Anthony Fitzgerald: Regulation for all, or regulation for none

Originally published in The Australian Financial Review

Google's Australian managing director Jason Pellegrino was somewhat disingenuous in his comments in these pages recently, dismissing calls for more regulatory intervention on the tech-media duopoly of Google and Facebook.

Mr Pellegrino is reading the regulatory headwinds quite perceptively. Policymakers around the world are increasing their appetite to understand Google and Facebook's unbridled march into media territory, while they refuse to admit they are media companies. Why? Because there are resource and profit-sapping regulatory restraints and responsibilities that come with operating in the media business, but a "technology" or "platform" company can avoid those very responsibilities and regulations. The duopoly's lobbying position that they are not media companies is patently absurd.

Thankfully, there is a growing chorus of informed observers gravely concerned about the unprecedented local and global market power these two tech-media firms have created for themselves. 

The office of British Prime Minister Theresa May made a statement two weeks ago that her government "will look carefully at the roles, responsibility and legal status of the major internet platforms".

Those comments came as a report by Enders Analysis said 6.5 million British internet users said they mainly source their news from Facebook. Moreover, Prime Minister May's 2017 election manifesto said: "We will ensure there is a sustainable business model for high-quality media online, to create a level playing field for our media and creative industries."

US policymakers, too, are awakening to the Silicon Valley threats with proposed legislation that will force tech-media platforms to comply with the same disclosure rules in political advertising as television and radio broadcasters – partly brought on by the controversy around alleged Russian involvement in US election advertising.

These regulatory headwinds are violently at odds with Mr Pellegrino's agenda at Google in Australia and likewise for Facebook, Instagram, Netflix, Amazon, Snapchat, and Twitter here. Regulation, particularly media regulation, if it were to apply to tech-media players based on their reach of the Australian population, or even Australian content quotas, which are imposed on television broadcasters, is a terrifying, margin-cutting scenario for them to face.

One of the conditions of Communications Minister Mitch Fifield's media reform package is an inquiry on the impact that Google and Facebook is having on the local media sector. Hence, Mr Pellegrino's early warning that "you can't regulate or control your way to success".

Mr Pellegrino is right, but only if no regulation is applied consistently to all players in a market. The Australian media regulatory regime is currently so lop-sided that the coders from Silicon Valley are destined to decimate the local content sector. Tech-media is destroying local market and content economics – look at journalism. Despite the much acclaimed audience "reach" for news media that these social platforms deliver, it has not for a second helped sustainably fund journalism. The same dark storm clouds are now looming over professionally funded film and television content. We already know that what YouTube is prepared to share in gross advertising revenue does not, and can not, sustain professional content creation. Facebook is no different.

If policymakers in Australia want a thriving local content and creative sector – from journalists to TV and film writers, on-air radio talent, camera and audio technicians, producers and actors – then a regulatory regime applied consistently to all on local content investment is critical.

The only companies pouring any significant earnings back into the Australian professional content industry are legacy media operators. The tech-media club, to date, have aggressively and cleverly avoided such investment. If Morgan Stanley is right in its estimates that Google and Facebook will extract $3.5 billion to $4 billion in ad revenue from Australia this year – and it is a reasonable figure – then the future for the local creative and content sector is entirely bleak. It carries all manner of consequences for jobs and the sustainability and vibrancy of the Australian creative economy, particularly so for the advertising-funded content sector here.

The clever trick the duopoly has played for years with local media companies and content originators is to poach that content for their platforms, pay nothing for it, and charge advertising rates based on user-generated content costs, which for Google and Facebook is all, but nothing. It means local media companies investing in content and looking to sustainably reinvest back into local content are facing impossible economics. Yet most of what we hear about these companies is myopic praise for disruption and innovation.

When Mr Pellegrino says "advertising alone isn't going to cut it" for news media, there is a dire warning baked into his comments, particularly so for those producing professional TV, film or video content. Advertising has underwritten untold Australian creative talent, but is rapidly being siphoned off to Silicon Valley. It is particularly rich for Mr Pellegrino and Google to tell media companies to get over their reliance on advertising to survive when about 88 per cent of its $72 billion in global revenues comes from advertising (Facebook derives 97 per cent of its revenue from ads). What's even more ironic is that all of Google's moon-shot ventures, from driverless cars to AI, are still losing billions for parent company Alphabet. Incredibly, advertising is funding almost all of Alphabet's profits and underwriting its blue-sky ventures.

If Australians and Australian policymakers are comfortable with the local creative and professional content economy being systematically destroyed by Silicon Valley, then let's be honest about the reality and regulate accordingly – that is, apply the same regulation to all or have no regulation whatsoever, which at present is a privileged position occupied only by the duopoly and its tech-media peers.

If we as a society and an economy are not willing to allow the decimation of our creative and content industries, then legislate for all to share equally in the responsibility of sustaining a vibrant, robust and economically sustainable creative sector.

Let's hope the forthcoming government inquiry on Google and Facebook really turns into one.