Google has largely rolled back its threat to leave Australia after Scott Morrison had a ‘constructive’ video call with CEO Sundar Pichai.
The threat remains but tensions have eased after the pair discussed a proposed law to make tech giants pay media companies for the news they post on their sites.
Managing Director Mel Silva last month threatened Google would pull its search function in Australia if the law – which could force the company to shell out millions of dollars – is passed.
But Mr Morrison said that was less likely to happen after his talk with Mr Pichai, the CEO of Google’s parent company Alphabet.
Scott Morrison (right) is pictured sitting next to Treasurer Josh Frydenberg (left) and Communications Minister Paul Fletcher (behind) on Thursday as they speak to Sundar Pichai
‘It was a constructive meeting. I have been able to send them the best possible signals that should give them a great encouragement to engage with the process and see them conclude with the various news organisations,’ Mr Morrison told reporters in Canberra on Thursday.
‘That is the best way to enable that matter to be settled. We discussed some of the specifics of elements of the code. They raised those matters, I think, very respectfully.
‘We have been able to get that into a much more positive space about the ability to continue to provide services here in Australia. At the end of the day, they understand Australia sets the rules for how these things operate.’
Google has also described the talks as ‘constructive’.
Treasurer Josh Frydenberg said the company was committed to staying in Australia.
Sundar Pichai, CEO of Alphabet Inc.
‘There was certainly a more constructive tone to the discussion yesterday,’ Mr Frydenberg told reporters on Friday.
‘What they recognise is there is a need to pay for content, and I think they also recognise maybe some of the threats have been misplaced about the future in the Australian market, because they certainly see a future in the Australian market.’
‘They re-committed to Australia, we re-committed to the code.’
In a blog post on earlier this week, the company said it hoped a workable solution was achievable but said its threat to leave remained on the table.
‘No longer making Search available is the last thing we want to have happen, and it’s a worst case scenario if the Code remains unworkable,’ the post read.
‘As we told Senators, we’re willing to pay publishers for value. We don’t object to a mandatory News Media Bargaining Code, and we believe there’s a clear path to make this Code work for everyone – publishers, digital platforms and Australian businesses and consumer’.
The proposed law, introduced to the Australian Parliament in December, will force Facebook and Google to negotiate fees with news companies whose stories appear on their platforms.
Google has claimed the law – known as the News Media Bargaining Code – would ‘break the way search works’ and would mean the company has ‘no choice’ but to leave Australia.
On Wednesday Microsoft, which runs search engine Bing, backed the code as it aims to erode Google’s market dominance.
‘While other tech companies may sometimes threaten to leave Australia, Microsoft will never make such a threat,’ President Brad Smith said in a statement.
‘We appreciate what Australia has long meant for Microsoft’s growth as a company, and we are committed to supporting the country’s national security and economic success.’
Google pulled a warning message (pictured) from its homepage which linked to a video showing Managing Director Mel Silva explaining why it opposes the new law
Mel Silva, the Managing Director of Google Australia and New Zealand, said the company may be forced to pull its search function out of Australia if the code goes ahead
Mr Smith said the company will allow advertisers to switch to Bing with no transfer costs.
The new law does not apply to Microsoft because Bing has only three per cent of the search market – but Mr Smith said he would be happy if the company was included.
‘While Microsoft is not subject to the legislation currently pending, we’d be willing to live by these rules if the government designates us,’ he said.
The statement was released after Mr Smith had a Zoom call with Scott Morrison last week. Mr Morrison told reporters on Monday that Mr Smith was rubbing his hands at the chance to take some of Google’s profits in Australia.
The government’s world-first code states that if a fee negotiation breaks down then an independent umpire will step in and decide the amount based on a ‘final offer’ method, which chooses one side’s position as the resolution.
Australia’s battle with Big Tech is being keenly watched by governments across the world, not least in London, Washington DC and Brussels, where concerns have been raised over the ‘advertising duopoly’ of Google and Facebook.
Australian regulators found that for every $100 spent on digital advertising, $53 goes to Google, $28 to Facebook and only $19 goes to others.
Google turns over $4.9billion in Australia, with $4.3billion of that from advertising – while many Australian publishers are struggling to make money. The company only paid $59million in Australian corporate tax last year.
In a hostile public hearing before senators in January, Google’s Mel Silva said the company may be forced to pull its search function out of Australia if the code goes ahead.
‘The principle of unrestricted linking between web sites is fundamental to search and, coupled with the unmanageable financial and operational risk, if this version of the code were to become law, it would give us no real choice but to stop making Google Search available in Australia,’ she said.
‘That would be a bad outcome for us but also for the Australian people, media diversity and the small businesses who use our products every day.’
Prime Minister Scott Morrison hit back, saying Google will have to respect the law.
‘Australia makes our rules for things you can do in Australia. That’s done in our parliament. It’s done by our government. And that’s how things work here in Australia. And people who want to work with that, in Australia, you’re very welcome – but we don’t respond to threats,’ he told reporters last month.
Facebook Public Policy Asia-Pacific Vice President Simon Milner appears via video link before a senate inquiry
Ms Silva said forcing Google to pay for snippets of news to appear on Google Search poses an ‘untenable’ risk to the business.
She said the company has been unable to work out how much it would be forced to shell out to media companies.
Ms Silva also said news searches only make up 1.25 per cent of Google searches and that paying news organisations would be unfair to other companies that appear on Google Search.
Facebook Public Policy Asia-Pacific Vice President Simon Milner said the company may have to stop showing news content to Australian users if the law is passed.
‘I can reassure the committee that this does not mean that Facebook would no longer be available… but we have explained that that is something we have to seriously consider giving the nature of this unworkable code,’ he said.
Mr Milner said the code gives publishers ‘complete control’ of negotiations and encourages them to make unreasonable claims.
Microsoft President Brad Smith
He also said publishers freely choose to put their content on Facebook and have generated an estimated $394million from referral traffic from January to November last year.
Mr Milner claimed news content generates ‘almost no commercial value for Facebook’ and represents only five per cent of users’ news feeds.
But he said the potential cost to Facebook posed by the code was ‘unknowable and uncapped’.
In questioning, Independent Senator Rex Patrick compared Google to the Chinese government which has blocked trade with Australia after Mr Morrison called for an inquiry in the origins of coronavirus.
He said: ‘The Chinese response was to threaten our market, to threaten our trade… We’ve got a similar situation here where our government steps out first and the very large organisation that is Google threatens to leave our market, do you think that’s proper conduct for a large international corporation?’
Ms Silva replied: ‘It is the only rational choice if this law were to pass for us.’
Senator Patrick said the code was going to go world-wide. ‘You’re going to pull out of every market are you? Or is this about stopping the precedent?’
Ms Silva scoffed and said the code posed an ‘untenable risk to our Australian operations.’
Greens Senator Sarah Hanson-Young accused Google of threatening Australia by suggesting it would leave the market.
‘Why come here and threaten the Australian people with cutting off their search results,’ she asked.
Ms Silva replied: ‘We are outlining the worst case scenario, we don’t want that to happen.’
The director admitted that Google is worried about the precedent the code will set, amid fears other countries – who have been struggling to regulate Big Tech – could adopt a similar model.
She said Google has never shared full news articles and that it helps publishers by ‘providing them free traffic every day.’
Liberal Senator Andrew Bragg accused Google of ‘blackmailing Australian consumers and policymakers’.
Last week Google banned Australian news content from appearing in its search as part of what it called an ‘experiment’.
A representative for Nine Entertainment Company, one of Australia’s largest media companies, said this showed Google was so powerful it could ‘hold Australians to ransom’.
‘They have shown they are not afraid to bully and intimidate and make changes to their service,’ he said.
A representative for Guardian Australia said Google’s power was ‘dangerous’ and the code was needed to redress a market failure where Google and Facebook receive 81 per cent of digital advertising revenue.
The organisations, together with News Corp, rejected Google and Facebook’s claims their operations were under threat by the code.
They said the companies have made them offers for their content but they are too low to be considered.
Every month 19million Australians use Google and 17million use Facebook.
How Google dominates the global advertising market and spends billions squeezing out competitors
1) Dominating search engine space
Google, through both its deals placing its search engine above others on devices and through public interest in it, accounts for 80 percent of every internet search in the US.
In 2020, it accounted for 94% of all mobile searches in the US
2) Monetizing its dominance through ads
Google monetizes the amount people use it with ads, which generate around US$40billion in revenue every year
3) Spending its billions to cement its dominance with ‘exclusionary deals’
With the money it makes through ads, Google pays companies like Apple, LG and others to block out any of its competitors from having their search engine preferred on devices
Among the deals is one with Apple. Google is the default on Safari on iPhones and it’s also the default on Siri. The deal amounts to up to a fifth of Apple’s worldwide income which last year would have been around US$11billion
The United States government last month asked Australia to scrap the proposed laws, which have broad political support, and suggested Australia should pursue a voluntary code instead.
Instead of paying for news that appears on Search, Google is offering to have its ‘news showcase’ feature included, which allows users to read some stories that are otherwise behind paywalls.
Facebook has argued the code has already deterred its planned investments in Australian news.
‘The bill is not, as its name suggests, a bargaining code: it removes the potential for genuine bargaining by forcing Facebook to make payments that are detached from true calculations of commercial value and by incentivising news publishers to make unreasonable ambit claims and bargain in non-commercial ways,’ the company said.
‘It removes any meaningful influence over our own commercial dealings with publishers.’
Treasurer Josh Frydenberg and Communications Minister Paul Fletcher drew up the law after a three-year inquiry by Australia’s competition regulator, the ACCC.
The inquiry found Google and Facebook have ‘an imbalance in bargaining power’ when dealing with news companies.
Last month ACCC Chairman Rod Sims said Google and Facebook’s threat to leave were possibly empty words.
‘They want deals where they’re in full control of the deal. That’s not a commercial deal in my view,’ he said.
‘They are going to say things to stop the code coming into force. I think that’s what you’d expect them to say. What they’ll actually do, I honestly don’t know.’
He rejected Google’s claims that the code will ruin the company’s search function.
‘I do not accept the argument that the code will break search or destroy a ”free and open Internet” any more than paid search ads destroyed search,’ he said.
‘Importantly also, the code does not require Google and Facebook to pay for linking news content. Indeed, discussions we are aware of have focussed on paying up front lump sum amounts, not per click.
‘Further, they can negotiate and make offers on other terms, including on products like Google Showcase or Facebook News Tab, outside the code or under the code,’ he added.
The Code will initially apply to Facebook NewsFeed and Google Search – but other services such as Instagram and YouTube can be added if a bargaining power imbalance arises.
The tech giants would face $10million fines if they don’t follow the rules.
In addition to payment for content, the measures would also force transparency around the closely guarded algorithms that tech firms use to rank content.
The code will require Google and Facebook to give publishers 14 days notice of any algorithm changes that are likely to have a significant impact on their traffic.
Under a two-way value model, the payment for content would take into account the value that Google and Facebook provide to news organisations by driving traffic to their sites.
What is the bargaining code and why is it needed?
WHY IS IT NEEDED?
Google and Facebook derive a benefit from the ability to make Australian news content available to their users.
Australian news businesses have had to accept commercial deals with the platforms that are less favourable than they would otherwise agree to.
Intervention is needed to address this imbalance because of the public benefit of news and the importance of a strong independent media in a well-functioning democracy.
For every $100 spend on advertising, $53 goes to Google, $28 goes to Facebook and $19 goes to other media.
WHAT IS THE CODE?
The government wants good faith commercial deals to be struck outside the code.
But if the platforms and news organisations are unable or unwilling to reach an agreement ‘final offer arbitration’ will take place.
The arbiters will take into account the benefits traditional news media businesses get by having eyeballs on their product.
The digital platforms will also need to adhere to a series of minimum standards.
WHO IS INCLUDED?
* Facebook and Google.
* ABC, SBS and Australian commercial news media organisations.