24 February 2023

Breaking the news: should the tech giants really be funding publishers?


Newspapers used to have an effective monopoly over access to information. If you wanted investigative journalism, property listings, dating personals, stock prices or weather, you were pretty much forced to purchase a printed copy. Newspapers were also one of the few places for advertisers to reach a mass audience. This is the dynamic that delivered fortunes to newspaper proprietors.

The situation today could not be more different. The internet has blown up the papers’ business model. The public can access vast quantities of up-to-date information  at virtually zero cost and digital advertising is both cheaper and more targeted than traditional ads.

This immensely competitive landscape, along with falling revenues, has led to demands from publishers for money from successful digital platforms – like Google and Meta, which owns Facebook and Instagram. This is on the dubious basis that digital platforms have taken their revenues and are ‘free riding’ on content. Governments have proven susceptible to lobbying by the news media companies, who still play a gatekeeper role for access to the public (albeit a diminished one).

This may, at first, seem like merely a commercial conflict. But there is a bigger issue at stake: the central basis of human progress. Disrupters must be able to innovate, and develop new technologies and business models, without being forced to compensate those left behind. Henry Ford would have struggled to bring the motor vehicle to the masses were he forced to pay reparations to the horse and buggy industry. Progress is only possible if we embrace the idea of change, that there will be some who win and others who lose. 

Of course, news publishers do not tend to explicitly make this argument about reparations, even if it is their underlying motivation. They have used other justifications. The first focus was on copyright. But this was always bogus. Digital platforms never ‘stole’ news articles. They show news snippets: that is, an article title, brief description, and hyperlink. This is admissible under ‘fair use’ provisions of copyright law (until the likes of the European Union’s controversial copyright directive).

More recently, publishers have made an argument about competition. The Australian Competition and Consumer Commission (ACCC) was won over by the idea that the largest digital platforms are exploiting market power to underpay news publishers – leading to underinvestment in journalism. The UK’s Competition and Markets Authority (CMA) have endorsed this logic. Now the UK government intends to give the CMA powers to introduce an Australian-style ‘news media bargaining code’ forcing platforms into negotiations to pay publishers, on terms very favourable to the latter.

The ‘competition’ logic requires several logical jumps that are unsubstantiated by the evidence. Firstly, that digital platforms receive large benefits from journalistic content for which they are not paying. But the evidence points almost entirely in the opposite direction.

News content only makes up a relatively small proportion of digital platforms. The vast majority of content (92%) on Facebook is organic items, i.e. text, photos, videos from other users. Less than 5% is external links to news content. This speaks to a broader internet phenomenon – most activity, and thus revenue, has nothing to do with news. A fascinating study from the Reuters Institute for the Study of Journalism during the last general election campaign found that just 3% (about 16 minutes a week) of the average Brit’s online time is spent looking at the news.

Nor is there much reason to believe that news is particularly valuable to digital platforms. Advertisers typically target users trying to purchase a product, like clothing or a holiday. A user’s interest in an earthquake in Turkey or the war in Ukraine is not particularly useful to them. A cursory Google search demonstrates that news search topics do not typically contain advertising in the results. Facebook found advertising revenues kept increasing even after they demoted news in their news feed from 2018 onwards. Amazon has built a large advertising business, worth tens of billions a year, entirely based on product advertising. 

The other logical jump is that were it not for market power (the need for publishers to distribute their content on large digital platforms) there would be payments. But this is an easily disprovable counterfactual. As technology analyst Benedict Evans writes:

No-one has ever paid to link, regardless of their market power. No-one has ever asked me to pay to link to them, and if asked I would refuse, and I have no market power at all. You don’t have to ask the hypothetical ‘what would happen if Google and Facebook had less market power – would they pay for links?’ You can just look at, well, every other site on the internet.

Indeed, I have just linked to Evans’ website. If he asked for compensation the answer would involve a four letter expletive followed by an “off”. This also speaks to the absurdity of this situation: I have just promoted Evans’ website through that link. Similarly, Google and Facebook provide billions of referrals to news publishers, boosting their subscriptions and advertising revenues.

Indeed, according to some studies, as much as half of news publisher traffic comes from search and social media. That’s why publishers obsessively optimise their websites for search engines and post content throughout the day on social media. Digital platforms are particularly beneficial to smaller, innovative outfits because they provide an opportunity to reach a larger audience. The idea that digital publishers benefit from news publishers gets things entirely the wrong way round.

That said, the resilience of the news industry in the digital age is in some respects quite remarkable. Millions of people still purchase physical papers and the major news brands generate huge traffic to their websites. The Guardian has begun returning a profit in recent years, despite its print sales plummeting in the last decade. The Times reached 400,000 paying digital subscribers in 2022 and has been profitable since 2018. Reach plc, which own the Daily Mirror, Daily Express and over 100 local newspapers, is also a profitable company. Indeed, the total number of journalists in the UK grew from 79,000 to 110,000 between 2017 and 2021.

This speaks to the power of competition to drive innovation. A news media bargaining system that provided free revenue to news providers risks reversing this trend. It would help the incumbents with larger resources over innovative upstarts — as has been the case in Australia, where around two-thirds of the payments have gone to the two largest publishers. It would also incentivies platforms to demote news content to minimise their payments. This was the case in Spain when Google News was shut down in response to a law that would force payments. This led to a more than 6% decline in web traffic, impacting 84 Spanish online newspapers, with some smaller publishers facing declines as high as 14%.

Journalism plays an essential role in society. It informs and entertains while holding those in power to account. The digital age has fundamentally changed has the nature of the industry and its business model. Rather than appealing for a government-sanctioned Big Tech bailout, the industry should carry on evolving – and embracing the huge opportunities that platforms offer them to engage with audience and deliver great content.

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Matthew Lesh is the Head of Public Policy at the Institute of Economic Affairs and author of 'Breaking the News? Should digital platforms be required to fund news publishers?'

Columns are the author's own opinion and do not necessarily reflect the views of CapX.