Australia’s Proposed “Fox News Tax”

“Google’s threat to withdraw its search engine from Australia is chilling to anyone who cares about democracy.”

So led Peter Lewis in the Guardian last week, in reference to Australia’s News Media Bargaining Code.

For those who haven’t been following along, the Australian Government has proposed new legislation that is in effect targeting two companies — Facebook and Google — and making them negotiate to pay for every link out to an Australian media company. If negotiations between the parties aren’t successful — the next step is forced arbitration — and all indications suggest that it won’t go well for Facebook and Google if it ends up there.

The Australian Government seems to be pretty proud of its proposal, with Treasurer Josh Frydenberg being quoted as saying:

“My view is that it is inevitable that the digital giants will be paying for original content… we are now in a position to implement a world leading code — one that is fair, taking into account mutual value exchange … and we think it is a fair outcome.”

And it would seem the Government has reason to be pretty proud. The story so far has been about how Australia is bringing the erstwhile tech giants to heel. As quoted in the Wall Street Journal:

“Their [Facebook and Google’s] market credibility, business models and substantial valuations have been built on having free and unfettered access to quality journalism and content,” Mr. Janz said. “Content that is created and funded by others.”

But… who is Chris Janz that the WSJ is quoting?

Well, he happens to be an executive at Nine Entertainment. Nine is an Australian company which has radio, television and print assets — including the Sydney Morning Herald, which I linked to earlier. And why might Mr Janz have this opinion? Well, here’s a hint: every time the Sydney Morning Herald runs an article on this topic, it adds a disclaimer a bit like this:

Nine Entertainment Co (owner of this masthead) is one of several publishers that is expected to receive payment under the proposed laws.

But least they’re up front about. Going back to that Wall Street Journal article I linked, the closest they come to making any kind of similar disclaimer is this:

Media companies in Australia, including the local subsidiary of News Corp, owner of Wall Street Journal publisher Dow Jones & Co., have supported that provision.

But it’s here that we’re getting to the heart of the matter.

Despite how the story is being told in the media, this isn’t truly a story about the Australian Government battling for the little publisher or for quality journalism. This is just the latest in a story that’s been playing out for the past three decades, across not just Australia, but also the United Kingdom, and especially in the United States.

I’m sure you’re familiar with this man. His media empire is vast. The Wall Street Journal. Fox News. The New York Post. Dow Jones. The Sun. The Times. The Australian. The Daily Telegraph.

These new laws in Australia— these were dreamt into being by this man. The Australian Government is just aiding and abetting him. Their purpose is simple: take money out of the pockets of Facebook and Google — and without the Australian taxpayer seeing a single dime of this money, which really, they should absolutely be entitled to — those dollars are being deposited directly into the pockets of Rupert Murdoch and a few of his big media buddies.

In terms of creating a corporate hand-out, this one is unmatched.

Australia is just about to create a Fox News tax.

“If you’ve got a good enough business, if you have a monopoly newspaper… your idiot nephew could run it.” — Warren Buffet

This quote from the 1970s outlined exactly why Buffet went on a newspaper buying spree during that era. Newspapers had an effective geographic monopoly on distribution. You wanted to read about what was happening, whether in your local town or in the world? You needed the paper. Despite this need, even the largest of cities ended up having at most a couple of newspapers.

It was a great business. Like most monopolies, they minted money. This was particularly the case from advertisers. You wanted to reach a well-educated audience on a timely basis, en masse — your options as an advertiser were pretty limited.

But Buffet wasn’t the only one who realized this. A little earlier than Buffet, a young Rupert Murdoch inherited the family newspaper company following the death of his father. He took that start, and amassed it into one of the largest media companies on the planet: News Corp.

Of course, one big thing has changed since Messrs Buffet and Murdoch took on those newspaper businesses: the Internet. It completely broke the distribution monopoly that the newspapers enjoyed. Instead of reading pieces of paper, people spent time reading on computers. As a result, they didn’t need to rely on their local paper any more — they could get news from anywhere. And as that trend continued, they didn’t wake up and start reading the paper as the first thing they did — they woke up and they opened Facebook on their phone.

Newspaper circulation declined accordingly.

Of course, the Internet wasn’t just better for consumers of information. It was vastly better for advertisers. Advertisers could qualify an individual who was searching for “car insurance” on Google, and display an ad right there. Or Facebook, which could let an advertisers do brand advertising just to their target demographic. This was infinitely better than a static, untargeted ad that had to be displayed to everyone that read the newspaper.

And so advertising dollars collapsed even more precipitously than circulation:

At this point in the story, the differences between Murdoch and Buffet become a little bit more instructive. Why were they in the business in the first place?

Buffet always loved newspapers. He delivered them as a kid, and is an avid reader of several. But ultimately Buffet was in it for, well… the business. Which explains why, despite his love for the business, he finally got out of them late last year.

Murdoch also loves the business. But his affinity is somewhat different. Perhaps the best illustration of how, is based on an answer he gave in an interview. Murdoch was asked: Of all the things in your business empire, what gives you the most pleasure? He didn’t skip a beat:

“Being involved with the editor of a paper in a day-to-day campaign,” he answered instantly. “Trying to influence people.”

Which explains why, in the face of a business in decline, Murdoch isn’t following Buffet out the door. Instead, he’s going back to that which he enjoys the most. A day-to-day campaign… “trying to influence people”.

Depending on the nature of the influence, there’s another way of describing this: regulatory capture. Murdoch has been busy pulling the strings of the Australian Government, to lift dollars out of some other company’s pockets and into his own.

Of course, it’s not such a good look to say “we’re doing this to help out our buddy Rupert, so when the next election comes around, he’ll help us out in return.” The Australian Government was in need of a fig leaf.

Media reform! Journalism!

It’s hard to argue against such things. Most Australians value them dearly (including myself).

What’s interesting is how relatively recently it seems the incumbent Liberal Government have come around to this being a priority. For example, here’s 2018:

Or how about this, from 2019:

This is a Government that, in the words of journalists, “put a boot” on journalism’s throat. But now, here is legislation designed for no other purpose than to uplift journalism?

Seems strange, no?

Well, perhaps there’s been a change of heart? Perhaps the Government really did come around to the importance of journalism — including that which is critical of the Government — to Australian society?

There’s one big problem with that hypothesis. If that was the case, then surely the Government would have ensured that funding for media companies would have included the most trusted news brand in Australia, the Australian Broadcasting Company?

And yet, they excluded it.

Why did they exclude the ABC? Well, details are scarce. The head of the Australian Competition and Consumer Commission didn’t initially want to, but it seems the Government intervened:

Mr Sims had previously expressed an intention to include ABC and SBS in the revenue-sharing part of a code of conduct, which will try to force Google and Facebook to compensate publishers for the use of news content. But the Australian Competition and Consumer Commission (ACCC) appeared to have backflipped when it released the draft version of the code on Friday. Mr Sims indicated that the final decision was made by government.

For some reason, the Australian Government intervened to ensure that the most trusted news brand in Australia didn’t receive a dime (the outcry over this specific decision resulted in the Government backing down and having to include them). It kind of makes it hard to believe this was all motivated by “uplifting quality journalism”.

Of course, there is another explanation that makes all of this makes sense. Whereas the ABC, as a Government funded entity, is impartial, the Government knows that News Corp holds a huge sway over Australian political life.

If the Government scratches Murdoch’s back, Murdoch will scratch back.

And suddenly, the real reason the Australian Government is pushing this legislation so hard comes into sharp relief.

It’s at this point that I’m going to state it very clearly: there’s a solid case to be made for Australia taxing both Google and Facebook.

And this is beyond the fact that both companies seem to have a long history of dodging tax in Australia. For a start, there’s events that have unfolded in the United States the past few weeks. There’s also the evolving research on social media and what produces positive effects (connecting with others) vs negative effects (scrolling endlessly through an algorithmic feed). There really does seem to be an opportunity for government to come into this space thoughtfully.

Here’s an example of what might be done. The case has been made that the algorithms designed to drive user engagement on social media platforms end up having an addictive effect on users. Well, like with tobacco, if there’s is a harm and addiction associated with product, taxation might not be a bad way of countering it. Creating a tax based on engagement might make the social media platforms consider algorithms other than those optimized to exploit anger and divisiveness as a foundation for their business (as a happy side effect, they’d probably link less to the likes of Fox News). And the revenue from such a tax could be used on all number of public goods — from education through to support of the media.

Whether it’s a proposal like this, or something else, there truly feels like there is an opportunity for Australia to engage deeply in this space and come up with an innovative solution.

But that solution would look nothing like what’s the Government has proposed so far.

Taxing Facebook and Google is fine. But taking that money, and instead of depositing it into the public purse, doing a straight wealth transfer into the company that has perhaps done more than any other to threaten democracy in the United States — News Corp, with its subsidiary Fox News — just seems to me to be absolutely bludy outrageous.

And so we come back to where we started, that Peter Lewis quote in the Guardian from last week: “Google’s threat to withdraw its search engine from Australia is chilling to anyone who cares about democracy.”

Lewis was absolutely right to frame the legislation that lies before the Australian public as one that is critical to anyone who cares about democracy. But it’s laughable to suggest that it is Google that is a threat to our democracy. As Australia’s former Prime Minister Malcolm Turnbull has argued, News Corp poses greater menace than Google ever will: “As far as I’m aware, Google hasn’t sought to overthrow a government.”

This legislation, as it stands right now, is ridiculous. It may result in Australia losing one of the most valuable tools ever created to access information. And it does so not to benefit democracy, but rather, in order to subsidise a private company that has demonstrated time and time again it is happy to undercut democratic principles of the countries in which it operates.

It is time for the Australian Government to kill its Fox News Tax.

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