Inside Story

When the market for news fails

Journalists keep losing their jobs, but politicians on all sides are refusing to face the consequences

Tom Greenwell 27 May 2020 3229 words

“This research is extremely robust”: the Public Interest Journalism Initiative’s Allan Fels. Mick Tsikas/AAP Image

As economic activity in Australia came to a shuddering halt in March, the sudden demise of venerable regional newspapers was reported by Australian Associated Press, a wire service that had recently foreshadowed its own demise, with a loss of 180 journalist positions. The AAP’s report happened to appear in the Canberra Times, whose parent company, Australian Community Media, had announced the closure of printing presses in four locations and the suspension of numerous non-daily titles. Thus the Covid-19 recession collided with the decades-long digital disruption that shrank employment in the industry by 20 per cent between 2014 and 2018 alone.

AAP’s closure had been announced before the coronavirus turned the world upside down (and there’s now a chance the service will be taken over rather than shuttered), and the newspapers that finally fell victim to the pandemic — like the Sunraysia Daily in Mildura, currently celebrating its centenary, and the Yarram Standard in Gippsland, in operation since 1875 — had already been weakened by years of attrition.

But it was the immediate crisis that propelled the Morrison government into action, as it has in so many other parts of the economy. By rebadging and revamping its stalled Regional and Small Publishers Innovation Fund as the Public Interest News Gathering Program, it will make $50 million in support available to regional publishers and broadcasters in financial year 2020–21.

But what about the long-term rot eating away at the whole industry: the migration of advertising to the big technology platforms? When News Corp Australasia’s executive chair, Michael Miller, announced the closure of sixty community titles across four states at the beginning of April, he called on the Morrison government “to make 2020 the year digital platforms start paying publishers to use their content.”

Three weeks later, treasurer Josh Frydenberg and communications minister Paul Fletcher announced that the government was directing the Australian Competition and Consumer Commission, or ACCC, to develop a code requiring Google and Facebook to pay when they link to news publishers’ sites. Echoing Miller’s words, Frydenberg declared that “it’s time the tech titans were held to account and… we get payment for original journalistic content.” Communications minister Paul Fletcher doubled down: “One set of businesses [are] acquiring content from another without the opportunity for a fair discussion about what they pay for it.” Responding to the announcement, the Australian proclaimed that the “policy will end the plunder and save mainstream news,” with editor-at-large Paul Kelly arguing that the announced proposal will “check one of the greatest scams in history.”

If this looks a lot like government by News Corp, it’s important to remember that the proposed code governing dealings between the digital platforms and the news media was recommended by the ACCC itself. And the government’s move brings together two sentiments with wider appeal: first, that we need to do something to save the journalism that forms the fabric of our society and the basis of our democracy; and second, that Google and Facebook need to be cut down to size. Labor’s only criticism was that it had already called for the fast-tracking of the mandatory code. “It’s beyond time to put the blowtorch on Big Tech and make them pay for content they’ve been taking for free,” said the Greens’ media spokesperson, Sarah Hanson-Young.

But will the proposed link levy really “save the news”? Or might the pandemic-driven impetus be squandered and Australian journalism continue its decline?

The government’s case rests on four apparently straightforward propositions: search and social platforms take content created by journalists; the platforms derive billions of dollars of advertising revenue from that content; publishers are therefore entitled to a share of the platforms’ profits; and making this happen will provide a tangible solution to the dire predicament facing the news business. These might be widely shared beliefs, but none of them stand up to scrutiny. Let’s take them one at a time.

To begin with, Google, Facebook and other digital platforms don’t republish articles from news outlets — they publish what are known as “snippets,” one or two algorithmically generated sentences from a news story, possibly with a photo, to accompany the headlines and links in our search results, helping us decide if we want to click on them. Snippets don’t infringe copyright, and if publishers want to stop them appearing, they easily can. It’s just a matter of inserting “nosnippets” tags in their code, as last year’s report from the ACCC’s digital platforms inquiry helpfully explained.

Snippets stand to news stories as previews and reviews stand to movies; the sample helps us decide what we want. By publishing them, the ACCC found, search and social platforms help increase publishers’ audience just as trailers and reviews help a film. And contrary to some submissions to its inquiry, the competition watchdog found that the appetite for news is not sated by the snippets themselves. Which explains why Rupert Murdoch never followed through on his 2009 threat to prevent Google from indexing News Corp stories, though he could have, and why News and other publishers continue to permit the publication of snippets.

The platforms don’t steal content, and nor do their profits derive from audiences that have been built with other people’s journalism. Ever since the internet unbundled the newspaper in the noughties, journalism has simply not been a necessary ingredient in the business of aggregating and selling readers’ attention. This first became apparent with the emergence of businesses like Craigslist, and The billions of dollars of advertising revenue that flow to Google and Facebook do not rely on journalism any more than do the millions that have moved to classified ad sites.

As Joshua Benton from Harvard’s Nieman Lab puts it, Google “makes money when you search ‘dry cleaner south boston’ or ‘what’s a good toaster oven,’ not so much ‘was that a gunshot i just heard south boston.’” Google has found a way to create an audience and sell it to toaster manufacturers without journalism having anything to do with it. It doesn’t steal news stories on Syria, or the attention they attract: indeed, Google doesn’t serve ads alongside links to news articles (in either Search or News).

Because the platforms don’t siphon off revenue that belongs to the content creators, the attempt to recover these supposedly ill-gotten gains will inevitably fail. We know this because that’s what has happened wherever similar laws have been introduced. When France introduced a link levy late last year, Google simply changed its default settings, meaning French publishers now have to opt in to allow snippets to appear (in which case Google doesn’t have to pay). In terms of how things might work out here, France represents the relatively benign scenario. When Spain introduced a link tax in 2014, Google closed down Google News there. Not only did the laws fail to deliver additional revenue to publishers, overall news consumption shrank by between 5 and 10 per cent.

The government would have us believe that these failures are evidence of the purity of its own purpose. “In France and in Spain and in other countries where they have tried to bring these tech titans to the table to pay for content they haven’t been successful,” Josh Frydenberg acknowledged when he announced he was going to attempt to do just that. “But we believe this is a battle worth fighting.”

But, as Crikey’s Bernard Keane points out, Spain’s link tax hit smaller, newer and less well-known sites the hardest. Without Google, the cost of searching for news increased, and so audiences were more likely to fall back on the sites they knew best, a development that overwhelmingly favoured large, long-established newspapers with strong brand awareness. While the well-known sites experienced a 5 per cent fall in visitors, traffic to small publications shrank by 13 per cent. The latter included sites like El Diario, a digital startup with a focus on sustaining serious journalism with a membership model. So Spain’s law ended up hurting exactly those sites it should have been helping.

Even if it worked, the proposed levy would be redolent of the worst kind of protectionism that, in a vain attempt to recreate a world that has disappeared, at best serves the short-term interests of entrenched players. Reacting to the government’s announcement, Paul Kelly said that “the size of this revenue share will be pivotal for news publishers. Unless this is meaningful, the project falters.” But it is highly unlikely that the digital platforms will agree to paying anything. Being required to pay to link to a website is as bizarre, and unreasonable, as it sounds. As much as the government’s foes are mighty, its endeavour will likely fail because its argument is weak.

In the improbable event that a face-saving agreement is forged, the payments will likely amount to little. Payments for snippets can’t and won’t compensate the news industry for the fact that it is no longer essential to the business of selling advertising: mandatory payments won’t bring back the advertising lost to search and social any more than to classified sites, and they won’t restore the exorbitant prices media companies could once charge for advertising when they had a monopoly over our attention.

Former South Australian senator Nick Xenophon wrote last month that his biggest regret in politics was not getting a better deal for Australian journalism when he negotiated the Regional and Small Publishers Innovation Fund and the ACCC inquiry in exchange for supporting the government’s media ownership laws. Xenophon believes he did what he could but it was not enough. Now, he says, we have to get it right. “And my abiding fear is that if we blow this opportunity, it will be too late, and the damage to our democracy incalculable.”

With Labor and the Greens in lock step with the government’s strategy, there seems little hope that effective support for journalism will be forthcoming any time soon. More newspapers will close, more journalists will lose their jobs, and the desertification of Australia’s news landscape will continue apace. But there is an alternative. Instead of imitating international policy failures, we could instead take inspiration from successful examples of support for the press.

Britain, Norway, Korea and other countries provide news publishers with a complete exemption on their value-added taxes (akin to our GST), and other places, like Germany, the Netherlands and Switzerland, give a partial reduction. The zero-rating of VAT on newspapers in Britain amounts to an indirect subsidy of A$610 million annually, and was extended to digital news publications in March. Sweden provides direct payments that amount to 15 to 20 per cent of revenue for the second and third newspapers in a market, which are the scheme’s main beneficiary. With a population of ten million people, it has seventy-three daily newspapers and sixty-nine weeklies, and, in contrast to the dangerous levels of ownership concentration in Australia, eight large newspaper groups share 82 per cent of the market.

The case for public support for journalism is founded on a recognition of the basic economic realities of the digital era. Advertising will no longer cross-subsidise journalism to any substantial degree. News media can only stand on its own feet by maximising subscriptions, donations and other payments from readers. But the market will significantly underproduce public interest journalism because even freeloaders can enjoy the benefits of a functioning democracy, accountable government and relatively low levels of corruption and corporate malfeasance.

If we want to revive public interest journalism, including newspapers that have served local communities since the nineteenth century, we need to squarely face this fact. Only a well-designed system of public subsidies can ensure that we stem the tide of newspaper closures, restore jobs in journalism, and continue to sustain journalism that is integral to the health and vitality of our society.

This isn’t a fringe view. Public Funding of High-Quality Journalism, a report commissioned by the ACCC as part of its digital platforms inquiry, concludes that “experience from the countries we have surveyed provides some confidence that useful schemes can be designed, which can deliver effective outcomes, value for money, accountability and independence from government.”

The Public Interest Journalism Initiative, or PIJI, headed up by former ACCC chair Allan Fels, advocates the introduction of tax concessions, which can be set at a rate that provides a 100 per cent or more reduction in taxable income for specified types of expenditure. Tax concessions are already used to stimulate industrial research and development across OECD countries, including Australia, and Fels’s group contends they could similarly work to promote public interest journalism. Research commissioned by PIJI on the costs and benefits of such a scheme concluded that it would warrant concessions worth between $380 million and $740 million annually. “This research is extremely robust,” Fels says. “It shows that tax concessions are a legitimate avenue for the support of public interest journalism, which is declining rapidly and is a critical foundation for our democracy.”

After researching the theoretical and empirical basis for media subsidies, Norwegian economists Jarle Møen and Hans Jarle Kind concluded that “there was empirical evidence suggesting that at least some of the subsidies to the news industry have the desired effect.” Of all the possible forms of government intervention, Møen and Kind found that tax concessions are the most powerful tool for promoting public interest journalism.

“In principle a subsidy that targets public interest journalism is exactly the right tool,” Jarle Møen tells me via email. “Tax credits or other indirect subsidy schemes that directly reduce the marginal cost of investing in journalism are the most efficient scheme to increase the quality and quantity of journalism and stimulate investigative journalism.” Tax concessions, Møen explains, “will make it profitable to hire more journalists because the value of what an extra journalist produces stays the same while the cost is lowered.” He adds that “a crucial question is to what extent the government succeeds in increasing journalism that creates additional value for society rather than gossip columns and pure entertainment.”

PIJI contends that Australia’s R&D tax incentive offers a useful model in this respect. The Tax Act distils a widely accepted definition of the targeted activity to precisely delimit the expenditure that receives preferential tax treatment, detailed guidance is provided to help businesses interpret the tax code, and monitoring and compliance occurs through the tax system.

In the same manner, PIJI argues, a definition of the kind of journalism that supports the democratic process, informs about matters of public concern, exposes wrongdoing, and provides analysis that makes public events intelligible can be operationalised in the tax code, ensuring that the subsidy achieves its intended goal. An analysis by the Centre for International Economics indicates that every dollar of tax revenue foregone under such a scheme is likely to lead publishers to invest one extra dollar in public interest journalism.

The five countries that topped the Reporters Without Borders 2020 World Press Freedom Index — Norway, Finland, Denmark, Sweden and the Netherlands — all provide direct or indirect subsidies to their newspapers. So news organisations can be publicly funded without compromising their independence, just as we already finance political parties without bias or interference from the government of the day, and subsidise research and development without commercial favouritism. And one of the virtues of the tax concessions proposed by PIJI is that any and every news organisation that invests in public interest journalism, as defined in the Tax Act, would benefit.

As Jarle Møen points out, though, “large media organisations have time and again proven themselves to be effective lobbyists, and their self-interest is often not aligned with what we consider well-designed policies. Political parties also tend to intervene in favour of news outlets that they consider supportive.” There could hardly be a more apt description of the Morrison government’s present efforts, heedless of the evidence and distorted by lobbying.

No doubt the government, in very uncomfortable fiscal territory already, also wants to believe that no serious spending is necessary — that a touch of competition policy can put Humpty Dumpty back together again. But other research commissioned by PIJI, which asked over 1000 Australians the extent to which they’d support paying more tax to increase public interest journalism, indicates that the community would be willing to pay between $380 and $740 million per year to support the news industry. Given Google and Facebook earn more than $5 billion in Australia annually but pay only $40 million in tax, another good way to fund subsidies would be to make them pay a fair share of tax. But this is a confrontation that the government doesn’t appear to have an appetite for.

The Coalition’s reluctance to intervene in the economy and provide substantial public support for journalism (outside regional Australia) is unsurprising enough. After all, it has stripped $783 million from the ABC over the last decade. But if the point of an opposition is to offer alternative policies that will better serve the nation, and the purpose of left-of-centre parties is to articulate the role that government can play to create a better society, then Labor and the Greens should be taking Professor Fels’s proposals off the shelf and making them famous. Instead of endorsing the government’s quixotic attempt to make Google and Facebook pay to link to news sites, they should be articulating the case for a serious subsidy scheme to support public interest journalism.

To the credit of both parties, they have demonstrated more initiative when it comes to the ACCC’s recommendation that subscriptions to non-profit media outlets be made tax-deductible. “The ACCC has made recommendations around tax settings to encourage philanthropic support for journalism which the government does not support,” says shadow communications minister Michelle Rowland. “Labor will hold the government to account for this decision.” That’s a good thing, but if changed tax settings only apply to non-profit news outlets, the significance for the industry as a whole will be limited. “The Greens support extending tax-deductible status to news media subscriptions, donations and purchases to all Australians,” says Sarah Hanson-Young. Such a move has significant potential to help news organisations adapt to a world in which the lion’s share of their revenue comes from readers.

The idea that government has a role in supporting public interest journalism, once unthinkable in Australia, has slowly but surely entered the political mainstream. The 2017 Senate inquiry into public interest journalism; the government’s subsequent deal with Nick Xenophon; and its response to the acute problems in regional news brought on by the Covid-19 crisis, however limited and inadequate — all these mark a growing recognition that, without concerted action, the devastation of the news industry will continue unabated. The crisis represents an opportunity to address chronic issues.

“It’s a once-in-a-lifetime opportunity,” says Nick Xenophon. “Conventional political wisdom, conventional ideologies have been turned on their head. Now is the time to say this makes sense for our democracy.” But no matter how urgent, necessary or accepted they might be, good policies need proponents in parliament. Our politicians must recognise that advertising will no longer fund the journalism we need, and that means government should act. •

This article was supported by a grant from the Judith Neilson Institute for Journalism and Ideas.