to your website, so therefore that's enough for you, and we, the platforms, don't extract any value from the presence of your trusted content on our ecosystem.' That's the problem. Yes, they do refer traffic back to us, but they also extract immense value from the traffic, and that doesn't come back to us. That's the point that they are refusing to acknowledge.

Mr Stinton : I will just add to that by again reiterating what I said earlier: yes, they refer traffic through to us, and that is of value because we monetise that with advertising or converting it to some sort of reader revenue—we all have very different business models—but again I just make the point that they also then collect consumer data from consumer engagement with content on our websites and they use that then to power their digital advertising business, so it's a virtuous circle for them. They control where people go online, they aggregate our content to gain attention, they send people to our websites with secret algorithms and they then extract advertising revenue from the traffic they send through to us. We have no control over that process.

Senator McDONALD: We've seen the demise of regional papers and the contribution of regional content to news services in the last few years. Can any of you comment on how the rise of Google, Facebook and digital news may have contributed to that demise?

Mr Reid : The demise is not in the thirst for regional news; the demise is in the decline of regional advertisers as they move online. As regional audiences moved online, they saw regional printed newspaper circulations fall to an alarming point. The costs of printing those newspapers and distributing them on trucks in a long-established way became unsustainable. At News we are opening digital-only regional publications in places where we've never had a footprint before. The audience is really strong for those digital-only regional news services, which makes the code and the process we're going through here even more necessary. What we're trying to find here is a sustainable business model for real journalism as it moves online, which is where Australian audiences, as I said before, are literally living their lives. We're trying to embed a new business model that works in the way people are now living their lives, and regional subscriptions for our digital-only products is one of our growth areas. We just need to get a sustainable model that can fuel it into the future.

Ms Cowdroy : I would say that the Australian Associated Press plays very heavily into the sustainability of all regional publications and broadcasters. Of the 400 outlets we supply to, over 250 are in regional Australia. There's no way they could go and set up newsrooms across Australia to collect the news and then bring it back to their area. The pooled news wire is what they rely on very heavily—that's certainly the feedback we have—so they can get court stories from the capital cities, so they can get both state and national political reporting. A sustainable future for the national news wire is also critical in any discussion of this bill.

Senator McDONALD: Mr Janz, in your opening statement you made some additional comments around the experiment that has been made. Can you expand on that a little further?

Mr Janz : Of course. Last Wednesday, unbeknownst to users, Google decided to change the search results they presented to some Australians. I know the committee asked earlier whether the ABC was affected. The ABC was amongst the publications that effectively disappeared from the internet, along with all of the publications represented at the table today, for those users. It meant that if you searched for any local content, and you were one of the affected users, you no longer got up-to-date, relevant local news and instead received old news from international outlets. Clearly we're in the middle of a public health emergency. There's the potential in regional areas for bushfire emergencies and other elements where—

Senator McDONALD: Cyclones.

Mr Janz : Cyclones, for example, up the coast in Queensland. If you were one of the affected users searching for whether or not you were a cyclone affected area at that point, you would not have received any news from any Australian outlet. I think it shows the determined strength of these platforms, and the fact that they have power and aren't afraid to deploy it.

Mr Stinton : One more thing, if I could add to that. We still actually don't know the extent of these experiments, because Google won't tell us. We put several questions to them and I know most other media organisations put several questions to them about how many users were impacted. We received virtually no answers back. Again, it demonstrates the problems with having these algorithms being completely opaque and yet critical to directing Australians to public interest journalism.

Senator McDONALD: Could I put it to each of you that the government's decision to move to a mandatory code, as opposed to a lottery post, has been critical in getting Google and Facebook to the table to even commence negotiations with news outlets, even though the they have not yet come to fruition. Would you agree with that?

Mr Janz : Absolutely.

Mr Reid : I would agree with that.

CHAIR: I think we're seeing nods everywhere.

Senator McDONALD: Excellent. Thank you.

Senator HANSON-YOUNG: This question is to all of you. One of the criticisms in relation to the code that have been put to us as a committee is that the mainstream media organisations are just upset. You're the old world, and the new world is there in full swing. It is profitable, it has users and it has customers, and this is just disruption. This is the way it is. Get with the future. There has to be some truth to that argument, of course, because you're media organisations; you're not tech companies. Surely there needs to be a balance here. I'm interested to know where we draw that line. I asked both Facebook and Google this morning what type of companies and they are. They make their money from advertising. They're not journalists. They're not media agencies. I'd like to know where we draw that line, because there is some truth in the fact that you're the old guard and there are some new kids on the block.

Mr Janz : Speaking for our mastheads, our audiences have never been bigger and there has never been more of a thirst for trusted, authoritative, independent news, but there has been disruption that has taken place. If you rewind from 2013 to today, the digital advertising revenue of The Sydney Morning Herald, The Age and The Financial Review has halved, and its halved because we're competing against monopolies that control access to the internet and the advertising ecosystem around the internet and the data that exists around the internet. We are not afraid to adapt. We're not afraid to change. But we believe the journalism we produce is critical to a functioning democracy and a functioning society, and if we accept for one minute that Google and Facebook can be unregulated monopolies that don't contribute to the cost of the content they've used to build their businesses, I think it leads to a terrible outcome for Australia.

Mr Reid : On your remarks about old companies being disrupted, in the very first conversation we had with Rod Sims about his process, a long time ago, paraphrasing, he said to us: 'If you are old companies that have failed to read the future and have just been disrupted out of business, I have absolutely no sympathy for you.' So we were clear from day one that this wasn't a way of saving old-fashioned companies who just wanted to be old-fashioned. The problem here is that this is an asymmetric disruption in that Google hasn't replaced a horse and cart with a car. It doesn't replace news services with journalists. It has no newsrooms. It doesn't provide the services that it feeds off. We provide the services that it feeds off. I think the notion that just because a masthead like The Sydney Morning Herald has been around for a very long time means it's old-fashioned, look at the innovation of media companies big and small. If you look at the products that The New York Times or The Wall Street Journal now produce in print, digitally, on podcast, in long-form journalism and in daily digital newsletters, these companies are innovating and thriving online. It's just that we are not surviving because the gatekeeper won't allow a commercial relationship that allows us to thrive.

I would contend that media companies' innovation online—and frankly we are becoming tech companies. We are learning those skills. Frankly, I'd happily run in this marketplace innovations by old-fashioned news companies online, and I'd stack them up any day against Google's innovation over the last 10 or 15 years. I think we are innovating. Our old-fashioned trust and legacy is our strongest asset, as is our audience, but our ability to survive for 180 years—it wasn't that long ago that newspapers were going to die because of television. We've survived, thrived and innovated throughout our entire history and we're continuing to do so now.

Senator HANSON-YOUNG: What's The Guardian's perspective, seeing as you are relatively new in Australia and are 100 per cent digital? Are the current frustrations in terms of negotiating you've described that you've had with Google and Facebook the way it's always been or has it got worse? You're relatively new but there must be some baseline that you can judge from.

Mr Stinton : I have a few points. This is where we differ from the other publishers on the panel, in that we're 7½ years old. We do have one weekly print product but it's a pretty small distribution. We're almost entirely digital in this market. I think the fact that we have managed to grow really strongly here—by the way, just as a matter of record, we're continuing to grow, including our advertising revenue, despite the challenges we face. I think that's because of the innovation that we have undertaken. I also echo the points made earlier: all of us are innovating both in storytelling and in our business models.

I make the point that there has been an argument, which has been prosecuted particularly by Google, that classifieds are the reason that news publishers have been disrupted, and really that there's no-one to blame but news publishers for that outcome. There's some truth to that. Obviously when classifieds were effectively disaggregated out of newspapers that created completely new businesses, and those rivers of gold, as they were referred to, no longer sustain journalism. However, that's just one problem, because, if you look at what has emerged since classifieds were effectively disaggregated from newspapers, you've now ended up in a circumstance where, as we've heard this morning several times, Google and Facebook have an 81 per cent share of the digital advertising market. It's a clear market failure here when you have four-fifths of the market being controlled by two companies, whose share is growing.

To answer your last question: I would actually say that our ability to negotiate with Google and Facebook, or the willingness of them to negotiate with us, is actually improving, again, because of the increasing regulatory pressure which is happening both here and around the world. Unfortunately it just hasn't got to a point which is satisfactory for us to be able to do deals. But I hope, if this becomes law, that we'll be in a position where we can do that for the first time and invest more in journalism, which is the point.

CHAIR: Senator Hanson-Young, I'm happy to go to you but this will need to be your last question.

Ms Cowdroy : I want to make one point about AAP in the mix of all of that. It's often said that when our customers sneeze we catch the cold. So whilst we've had no direct relationship with Google, in the sense that our customers have, we've been the collateral damage because our breaking-news service, which was always the tip-off service, essentially became commandeered by Google. We lost nearly $1 million worth of TV revenue in a very short space of time because, according to one TV executive, 'We just Google it.' We then went off the cliff in terms of our revenues as a result. We have been the downstream—the collateral damage I say—of Google's rise.

Senator HANSON-YOUNG: The argument about new versus old, adapting, and being innovative is all very well and good if we're just talking about business models and people making money. You all run businesses and need to make money to pay your staff, but the product is actually in the public interest, is it not? Isn't that the difference between just having classifieds, whether on the back of the paper or on Facebook? Public interest journalism is a public good. That is the reason why we need to have some type of regulatory response. It's encouraging to know that even just moving in some type of regulatory way has forced, perhaps, some negotiation to be a bit more fruitful—that's good to know. I think the committee needs to take that on board.

My final question—and I think I have to ask this, because of one of the criticisms that often gets circulated in relation to this debate. We talk about Google's monopoly of 81 per cent of the market share, but, of course, News and Murdoch hold a big market share of journalism in Australia, too. So what's your response to the criticism that this is just a war between one big company on this side, Google, and another big company on that side, Murdoch?

Mr Reid : I guess that's for me!

Senator HANSON-YOUNG: I'm happy for anybody else to respond, but, yes, it's specifically for you, Mr Reid.

Mr Reid : Let me say at the beginning that comparing News Corporation with Google is like comparing a company with a country. As Chris said, the size of Google and Facebook combined, in comparison to News Corporation—their revenue, their size and their market dominance are beyond anything. Frankly, it's almost inconceivable.

One of the great benefits that the internet has brought to Australia is a diversity of trusted media sources like this country has never seen before. I'm sitting here with The Guardian, who's been here for seven years. If you look at the media consumption of Australians now, as people watched yesterday's change of president in the United States, people are watching Sky News, BBC, CNN, Fox News and the ABC; they are consuming The Australian online and they are consuming The Guardian online. The notion of the Murdoch news monopoly in Australia is being prosecuted by people who are living in the past, for their own purposes. The notion of the all-powerful Murdoch newspapers dictating to Australians how to think and how to act is a fantasy. Australians are leading a media life and a news consumption life in a more rich and diverse exchange of views than they ever have before. As we now know from recent experiences, people who want to challenge News Corporation can do so and self-publish and be very, very effective. So I would contend that the exchange of news, views and attitudes is richer in Australia now than it has ever been before. To portray News Corporation as an all-powerful news media monopoly is a self-serving fantasy of disaffected people looking for someone to blame.

CHAIR: I'm sure that opened up many more questions, but we do need to move on.

Senator HANSON-YOUNG: Lenore wants to respond.

CHAIR: Very quickly, Ms Taylor.

Ms Taylor : I have to say I think Campbell is putting a slightly rosy gloss on things. I think the concentration of media ownership in Australia is a problem and media diversity is important. I just don't think that this is the place to deal with that. This is about levelling the playing field for everybody, and I think anybody who looked at it clearly would say it would be a very dangerous thing for the government to try to even the playing field differently for different players. This is one question. I think the concentration of media ownership is a question, but it's a separate question and it needs to be dealt with separately.

CHAIR: Thank you.

Senator McALLISTER: Thank you all for appearing. I hoped to ask each of you these questions, because you are distinct organisations, so if I could have a separate answer from each I would appreciate it. How many extra journalists do you anticipate being able to employ and what will be the impact on the quantity of journalism you're able to produce if the code is implemented successfully?

Mr Reid : It's unknowable, but the answer would be: as many as possible.

Ms Cowdroy : From our perspective, obviously we're not compensated by the code, so the passage of the code, of itself, would not help us employ journalists, but support from the government would help us employ journalists and would essentially provide a service that can help all players in Australia, with 100 outlets, 250 of them in regional Australia.

Mr Janz : Our hope would be that, by levelling the playing field, we'd be able to invest further in journalism, and that would mean hiring journalists, but there is uncertainty as to how many.

Mr Stinton : By the way, the reason it's uncertain is that we don't have enough information from the platforms about exactly what benefit they receive from our journalism. I note there are information requests that are facilitated through the code, which would help us determine exactly what a commercial deal would look like with Google and Facebook. But, from The Guardian's perspective as a relatively small player compared to the others on this panel, I think it would make a material difference to the number of journalists that we could hire, just based on what we know at this stage.

Senator McALLISTER: Thank you. This is a question specifically for Nine. What has Nine said in forums such as investor briefings about how you would use revenues derived from the code? Have investors been informed that it would go entirely towards journalism, or would it be used to plug gaps in earnings, for example?

Mr Janz : It would absolutely be intended to sustain our journalistic business.

Senator McALLISTER: Does that mean that the entire revenue derived from it would be allocated towards additional journalism, or is it intended to split that between earnings for investors and employment?

Mr Janz : I think the reality is that it's uncertain at this time how much our digital advertising revenues will continue to be disrupted by Google and Facebook's dominance, how much our digital subscriptions revenue will grow over time and what contribution the outcome from this legislation will provide. It's a combination of factors that makes up our funding model. If the revenue that's derived from this outcome is entirely incremental, I would expect it to go to funding more journalism and further growing our journalistic business. If there are continued pressures on the business more broadly, as there have been, it'll be to plug gaps as much as to fund future growth. There are all sorts of different scenarios based on historical trends that you could explore there.

Senator McALLISTER: Thank you. Should the proposed code be legislated—there's been a process of implementation—how concerned are you that that process will suffer from further setback and delay—for example, legal challenges in relation to trade agreements or more general implementation problems?

CHAIR: Who wants to take that? Anybody?

Mr Reid : It's a live concern. In society, when legislation comes in it can be tested and challenged. We hope the legislation is agreed to and passed as quickly as possible, and hopefully, in our view, we would then enter into open-minded commercial negotiations with the legislation there, as Rod Sims describes it, as a backstop. But somebody may well challenge it.

Mr Janz : It is a live concern, because Google and Facebook are dedicating considerable global resources that we simply can't match to prevent this legislation from progressing—we heard many of the excuses this morning—because they are concerned that there is a global precedent that would be established by Australia, and Australia's taking the lead on regulatory changes that are being discussed right around the world.

Senator McALLISTER: Thank you. You heard this morning from the platforms that both Google and Facebook are contemplating a possibility that they will withdraw services or fail to introduce new products and services for Australians. Are you concerned about that risk and—I guess from a company perspective—the risk that that would remove a potential revenue stream for Australian media?

Mr Reid : Yes, it's a risk, but perversely, as I think we might have discussed before, it is, strangely, an opportunity as well, perhaps.

Mr Stinton : It's hard to know what the impact of that would be, because there are so many ways that Google and Facebook could respond to this. But, if the worst-case scenario described this morning were to happen and Google were to leave the market completely, it would be interesting, at the very least, to see what impact the absence of that distorting impact in the digital market would have on the advertising space. Obviously, in the short term at least, it would have a pretty dire impact on our traffic referral, but I'm sure that, as I think Chris mentioned earlier, there would be others willing to step in and fill the void relatively quickly afterwards.

Senator McALLISTER: We talked a little bit over the course of this morning about the international pressure, which includes regulatory intervention in a number of jurisdictions. Do some of these developments indicate that publishers are able to make headway without a code? Is a code the only answer? You are obviously supporting it in your representations here today, with the exception of AAP, but are there other models that you might have contemplated or recommended?

Mr Reid : I think what's happening globally is that legislation, regulation, investigation, in various different forms, is stepping up the pressure on the platforms, as we have discussed this morning. Globally, the pressure on the impact that they're having on so many parts of society is stepping up and stepping up, and our engagement, over years, as we have reached agreements with them on other things, is: they respond to pressure. We think the importance of this code is that it's a commercial bargaining code to address an imbalance of power. In other jurisdictions, the issue has been the use of copyright material et cetera. But in every place, the pattern of behaviour is: eventually, after a long period of very strong resistance, pressure brings negotiations, and I think that's the process that we're undergoing here. So I think this model is very important, but, globally, it's the build-up of pressure that's having an impact.

Mr Stinton : If I could add to that, I just want to reiterate what I said earlier: there is absolutely no way that we would be having serious commercial conversations with the platforms if it wasn't for that regulatory pressure. I note three main examples here. The EU commission has legislated through a new copyright directive to try to force Google and Facebook to accept their responsibilities; the UK government has committed to establishing a new dedicated competition unit to regulate the platforms' behaviour and conduct; and key committees of the US Congress have set out a blueprint as to how these platforms should be regulated. So the pressure is building everywhere, and that is the reason why these deals are being done. These deals would not be being done globally if it wasn't for that regulatory pressure.

Senator McALLISTER: I have one final question, which is about a question of detail. You will have heard this morning the platforms raising concern about a particular model of arbitration that's been proposed, the final offer model of arbitration. I wondered if you had a response to that or a perspective on the proposed model.

Mr Reid : It is true that this is an unusual model of arbitration. But I think it was misrepresented, particularly by Google, this morning, in that, far from favouring a big player over a small player or tipping an imbalance in one way or another, the lived impact of final offer arbitration is: it makes people approach the arbitration table reasonably, because they know that, if their offer is unreasonable, the arbitrator will choose the more reasonable offer. We would contend that the reason Google in particular are saying they want commercial or standard arbitration is that it allows them to delay the process and, even in Australia, commercial or conventional arbitration can take years and years and years and cost millions and millions of dollars. So the final offer arbitration, sure, is high stakes. We would all prefer to negotiate openly and not reserve—by the time you get to an arbitrator, of whatever form, you're asking the referee to solve your problem for you. Final offer arbitration, we think, allows a small publisher to negotiate on a level playing field—fast, fair, affordable and final—with one of the biggest companies in the world. So we are open-minded. If there's another model, sure, but it's not conventional arbitration. So I think the challenge to those who say that it's not appropriate is: what's an arbitration model that the smallest Australian publisher could go to and have a good outcome?

Senator McALLISTER: Thank you very much very much for that answer.

CHAIR: Thank you, Senator McAllister. We need to move on. Just really quickly, though, following on from Senator McAllister's questions, I ask: have Google and Facebook been negotiating in good faith?

Mr Reid : I think yes. We have many negotiations and many agreements with both of the platforms over a long period of time. I think there is a desire to reach an agreement, but it would be disingenuous to say that it's not tortured.

CHAIR: Anybody else?

Mr Janz : I have a slightly different take, in that we haven't had credible negotiations with Google or Facebook yet. There have been offers put on the table but not offers that we could credibly accept or explore if we are to achieve the outcome that we require.

Mr Stinton : I would probably echo that to some extent, or perhaps go halfway between the two. The conversations have been quite preliminary for us, so I wouldn't say they're bad-faith negotiations; they just haven't progressed substantially.

CHAIR: We will need to move on. Thank you very much for your time and your patience earlier on. Thank you for appearing as witnesses today. I ask those on videoconference to disconnect. You can continue watching, though. We are now going to suspend for lunch. We will resume at 2 pm, but we will need to rejig this afternoon's program, so we'll get information to those upcoming witnesses as soon as we possibly can.

Proceedings suspended from 13:36 to 14:01