READER, Ms Kate, General Manager, Digital Platform Branch, Australian Competition and Consumer Commission [by video link]

SIMS, Mr Rod, Chair, Australian Competition and Consumer Commission [by video link]

CHAIR: I welcome representatives from the Australian Competition and Consumer Commission. Thank you for appearing before the committee today. Information on procedural rules governing public hearings has been provided to witnesses and is available from the secretariat. Please be advised that answers to questions on notice should be sent to the secretariat by close of business on Monday 1 February 2021. Mr Sims, you have an opening statement, I believe.

Mr Sims : Yes. I will go through it as briefly as I can.

CHAIR: Thank you very much. Go ahead.

Mr Sims : Thank you very much for the invitation to appear today. We really appreciate it. The central point is that the code's purpose is to address a clear and significant bargaining imbalance that exists between Google and Facebook on the one hand and the news media businesses. This is the essence of the code. It evens out the bargaining positions so that fair commercial deals can be made. Without the code as a backup, that power imbalance will remain. There will be not be commercial deals; instead the platforms will be free to continue to offer terms on a take-it-or-leave-it basis.

While there may be other examples of bargaining power imbalances, we recognise news and journalism as a special category because they perform a critical role in a democratic society. The code is a specific solution to a specific problem. This is also why the code includes the crucial provision for collective bargaining by news media businesses. Contrary to some views, this provision improves competition by assisting smaller news media businesses, including regional and community media, to bargain for fair deals under the code. Now, I can appreciate why Google and Facebook, as commercial businesses, do not want to pay for content that they're currently able to distribute, display and benefit from without payment. But that is why a mandatory code is needed.

I'd like to emphasise that the code before parliament is significantly different to the draft we released last July. This code specifically addresses the three main concerns, for example, that Google raised with the draft code, and we have also taken into account a lot of feedback from Facebook. For example, as well as the value the platforms get from news, an arbiter must now take into account the value that news media businesses get from traffic that comes from the platforms—in other words, there is now a recognition of the two-way value exchange which was such a key issue. There have been other changes as well, including changes to remove YouTube and discover Showcase and Instagram and Facebook News tab from the code in response to their concerns. The point I'm making is that critical issues raised by the platforms about the draft code we think have been essentially addressed, and of course now we've got some further issues.

Google is a very successful company that has set up its search business according to its own interests, as you'd expect. It has substantially changed its Search product over time. It has introduced paid search ads as a way to monetise its services. It's changed the way search results are displayed, where the top results are now often ads rather than organic links with the most relevant results. It's also added a carousel of relevant news articles at the top of its page for some results. It has OneBox results. And it has introduced new formats for publishing web pages. My point is that Search is no longer the simple 10 blue links that we may remember some time ago. It's clear from these examples and from Google's recent experiment on Australian consumers that it has the ability to change its Search service as it sees fit.

I do not accept the argument that the code will break Search or destroy a free and open internet, any more than paid Search ads destroyed Search. Importantly, also, the code does not require Google and Facebook to pay for linking news content. Indeed, discussions we have been aware of have focused on paying upfront lump sum amounts, not per click—and that's a key point. Further, they can negotiate and make offers on other terms, including on products like Google Showcase or Facebook News tab, outside the code or under the code.

What the code does require is for digital platforms to negotiate in good faith over paying news businesses for the value that the digital platforms derive from having news content on their platforms and participate in arbitration if no agreement is reached. The vital point is that it is this requirement that evens up the bargaining power and so allows commercial deals to be made. Without the code as a backup, commercial deals cannot be made, in our view, and we're simply left with take-it-or-leave-it offers.

Google, of course, already does pay for content. According to its own blog, Google pays music publishers for the right to display lyrics, for results displayed in response to search queries. Now, the committee may wish to ask Google for any other examples of payments for content on Search.

While we're pleased that Google has developed its Showcase product, it is clear that Showcase likely only exists due to the threat of regulation. We've seen this pattern in countries like France and the UK, where Google announces initiatives only after the threat of regulation becomes sufficiently serious. In the end—and this is important—the decision about what Showcase will look like, how it will operate and whether it offers a news business a Showcase deal is all entirely up to Google. This is why the Showcase product does not address the imbalance in bargaining power that the code is designed to remedy. I am very happy now to take your questions, Senator.

CHAIR: Thank you, Mr Sims. There are just a couple of opening ones from me. Why was the decision taken to move from a voluntary to a mandatory code?

Mr Sims : We were asked by the government, I think in April, to assess whether a voluntary code was going to be successful. We looked at what was happening in relation to discussions between news media businesses and Google and news media businesses and Facebook. We looked at what they were saying and doing. The government asked us in April. We formed the view that, in our view, a voluntary code wasn't going to achieve the objectives the government was seeking to achieve and that therefore a mandatory code was required to meet those objectives.

CHAIR: So you formed the view that there was no prospect of deals under the voluntary arrangements?

Mr Sims : The voluntary arrangements were, in our view, completely in the hands of Google and Facebook. They were going to be deals very much on their terms. There were going to be some form of offers, but they were going to be very much take it or leave it offers that weren't going to meet the government's needs and weren't going to meet the need we saw for commercial bargains where you've got equal bargaining positions, equal bargaining power.

CHAIR: We’ll go to the deputy chair, Senator Gallacher.

Senator GALLACHER: Both Google and Facebook submit that this code isn't workable. After such a lengthy period of negotiation and right up to the formulation of legislation, how do you characterise that position that they're advancing to this committee today?

Mr Sims : I think that this is a code they don't want. Google and Facebook like to do things on their terms. I think the code does what it's intended to do. It is workable; it allows for a process of negotiation, and I have every belief that both parties, news media businesses and platforms, will want to do commercial deals. And then you've got arbitration there, which is what really gives strength to the bargaining position of the news media businesses. So I think it's workable. We've seen these sort of things work in the past where you've got negotiate-arbitrate regimes. I think this is just something Google and Facebook don't want.

Senator GALLACHER: What impact has the uncertainty over the negotiations of the voluntary code, the mandatory code and the changes of the operation of the code, as you've highlighted, had on revenue that media outlets may well have sought or achieved?

Mr Sims : I think negligible. There were some offers made and deals done, as Google and Facebook said. I've spoken to most of the media businesses that were on the receiving end of those deals. I'm paraphrasing here, and I haven't been collecting their comments as a job lot, but, in essence, they were saying, 'Look, they're offering us a bit of money; we'll take the bit of money, but really we want the code so we can do a proper commercial deal.' I think the amounts were fairly small, with the exception of ACM; they were with very small outlets. My sense was that people were, as it were, picking up the money off the pavement but really waiting for the code so they could do a proper commercial deal. I don't really think it's had much effect in delaying the sort of payments that one would expect to come under the code.

Senator GALLACHER: What is your view of the free trade agreement being raised as an issue throughout this code? Is that part of your remit?

Mr Sims : No, it's not. That's something we've very happily left to Treasury. So I think that’s very much a question for them.

Senator GALLACHER: Are you satisfied the code, as promulgated by yourselves, will have improved commercial negotiations and revenue outcomes for Australian media businesses? If you are confident of that, is it a small margin, is it a great margin or is there a mysterious algorithm out there somewhere that could tell us what it is?

Mr Sims : That's a very good question. I am confident that this will allow proper commercial deals to be done. You can only have a commercial deal where you've got reasonably even bargaining power. You can't do a commercial deal with a monopoly unless you've got something on your side that can help the bargaining process. What this code does is it gives the possibility of arbitration, which, I suspect, won't be used that often, but that possibility evens up the bargaining process. This is really the only way we can get commercial deals. My sense is that the commercial deals will be substantive. If you think about, for example, the cost of journalism, obviously it won't cover just two or three per cent of the cost of journalism, nor will it cover 50 or 60 per cent of the cost of journalism, but I think it will be something that’s substantive and meaningful and therefore will make a significant contribution to journalism in Australia, which, as we all know, is so fundamental to the future of Australia.

Senator GALLACHER: So you think it will underpin the number of journalists and perhaps improve the number of employed journalists?

Mr Sims : Yes, I do. I think it will both stem some of the problems and allow extra journalists to be employed. I know the question was asked earlier: how much? I don't know the answer to that, but it's not trivial. I think it will be a significant increase in journalism compared to the alternative with this code. Therefore, with more journalism we'll get more diversity in media, which is good, and we will get more coverage of more things, which just can only help Australian society.

Senator GALLACHER: What are the key potential risks or unintended consequences? Do you think it realistic to think that Google or Facebook may vacate the space?

Mr Sims : I honestly do not know what they're going to do. I think the important point I would make is that the code is something both Google and Facebook do not want. They don't like the idea of arbitration. They talk of commercial deals where they're in full control of the deal. In my view, that's not a commercial deal. So, given this is a code that they don't want, I think it's understandable that they're going to be saying a range of things to prevent the code coming into force. There was never going to be, I think, a code where they said, 'This is terrific; we're really happy with this.' That was never going to happen. So I think where we are was not unexpected, in the sense that they have many concerns with it. I think that's what you would expect them to say. Quite what they would do, though, I don't know. I'm not surprised by their current position, but what they will actually do when and if the code becomes law, I honestly don't know.

Senator GALLACHER: They both suggested amendments to the code in their appearances here today. Given that this is a government committee, and presumably the government will get its way on this code, what happens then? Do you think they're placing a bit of store in amendments that no-one is going to move?

Mr Sims : I remember earlier on in the discussions today there was talk about why this has taken so long to get to where it has got to. I think that's been because we—that is, the ACCC and, very importantly, Treasury, the department of communications and the government—have just done an enormous amount of listening and analysis of the positions put. As I say, Google, early on, when we put out the July draft, Gogle came up with three problems they had. They put out a blog immediately. All three of those problems that they came up with then have been addressed. It takes time to work those things through. There were a lot of non-remuneration issues. Most of those have been substantively changed. They are complex issues, so it has taken time.

There has been a lot of listening. If there are sensible changes to be made, there can be further listening, but this is the end of a very long process where we have really listened a lot to what Google and Facebook have to say. If I heard Facebook correctly, they just don't like arbitration. Well, then you can't even up the balance in the bargaining. That's been the consistent Facebook position. If you don't have arbitration, you don't have any evening up of the bargaining power. You can't have commercial deals without the arbitration. So if they don't want arbitration, I just don't see how you can accommodate that. Google's position is that it wants this to be all about Showcase. Well, they define what Showcase is, they define how it works, therefore they define the value, therefore they're in control. I think if there are suggestions that can help this be a better code, that's fine, but suggestions that make the code unworkable are not fine.

Senator GALLACHER: Clearly, you must assess what happens around the world, and I think overnight Google signed a deal with French publishers. Is this just business as normal? Is this how these negotiations are characterised? Is there a bit of brinkmanship right to the end, and then someone says, 'Okay, we'll cut a deal along this line'? Is that how it always works?

Mr Sims : I started my career doing commercial negotiations, a very, very long time ago, and I think in just about every commercial deal we cut there was brinkmanship. I remember sitting opposite an aluminium company and we staged a walkout in the negotiation which meant the whole deal was off—'Forget it; we're out of here.' So there's always brinkmanship in serious negotiations. But I don't know, as I say, exactly what they're going to do here. As I say, I'm not surprised that we are where we are. We'll just have to see what they do. But, as I say, if there are sensible suggestions then they can be taken on board.

Senator GALLACHER: Is the ACCC satisfied that the benefits from the proposed code outweigh any potential untoward outcomes?

Mr Sims : Yes, we are. There have been a lot of changes to the code, which I think deal with either things we hadn't thought through properly the first time or perceptions of problems. We don't think there are problems, but we can solve them to remove them for the avoidance of doubt. So I think we think, where we are now, we've got a workable code that can achieve the objective that I think we all want to achieve.

Senator McDONALD: It's great to see you, Mr Sims. I feel very confident in you working your way through this process, given the amount of experience that the ACCC has with codes of various flavours. For the record, would you describe a little further this idea of a failed marketplace in the journalistic environment and its impact for Australia?

Mr Sims : Good question. There's clearly a market failure here because you've got companies that the media platforms must engage with. They can't not engage with Google; they can't not engage with Facebook. The platforms need media as a whole. Media as a whole generates benefits significant benefits for the platforms, but any particular individual media company does not. They can get their Australian news through a whole range of sources. So any individual company doesn't have bargaining power if left on its own, but the media as a whole is tremendously valuable. So the market failure is that bargaining imbalance that any individual media company has. Because of that market failure, it's not possible to strike commercial deals that will be the sorts of deals you'd expect in a competitive marketplace—for example, if there were many Googles, many Facebooks, as distinct from the tremendous market power both of them have at the moment. Because you can't strike those good commercial deals, then the media is not getting sufficient reward for its content. Therefore we have less media in Australia than we otherwise would, and I think that just damages our society and our democracy. I hope that answers the question.

Senator McDONALD: Yes, it does. Just a little further to that: one of the issues that's been discussed is the advertising marketplace, and, whilst the media companies are not specifically receiving advertising or advertising to appear with Google and Facebook, the impact on the smaller players, or on the retail and other players, of paying marketing or advertising dollars to Google and Facebook has reduced the advertising available to those traditional media platforms. When the ACCC looked at that, what proportion of the advertising market did Google and Facebook end up having? We’ve just heard some different numbers. Google said 20 per cent. Did you end up being able to land a number?

Mr Sims : I did, and Kate might want to add to this. Our numbers are pretty much what you heard from the media companies this morning. Google and Facebook have about 81 per cent of the digital advertising market, and everybody else has the remaining 19. I think when you were hearing lower numbers than that, you were defining a market that—and I'm not sure about this—might include billboards and other forms of advertising. What we find in the competition world is that the key thing is defining the market. We often have mergers where there are two food companies wanting to get together that both make biscuits, and their view of the market is that it's everything you can eat. Of course, they’re minnows in the market for everything you can eat; it just so happens that they’re the two biggest biscuit manufacturers. So that market definition is fundamental.

Senator McDONALD: Thank you for clarifying that. I really appreciate your report. I think it’s very comprehensive, so I don’t have any more questions. Thank you.

Senator PATRICK: It’s comprehensive and voluminous; it’s quite a large report. Thank you for appearing. I want to touch on a couple of topics following on from Senator Gallacher on the issue of Facebook leaving the market. I imagine in your role, Mr Sims, you would talk to your international counterparts. In trying to understand the reality of the proposition that’s been put forward by Google, is there a movement internationally to do similar sorts of things to what we are doing here in Australia? I'm presuming the market imbalance exists pretty much everywhere.

Mr Sims : The market imbalance does exist everywhere. I have a couple of things to say about that. The model that we've got here is to address a bargaining imbalance, and Australia has standard ways of dealing with this. To negotiate-arbitrate when you have got a number of players negotiating with a monopoly is not unusual; having collective bargaining with a monopoly is not unusual. This is very much an Australian approach to the problem, but it's one based around bargaining and the imbalance in bargaining power. I think other countries are interested in this approach, but they may well go about them in their own way. Certainly, there are a lot of countries that recognise the issues in relation to journalism and that recognise the importance of journalism that are looking at doing something. Whether or not they follow what we're doing, I don't know. The other most perhaps advanced regime is in Europe where you’ve got a copyright regime, which was mentioned earlier today, and deals have been done in France in relation to that. Those deals were done under a copyright law that definitely covered Search. So there's no doubt the law under which those deals were done involves Search. In the end, they did commercial deals that I think largely involved Showcase, but it was with a law pursuant to Search. It's similar to what we're doing here. But we think a negotiate-arbitrate framework is much better than trying to do it under copyright. I certainly know there are mixed views in France about the value of those deals that have been done—some are happy; some are not—but, nonetheless, the deals in France are definitely a step forward.

Senator PATRICK: In some sense, I'm trying to establish whether Google, who I presume know the rest of the market, really would be cutting their nose off to spite their face, because whatever happens here is likely to happen in the next jurisdiction, perhaps irrespective of what we do, and then the next jurisdiction and the next jurisdiction. The response to each and every one of those can't be to remove themselves from the market.

Mr Sims : That's another assessment Google are going to have to make about what the impact of this is, if they do follow through on the threats that we heard this morning.

Senator PATRICK: Respectfully, I wasn't looking at this from a Google perspective; I was trying to tap into your knowledge, to understand, and to inform us, in some sense, as to the brinkmanship that's being played, after you informing the committee, as to the dangers for Google, if they're real or not.

Mr Sims : All I can say is that we are aware—through our digital platform unit, through Kate's unit, we're engaged with a lot of other countries, with both their competition regulators and their media regulators, and there is a lot of discussion going on about doing something to even up the bargaining imbalance and doing something to get appropriate commercial arrangements between the platforms and the news media businesses. They are not as well advanced, so Google would have to make a judgement about whether, if they followed through on what they're saying here, they'd then confront the same problem elsewhere, and, as you quite rightly say, whereas you could close down your operations in one country, you can't do it in three or four countries. We're a little ahead of other countries. I just don't know where those other countries are going to go, but I do know that they are very, very interested, and they totally understand the problem. They totally understand the problem in the US, Canada, the UK and Europe. So I think there's a broad understanding of a problem that needs to be addressed.

Senator PATRICK: I'll move sideways now. In terms of negotiation and arbitration, I was discussing with Facebook their current arrangements in terms of boosting posts here in Australia and that someone in Port Lincoln spends $1,000 trying to boost their ad amongst the Port Lincoln community; that money actually goes to Ireland, and in fact there's no visibility, as far as I'm aware, as to the total revenue that Facebook makes here in Australia because it wouldn't be reported through the Australian entity. How do you negotiate in circumstances where value is an important component but there's complete opaqueness in respect of that value from these very large players? Is the arbitration mechanism in a position to force access to that sort of information such that a proper negotiation can be had?

Mr Sims : Yes. Final offer arbitration, we think, is very well suited to what's going on here. To answer that last point, there is provision to get information through the arbitration process. The arbitrator will be in control of that, but that information will be made available. Then you've got the fact that this is final offer arbitration. The value of final offer arbitration is probably threefold. Firstly, it stops ambit claims, because if you had normal arbitration Google and Facebook would say, 'Zero,' or, 'You pay us;' the media companies would come up with something very large. This removes the ambit claims. Secondly, you can arbitrate over individual deals, and so it's not a bespoke commercial arbitration; it allows final offers that suit each party, and so they're more attuned. Thirdly, you don't need as much information through final offer arbitration. If you're doing what may be termed standard offer arbitration where both parties are providing stuff to the arbitrator, it's the one who's got the most information who wins; you can flood the arbitrator with massive amounts of information. There is going to be, inevitably, an information difference between the two sides. Google and Facebook are always going to have massively more information. That's why they like standard arbitration, so they can leverage that. With final offer arbitration, there's still a disadvantage but it's not as large.

Senator PATRICK: That's my point: the final offer made by the media companies is just ill-informed, in some respects. They don't have the ability to get access to the right information because of the tax and the way in which each company structures their business to avoid tax. Did the ACCC get accurate information on the revenue here in Australia of Facebook, noting what I said about Ireland? I'm not asking you what it is, but did you in your investigation manage to understand what the total revenue was for Facebook?

Mr Sims : I beg your pardon?

Senator PATRICK: Was the ACCC in its inquiry, with your tremendous powers, able to establish how much the Irish company was generating in terms of income from the Australian market? If the ACCC can't do that, there's no way that Channel 10 or The Guardian or anyone can.

Ms Reader : I might step in there. In the DPI report we did publish 2018 revenue figures. These were local figures from Australian revenue. Google's was $3.7 billion and Facebook's was $1.7 billion.

Senator PATRICK: Did that include the money that is paid directly to the Irish entity when you booster that on Facebook locally?

Ms Reader : That included the revenue generated from Australian businesses, which is the way that we asked the question.

Senator PATRICK: I just want to be clear about this. Does it include the revenue booked in in Ireland in respect of those Facebook boosts?

Ms Reader : I understand the point you're trying to make, but the way we asked the question was that we asked about revenue generated in Australia, so whether it was booked in Ireland or not I couldn't tell you the answer. But we asked about whether the revenue was generated in Australia, and those were the figures that we were given.

Senator PATRICK: So, whilst it wasn't broken down, you think it did include the revenue that went offshore?

Ms Reader : I believe so, yes.

Mr Sims : It certainly should have included that, by the way we asked the questions. We didn't forensically go through. We can't trace things through various countries. We don't have that ability.

Senator PATRICK: But, again, you can see the difficulty that The Guardian or the other companies would have in making a final offer. They're really stabbing in the dark in some respects, because they don't know the other side of the equation.

Mr Sims : I'd say a couple of things about that. There are three factors that have to be taken into account with the arbitration. One is the value that is created from the news media businesses to the platforms and vice versa. The second is the cost of journalism—taking account of the cost of journalism. The media businesses absolutely know that and they absolutely know it's not going to be zero and it's not going to be 50 per cent, so you can get your hands around it a bit there. Thirdly—and this is really important for a point that was made earlier today a number of times—the arbitrator has to take account of the fact that there can't be an undue burden on the platforms, which I think deals with a lot of the issues that the platforms raised this morning. It's specifically in there that there can't be an undue burden. You might ask: if the money is going all over the place, how do you know? Well, what you can easily do is just say: What are their worldwide revenues? What are their worldwide profits? What's their profit share of revenue? If we know their revenue, apply the same profit share. I guess my point is: you can approximate it in various ways.

Senator PATRICK: You can get order of magnitude.

Mr Sims : Yes. That's right. That's again why final offer arbitration plays you in the game. If it's arbitration where you've got to nail everything down, then only one side is going to win that game. So final offer arbitration is fundamental. But I think the media companies will have enough information to make a reasonable offer.

Senator PATRICK: My final line of questioning goes to algorithm audits, which I put something out on this morning. I'm drafting some amendments to the bill. Firstly, are you aware of the activities carried out by Google over the last couple of weeks in terms of blocking out search results for particular media entities? Do you have a comment in relation to that in respect of competition law and policy?

Mr Sims : We are aware of it. I guess the comment I'd make is we really don't know what was behind that. Was it an attempt to calculate the value in some way? Was it an early attempt to work out how they could block media? I don't know what the objective was, but, given it was an experiment—there's no breach of the law, but certainly it's very relevant as we think about this code.

Senator PATRICK: The line of questioning I've got in relation to algorithm auditing is that the algorithm itself is opaque and has the ability, as has been clearly demonstrated, to skew the search results that could cause harm within the Australian market. I presume you're familiar with the term 'algorithm auditing'. I just wonder whether or not the ACCC has any experience in this space. Have you given any thought to the value of the ACCC being able to, on occasions, walk into Google and say, 'We're going to conduct an audit on your algorithm to ensure there is no market manipulation or competitive bias occurring'? Do you have experience in that space? Do you have views on this?

Mr Sims : We are interested in the algorithms to the extent they, as you say, bring about anticompetitive outcomes. We've now got a digital platform unit which is looking at these competition issues. We do have the ability to get information via notices, but, also, we have the ability, if we've got a competition concern and we think there's some competition issue, to sort of throw things at the algorithm, which anyone can do, and assess it that way. Where we sit at the moment, we're pretty comfortable from a competition point of view that we've got the powers that we need. But, certainly, it's something we're going to keep an eye on going forward.

Senator PATRICK: To be clear: in my examination of this very preliminary, you already have the powers to basically examine these sorts of things. It may not be done. So, in some sense, the amendments that I might propose are not seeking to grant you a new power but are just requiring you to use them on a regular basis to satisfy yourself that there is no breach occurring in a very opaque world where we've seen 17 million, 22 million Australians utilising a service that could skew the market.

Mr Sims : Well, at the moment, Senator, where we have what's known in the trade as a reason to believe there's a breach of the act, we can use our information-gathering powers. Separately, the government's given us a long-term inquiry set of powers so that we can use our information gathering powers more broadly. I don't want to sound ungrateful, but, at the moment, we think we've got the powers we need. I do occasionally like to be the regulator that says, 'We don't need any more, thanks, but I appreciate the issue.' But, at the moment, I'd say we've probably got the powers to be in competition—

Senator PATRICK: I'm not trying to give you an extra power. I may, in essence, be saying there's a requirement for you to exercise those powers on some reasonably regular basis, in effect, to audit, as the name suggests, from an anticompetitive competitive perspective, these very opaque but very important algorithms.

Mr Sims : That's a policy question I'll leave to you and your colleagues, Senator. Where we sit, from a competition point of view, if we've got a reason to believe there's a breach, we can act. Otherwise, that's a policy question I'll leave to you and the committee.

Senator PATRICK: Thank you, Mr Sims.

Senator BRAGG: Thank you to the ACCC for making yourselves available today. I have a few questions to get through. The first question I have is: isn't it accurate to say that the way this legislation works is that the organisations that have been nominated by the Treasurer—in this case, Google and Facebook—can do deals outside of the code, thereby obviating the need for the code?

Mr Sims : They can certainly do deals outside the code. I would expect, personally, that there'll be many deals done outside the code. Just to clarify, it doesn't so much obviate the need for the code, if I understand you correctly. I mean, only if the code is there and the news media businesses have the ability to fall back on that arbitration will you get commercial deals done. But with the code there my view is that largely we will get commercial deals. We won't need to rely on the arbitration, if I've understood you correctly, Senator.

Senator BRAGG: Effectively what you've said today is that if there wasn't a code place there would be no serious opportunity to have a balanced discussion and ultimately a deal, because there is no need for the major platforms to negotiate because of their immense market power. Is that right?

Mr Sims : That's absolutely right, Senator, yes.

Senator BRAGG: So your point is you need the code to drive the parties to the table. I was just trying to make it absolutely clear for the record that if I am Google and I do a deal with a media organisation to pay for media content I don't have to do that within the code framework. The point is that I have to have a deal of some sort. Is that right?

Mr Sims : Absolutely correct again, yes.

Senator BRAGG: I want to take you to this issue of Google Showcase. They had a strange reaction to this committee where effectively what Google were saying was that their solution to the issue at hand was Google Showcase—that's what they were saying to us this morning. But Showcase isn't available in Australia and a lot of the witnesses today have said that they've had no opportunity to engage with Google on this in detail. If that is their solution then isn't it odd that [inaudible] people haven't seen?

Mr Sims : Absolutely, Senator. I guess there are two points I could make if I could. One is that if you've got the code with arbitration in relation to the value of news media businesses on Search then, as you said earlier, deals can be done outside the code. Those deals could involve Showcase. But given that the news media businesses have the ability to fall back on arbitration for the value in Search you'd expect that the digital platforms would have to show us what Showcase does. They'd have to lock something in place for two or three years and so forth. If, on the other hand, it's Showcase which is the basis of the arbitration—as you say, we don't know what it is. It's in Google's control. How much value there is for Google, under the arbitration, is completely in Google's control, so really it doesn't achieve the purpose at all.

Senator BRAGG: When you say you don't know what Showcase is, you mean the ACCC hasn't been given an opportunity to look at how Showcase would work in Australia?

Mr Sims : I'm going to ask Kate to answer that, but my understanding is that, as we've kept asking questions about Showcase, we haven't really been able to get to understand it. Kate, what's your knowledge of what we know about Showcase?

Ms Reader : Sure. Thank you, Senator. At a high level we understand that Showcase is a product where consumers will be able see the entire articles. It will be some kind of carousel or link from Search that takes people to the Showcase product where they can see the number of articles that are available on there. We haven't seen a live version of it, if you like. We understand the product has been developing. It used to be called Google Discover, I believe, and it's now Google Showcase, so Google has been developing it and changing it over time.

Senator BRAGG: That makes my next question hard to ask you, because the centrepiece of their testimony is: we don't want to have the code; we want to have Showcase. But they're not prepared to show people what Showcase is. There's nothing else I can really ask you about Showcase if you haven't been given a detailed briefing on how it would work in Australia.

Mr Sims : I guess the point I would make is that if the issue is what do you arbitrate about, if you're arbitrating about the value of news media businesses to Search that's not going anywhere. That's actually been there for a long time. You know what you're dealing with. They can't take it away. On the other hand, if you're arbitrating in relation to Showcase, what that is and how that evolves is completely in their control. It's a brand new product. As you say, we don't know much about it. So I think Showcase is not at all suited to arbitration, only Search is, but if they want to do a deal on Showcase, with that threat of arbitration in the background, that's fine. But, of course, during the course of that deal, they will have to be explaining to the news media business exactly what Showcase is and it will have to be a deal that the news media business is comfortable with.

Senator BRAGG: In terms of sizing up this market, we're talking about $8 billion in online advertising revenue, according to your organisation, $4 billion or thereabouts of which goes to Google. I think Channel 9 estimated about $600 million—

CHAIR: Sorry, Senator Bragg, we've just lost you. We lost most of that. Could you ask that question again, please?

Senator BRAGG: I was trying to get a sense of—if Channel 9 have suggested that the size of the market, in terms of the payments that would potentially flow from tech companies to media outfits, is about $600 million, does that sound about right to you?

Mr Sims : Look, I think the best way I can put that one is that there have been various suggestions from the news media businesses and Google and Facebook about what the value is. Google and Facebook occasionally have said, 'Actually, you should pay us a couple of hundred million dollars,' rather than the other way around. Nine has put $600 million. I think, in both cases, they're positioning. We'll only know the true value once you have a proper commercial deal with the code in place. I think it's just too hard, at the moment, to say what that right number is. It's going to be a substantial sum but I think there's a bit of positioning going on.

Senator BRAGG: My understanding is that there are already examples in the Australian marketplace—for example, Apple News—where there are payments that are occurring from tech companies to media outfits to pay for journalism. It's already happening in this jurisdiction.

Mr Sims : That's right. I might get Kate to talk about Apple News. Apple News is a much smaller vehicle and so you don't have the bargaining imbalance issue. I think that, largely, works okay. Do you want to make a comment on that, Kate?

Ms Reader : Yes. Our understanding is that Apple News—and Apple News Plus, which is a subscription product—the free Apple News product is a revenue share. During the DPI, when we were discussing the revenue share of Apple News with publishers, they raised very few issues with that revenue share arrangement. They seemed pretty happy at that time. That could have changed, obviously, but at the time of the DPI they were pretty happy with the revenue share for the free product. The Apple News Plus is a subscription product. Apple takes a cut and the rest of the moneys go to the various news businesses that are on Apple News Plus.

Senator BRAGG: In other words, Apple pays. They're prepared to pay.

Ms Reader : Yes.

Mr Sims : That's right, Senator, and that's where you don't have that same bargaining imbalance and you end up with a commercial deal.

Senator BRAGG: I guess they feel they don't need to. I have one more before I'll ask you a quick set of targeted questions. My last one is, really, about this Facebook testimony today. I'm not sure whether you saw any of that.

Mr Sims : Yes.

Senator BRAGG: Effectively, I asked them whether or not there was any value in having mainstream news from a diverse range of sources on their platforms, whether there was any commercial value, and their answer was that there was no commercial value whatsoever to Facebook. Do you have a view on that?

Mr Sims : Yes, I think I have a very different view. Facebook want people on their platform. They want them on the platform. They want them to stay on the platform. They're more likely to be on the platform, they're more likely to stay on the platform, if people can get access to mainstream journalist created news. That doesn't mean everybody's interested in that but, clearly, enough people are, that there's a number of people who the way they get their news is through their Facebook News Feed—interesting it's called News Feed. Of course they get a whole lot of other things through that as well—exchanging things with friends, and all the rest—but there's no doubt that part of what you get is a feed of news relevant to what you're interested in, news that's been provided by journalists. That gets more people on the platform and has them on the platform for longer. If journalist created news wasn't on the platform, people would not be on the platform for as long and they'd probably go to some other place to get their news. So I think it's clearly of value.

Senator BRAGG: Why would Facebook come before the Australian parliament and say that there's no commercial value with news?

Mr Sims : I can only think that they're talking about how much advertising they do against that news content. Of course, if somebody is talking about running shoes, if that's what they're exchanging information on and then all of a sudden there's an ad for running shoes, I can see ads that can be more easily sold when you're dealing with some product that you might want to buy. In that sense they might say, 'Well, I can't advertise as much against a story about COVID-19,' but I think that ignores the fact that people are attracted to the platform because of the breadth of what the platform provides. So I just have a different view to Facebook.

Senator BRAGG: I am just going to quickly, hopefully, run through these points. Effectively, Facebook and Google put out an open letter saying that there were a number of reasons why they couldn't support the code; this was before it became the final code. I might just quickly run through these eight points and get your quick answer. The first reason Facebook said it wouldn't support the code was: it said it would ignore the benefits news media businesses get from using Facebook for free to distribute their stories.

Mr Sims : That's been addressed, Senator. There's now a two-way value exchange. That's been addressed.

Senator BRAGG: Thank you. Facebook's second reason was: it said that the code creates one-sided binding arbitration processes which force Facebook to pay for news at a level far beyond its value to Facebook, and it already invests in news.

Mr Sims : I think that, if there's a question of how much value, that's for the arbitrator to determine. Hopefully it will get determined through commercial negotiation, but, if not, arbitrate. If Facebook really believes there's no value there, then it can put that case to the arbitrator. You've got a process to make your case.

Senator BRAGG: The third point was: Facebook said that the code intervenes in significant aspects of commercial relationships between platforms and news businesses. Has that been addressed in the final code?

Mr Sims : I think that is the fundamental point. I've been involved in negotiations for 45 years; I know I don't look that old! You can't have a commercial negotiation when you've got one-sided dealing, trying to deal with what is essentially a monopoly. So this will allow commercial negotiations. Every monopoly I've ever come across says, 'Don't regulate us; leave it for commercial negotiation.' What they mean is, 'Leave it to a take-it-or-leave-it position, because we're the monopoly.' So the only way you will get a commercial deal is if you've got some muscle in the arm of the news media businesses, and that muscle is the code. I'm not saying it equals things up, but it certainly helps. The code is the only way you will get a commercial deal.

Senator BRAGG: The fourth thing is: Facebook said that the code gives news businesses unprecedented notice of product updates.

Mr Sims : Look, there was that provision in July, which has been substantially changed. We thought it had been changed in a way that met what Google and Facebook were requesting. So now, instead of 28 days notice, it's 14 days notice. But, much more importantly, it's got to be a significant planned change; it can't just be algorithmically generated. The hurdle for letting people know is quite high. We listened very carefully; that's why this has been a long process. The code as drafted, we feel, addresses their concern.

Senator BRAGG: And the last issue Facebook had was: they said that it hit services which are not news products.

Mr Sims : Well, I don't see that. I think Facebook was saying it has to deal with thousands of publishers or 1,000 publishers. The only people they've got to deal with are people who produce core news. I don't think there will be that many negotiations at all. I'd imagine the people who appeared today, News Corp, Nine and The Guardian will probably want to negotiate separately, but there will be a lot of collective bargaining. But the only companies that are allowed to bargain are those who produce core news. So, if you don't produce core news, I'm sorry, but you don't get on the playing field, so there are not that many people they're going to have to deal with.

Senator BRAGG: From their letter in August, Google just had three issues about the draft code. Their first was that the law would force Google to give an unfair advantage to news media businesses by giving NMBs access to information ahead of other businesses.

Mr Sims : I might pass to Kate on that. I've got a feeling that that information clause is not there. Is that right, Kate?

Ms Reader : It's talking about algorithm change. I'm assuming that's what they're referring to with that. As Rod has previously said, that's been substantially changed. The time frames and also the hurdle have been substantially changed. The point of that provision was to deal with circumstances such as the change that Facebook made a number of years ago to increase meaningful engagement, which substantially affected published flows to third parties, like publisher traffic. It's that kind of algorithm change that we're potentially interested in capturing.

Mr Sims : To go back to Senator Patrick's point: the only other information exchange is the information exchange process in the arbitration, so the news media businesses have a little bit of information around which they can put their value bid into the arbitration process. That only comes once you've got arbitration triggered.

Senator BRAGG: The second point they made in August about the draft code was that, under the law, Google would have to tell NMBs how they gain access to data about use of Google products.

Mr Sims : Kate, I might get you to deal with that one. I'm a bit confused about that.

Ms Reader : I'm assuming that that's reference to the user data point.

Mr Sims : Right. On the user data issue, we thought the July code was drafted in a way that meant they didn't have to provide the data they thought they had to provide. Now we've clarified it. Under the current code there is no requirement for them to provide data they don't want to provide. That issue's been completely dealt with.

Senator BRAGG: Okay. The final one is about two-way value. Google said that they already pay tens of millions of dollars in free clicks to NMBs every year.

Mr Sims : And that has been completely dealt with. We've gone from one way to two ways. On those last three points, we've gone to two-way value exchange, there's no need to provide data to the news media businesses and we believe we've fixed the algorithm change notice issues. So those three points you raised—which I agree were the issues raised by Google in relation to the draft code—we believe have all been completely addressed.

Senator BRAGG: Excellent. Thank you very much.

Senator HANSON-YOUNG: Mr Sims, one of the things that Facebook did raise with us today is this issue of the non-differentiation clause and the impact on arrangements in relation to paywalls for those who have a paywall and users not being able to take advantage of that. Is that your understanding of the way the legislation is, or is there some way we could deal with that?

Mr Sims : No, it's not my understanding. Senator, I must say that, from listening to Facebook's interpretation of the nondifferentiation provision, to be honest, what they were saying about it just did not match my understanding at all. I am happy to have another discussion with them to talk about that, but the non-differentiation simply says—and Kate can pick up if she's got anything to add—don't differentiate or, in other words, punish people on the basis of whether or not they're taking advantage of the code. If someone takes advantage of the code, there shouldn't be an ability to punish them or demote them. All the experiments—the trials that were being talked about this morning—can do that. They can come up with different commercial arrangements. There's nothing wrong with that. What you can't do is punish someone because of their involvement in the code or reward somebody because they haven't been involved in the code.

Senator HANSON-YOUNG: In Google's evidence this morning, they argued that they had to run this experiment now, that it wasn't being used as a shot across the bow; it was so they could work out how to operate that particular model, if, indeed, the code passes. You're saying that type of testing wouldn't be precluded in the future under this code?

Mr Sims : Provided it wasn't punishing people for their involvement in the code. That's what's not allowed. I mean, if I could just mention it, there are two foundations of the code. One is the arbitration, because that essentially more evens up the bargaining power; it's the only way you'll get commercial deals, so you need the arbitration. The other one is the nondifferentation so that they can't pick people off. The bargaining imbalance is not that Facebook and Google don't need media. They need media; they just don't need any individual media company. So you've got to have the non-differentiation clause so that they can't punish people for being involved in the code and reward those who don't want to be involved in the code. It's fundamental in that sense. I've only read about the experiments—I wasn't on the receiving end of them—but I don't think they would trigger any issues with the code.

Senator HANSON-YOUNG: You weren't in the one per cent of Australians who had the ABC blocked from their search feed?

Mr Sims : I'm afraid my news was happily coming through. I'm a very diverse media user. I read the media from all the people that have been on today.

Senator HANSON-YOUNG: So what you're saying is that the non-differentiation clause is really there to avoid the age-old 'divide and conquer'?

Mr Sims : Exactly. That's a good way to put it, thank you, Senator, yes.

Senator HANSON-YOUNG: One of the criticisms that is constantly and consistently being put forward is that this is really just a war between two big companies. This is a war between Murdoch's News Corporation and Google, and the government's picking their mate. You've had to inquire into this. Surely you've had to deal with this issue. The Murdoch press, News Corporation, do have a significant market share of the journalism in Australia. How do you balance that concern with what you've put forward to the parliament—or put forward to the government, which has now come to the parliament?

Mr Sims : First of all, of course, I just love the way Google's been able to portray News Ltd as the big company and themselves as just the little guy. Google is a hundred times bigger than News Ltd worldwide. So Google is the Goliath and News Ltd is the David. The point I'd make, though, is that is applying to all news media businesses. It's all core news. Collective bargaining is there so that the smaller players can have strong bargaining power by coming together. It's going to benefit The Guardian, as you heard, who are seven-year entrants into the market, but it's going to benefit the smaller players, and we've spoken to a large number of them. They're looking forward to the code. How much they'll band together, I don't know, but I think the really small ones will absolutely band together.

The way people get their news has changed. Obviously they get it from television, they get it from radio and they get it from print. But, these days, the way we think of it is that we call it print online, because a lot of people are reading what used to be newspapers, be it the Daily Telegraph or the SMH, online. I read the digital edition, but many people will just go to the website. When you think about that, the ABC is now print online. I get a twice-a-day feed from the ABC. I get other news from the ABC all day. It's all written down, and I read it. That news feed is quite a long one; it's a written document. I'm not saying it's substitute for a newspaper, but you're getting news from so many different sources now. I also get The New York Times and the Financial Times.There are a wide range of places you can go to get news. But the code is designed to lift up all media businesses, and collective bargaining will certainly allow the smaller players to play just as well as well as it will allow News Limited and Nine to play.

Senator HANSON-YOUNG: You are the competition watchdog. Do you see that there is a problem with media concentration in Australia?

Mr Sims : Again, it depends on the market. Assume you've got the market just for newspapers—you go and buy a newspaper. My understanding is News Corp has 65 or 70 per cent of the newspaper market. That's obviously a dominant position. As a competition regulator, we'd prefer there be much more diversity in that. So in terms of the newspaper market—totally agree; we'd like more competition. If you think about print online then you have the ABC, you certainly have TheGuardian, you have the Daily Mail, you have Nine, and you have MSN; you've got a range of players. The way people get their news—and, again, it depends on the market—is off TV and the radio as well as print online. So it really depends on the market. But, yes, we'd like more diversity in relation to newspapers. But I would say, if you look back, we've probably got more diversity than we used to have because of the internet—because you can have print online now.

Senator HANSON-YOUNG: We heard earlier today when we had the panel of media publishers in front of us, particularly the print, that AAP are obviously not in the code. They describe themselves as more the wholesaler of public-interest journalism—

Mr Sims : Yes.

Senator HANSON-YOUNG: and this code deals with the retail arm, per se. If this code is designed to ensure public-interest journalism is sustainable in Australia, because it is a public good, what do we need to do to make sure a fundamental part of that ecosystem, the wholesale arm, is sustainable as well? The last thing we want to do is have that fall over, surely.

Mr Sims : I totally agree, Senator. In our digital platform inquiry, we said, 'The code was a necessary part of sustaining public-interest journalism, but it was not sufficient.' So we argued for a fund that would be able to contribute to public-interest journalism, particularly in rural and regional areas. Rural and regional areas depend a hell of a lot on AAP. If you're thinking about court reporting as a classic example or local council reporting, of course you're not going to send five journalists to that. You need, in many cases, one journalist to go who can then distribute it to everybody, and that's what AAP does. So AAP plays a fundamental role. We never saw the code as dealing with that; we saw that more as the other mechanism of providing some very well-targeted, well-thought-through funding to deal with the other media issues that can't be dealt with by the code. So the code is necessary, but it's not sufficient.

Senator HANSON-YOUNG: Is there a role for government to ensure that the newswire of AAP is funded? You're suggesting some type of support funding—you're saying that that should be public money?

Mr Sims : I agree with your earlier statement that we need a newswire. Not only is it that single player but it provides news internationally, so it's absolutely fundamental. In the past it's been supported because all the media got their news from it. As we now know, not all entities, particularly News Ltd and Nine, are getting their news from AAP, and that's affected the viability. It's very much a policy question, but I think something's got to be done. Quite what has to be done I think needs to be looked at very closely.

CHAIR: I think it is reaching outside the ambit of this committee.

Senator HANSON-YOUNG: Okay. Just to summarise, though, what you're saying is that this code deals with one element of the public-interest journalism ecosystem, but it doesn't deal with it all. There is still more work to be done.

Mr Sims : Yes, that's right. The code doesn't solve everything. The code is a really important component of that, but, yes, there are other things to be done, as we recommended in our report.

Senator HANSON-YOUNG: Thank you.

CHAIR: We will finish up in a second, but I do have one question. I will point out that the government has made a contribution, via the PING, to the AAP and to other regional journalism outlets, so I don't think nothing's been done in that space, but I'm happy to continue that conversation elsewhere. Just to close off on the questions from Senator Bragg, Mr Sims, are you saying that, from your position, the problems with the code, as set out by Google and Facebook in August, have been addressed by the legislation that's currently before this committee?

Mr Sims : In my view, the problems that we heard about from Google have been addressed. Facebook always took the position, certainly in meetings I was in—and I wasn't in all of them, but I remember one meeting in particular, when we talked about the form of arbitration, and Facebook just said, 'We don't want any arbitration.' Facebook, I guess, have been fairly consistent in not wanting any arbitration, so I think it's fair to say they have been consistent on that, and that hasn't been addressed. But the original Google issues in August have been addressed.

CHAIR: Is what we've heard in the new issues that have been raised merely shifting the goalposts?

Mr Sims : It has been interesting, Senator. We, in the July version, had what was then Google Discover, which I think is now Google News Showcase. We had that absolutely in the code, where you could arbitrate about Search as well as arbitrate about Google Discover. Google were adamant they wanted that out and they only wanted the code to cover Search. Now they don't want Search in; they want Google Discover in. So I think it has been a bit of a journey. But I think the common thing is that, basically, Google and Facebook would rather not have the code. But, to be fair to Facebook, as I say, they've been consistent in not wanting arbitration.

CHAIR: If there are no further questions, that concludes today's hearing. On behalf of the committee, I would like to thank all of those who have made submissions and sent representatives here today. There will be a second day of hearings on 1 February, so we'll see many of you here again then. I thank Hansard, Broadcasting and the secretariat, as always. On that note, the committee stands adjourned.

Committee adjourned at 16:38