The under remuneration of news publishers, especially measured against the value they create for platforms like Google and Facebook, has been a hot topic for some time.
In 2021, the Australian government became the first to introduce legislation mandating that platforms pay for news content.
This marked an important step forward, however, it arguably shied away from the fundamental issue at hand, namely determining how valuable news content is to the platforms and vice versa.
The Australian procedure, instead, follows the principles of baseball arbitration, wherein an agreement must be reached within a certain fixed window. In the absence of a settlement, the matter is referred to an arbitral committee, which is free to select either offer. In theory, the risk of the arbitral committee accepting a competitor’s unnegotiated position compels both parties to come to a mutually beneficial arrangement.
Yet, without determining value in the first instance, there is a risk that negotiations simply produce the wrong answer.
The UK, which has now established an initial ‘payment for content’ framework under the newly introduced Digital Competition Bill, faces the task of determining an equitable split of the ‘joint value’.
Professor Gawer’s paper:
A substantial proportion of platform profits are derived from news content, one of the unique values of which is that it is constantly updated. This means more traffic, which in turn means higher ad revenues. Professor Matt Elliott, indeed, estimated in 2018 that news content is worth £1 billion pounds to Google and Facebook, annually.
The platforms have in turn sought to demonstrate the substantial value they, as distributors, create for content producers. In 2019, Google commissioned Deloitte to produce a study on “The Impact of Web Traffic on Revenues of Traditional Newspaper Publishers”, which found that the total value of web traffic to UK news publishers was £500 million in 2018.
Then in May 2022, shortly after the Queen’s Speech confirming a pending Australian-type bargaining code, the then Vice President for Google UK took to Google’s blog, highlighting this statistic as evidence of the value Google generates.
It is this misleading claim which Professor Gawer’s article addresses.
The most blatant misdirection contained in Google’s post is the direct equation of total traffic with Google’s referral traffic traffic. Accounting for app traffic and discounting non-referral traffic and the use of other search engines, Professor Gawer estimates that Google generates for a maximum of 35% of UK news traffic. This is also crucially, indirect traffic, which is substantially less valuable than direct traffic measured by user engagement, further diminishing Google’s claim to the joint value to just £75 million.
Beyond the factual inaccuracies in Google’s assertions, the paper also questions how far this calculus reflects the true value Google provides if it is simply being used as a navigational tool. The obvious counterfactual would be, how many consumers would continue publisher’s sites directly or through an alternative means? To which the likely answer is the majority. Professor Gawer, indeed, points to the surge in news traffic, following Facebook’s outage in October 2021 as evidence of the inherent substitutability of these platforms.
What next?
Professor Gawer’s article provides a useful starting point from which we might be able to reasonably determine a fair split of the joint value generated by platforms and news publishers. Professor Gawer stops short of accounting for the above-mentioned substitution effect in her adjustments to the Deloitte estimate “for lack of a good estimate”, but this must likewise be considered by lawmakers when calculating a benchmarked figure.
The paper also provides, if indirectly, a cautionary demonstration of the complexity of the matter at hand. A negotiate-first approach adopted by the Australians is clearly inadequate when Google can simply misrepresent the meaning of relevant data and as a consequence massively inflate any estimate of their contribution.