Facebook blindsided by Australia's mandatory media bargaining code directive

Facebook has revealed it was working on a draft code on how to remunerate Australian newsmakers for their content when it was blindsided by the federal government's decision to step in and make its own code.

Appearing before the Senate Economics Legislation Committee on Friday, Facebook representatives told a similar tale to Google's local managing director Mel Silva, who earlier in the day said her company was ready to provide the government with its report when it was announced a mandatory code would instead be the way forward.

When directing the Australian Competition and Consumer Commission (ACCC) to develop a mandatory code of conduct to address what he referred to as the bargaining power imbalances between digital platforms and media companies, Treasurer Josh Frydenberg said progress on a voluntary code had "been very limited". He said the government, therefore, made the decision to set in place a mandatory code of conduct.

Facebook's Australia and New Zealand public policy manager Joshua Machin said that in December 2019, the social media giant launched Facebook News within the UK, it was also about that time the company prepared a model for a possible commercial solution in Australia. Facebook, however, needed to see if that was successful before bringing it to Australia.

"We were increasing our engagement with publishers in terms of commercial agreements … we engaged with more than about 20 Australian publishers to seek their feedback about what should be in a voluntary code -- we had been a strong supporter of a code of conduct for some time," Machin said.

"There was a progress report due in April 2020. And obviously, the deadline the government had asked us to work towards was November 2020, we were very well advanced, we had a progress report for the ACCC ready to go, and we were very close to being able to release a draft code for general consultation … working towards a November deadline.

"When the government took the decision to shift from a voluntary to a mandatory code in April, we were in the dark as part of their consideration of that process and we hadn't had a conversation with the ACCC for a couple of weeks at that point, we weren't aware of that there were concerns about the progress of the voluntary code."

Machin said if Facebook had the opportunity to share its progress with the ACCC, alongside the fact it was ready to produce a draft code, he believes it may have put minds at ease that it was taking the process seriously.

"We didn't have the opportunity to provide that input, or that information, before the decision was taken to move to a mandatory code … we do think that we would have been able to deliver a voluntary code," he said.

Facebook, alongside Google, has been engaged in a stoush with the ACCC since August over the code that entered the House of Representatives in late December.

The bargaining code, according to the government, is necessary to address the fundamental bargaining power imbalances between Australian news media businesses and major digital platforms.

But to Facebook, the code is one-sided. The company has even threatened to pull news completely from its Australian platform.

See also: Web inventor concerned new Australian code breaches internet's fundamental principle

Facebook's APAC vice president of public policy Simon Milner told the committee that rather than increasing investment in news and journalism, his company believes the code will have the opposite effect.

He said throughout the policy development process, Facebook has supported having a balanced and fair framework for relationships between digital platforms and news publishers.

"I'm afraid this draft way is a long way from that," he said.

"The law would compel us to enter into agreements with all news publishers in Australia without any regard to the true commercial value for our business. It gives publishers near complete control of these negotiations and it will encourage unreasonable behaviour.

"There is no other law like it in Australia."

Milner reiterated that the economic value of referral traffic alone for Australian publishers from January to November last year was AU$394 million, saying it doesn't generate any meaningful revenue from such content.

"So the deterrent effect of this law and investment in the Australian news industry should concern the committee," he added.

Although threatening to pull news from its site, Machin said Facebook has continued to have commercial conversations with Australian publishers in the hope that the legislation would provide a "workable framework" to allow Facebook News to launch down under.

Machin also drew the committee's attention to the arbitration model adopted by the code. He labelled it "unusual".

"Final offer arbitration … it's imported from the US where it's used to determine the salaries paid for baseball players," he said.

"And we think it's not something that's evident or available under any Australian laws … we think bringing a legal mechanism and putting it in a law here that Australia hasn't seen before that relates to complex issues, that covers digital markets, which are frequently changing, we think that that means there could be some very unpredictable outcomes."

Milner also added that the non-differentiation clause, which requires the same treatment across all publishers, isn't considered practical by Facebook.

"If one publisher is in, all publishers need to be; if one publisher is out, all publishers need to be out," he said. "The way that that impacts our products, like Facebook News, manifests in a number of different ways."

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