Australia's Confused Tech Regulators Are Cracking Down on Google for Using Links

If the new trustbusters get their way, tech platforms might be forced to pay money to traditional news outlets for the privilege of linking to their content.

Economists have long warned that a great deal of regulation that is supposedly in the public interest acts in practice as a transfer of wealth from one private interest to another. Policy makers are usually demure enough to hide this. It is rare that rent-seeking is as explicit and open as the Australian government's current attempt to expropriate money from Facebook and Google—money that will be directly paid to the traditional news outlets that these tech companies have disrupted.

This is much more than just a regional policy fight; what is happening in Australia tells us a lot about how the changing economics of media are feeding the bipartisan war on the tech industry in the United States and globally. Much of what is dressed up as populist anti-tech policy is in fact an attempt by legacy media companies to weaponize confused regulators against their competitors.

The Australian government wants Facebook and Google to sign onto what they call a "News Media Bargaining Code," which will require tech companies to pay news organizations when news content is "included" on the digital platforms. The exact price to be paid is meant to be negotiated by media companies and digital platforms. The rationale offered by Australian antitrust regulators is that there is a "bargaining power imbalance" between tech and media companies, hence the need for government action to get negotiations started. 

You may be tempted to read that paragraph again. Don't bother. The government's argument is euphemistic and its reasoning is obscure. The most obvious problem is that neither Facebook nor Google "include" news content on their platform. The dispute is not about intellectual property theft; all tech companies are doing is linking to news sites. Facebook allows users to share links. Google offers links through its general search function as well as its Google News search service. The upshot is that the Australian government wants Facebook and Google to pay news organizations for the privilege of linking to their content. 

Unsurprisingly, Facebook has said if it is forced to pay it will simply block Australians from sharing news links. Google might also shut down its Google News service—that's what happened when a similar policy was introduced in Spain in 2014.

Much like the U.S., the Australian media sector is in economic freefall. And like the U.S., both Australian progressives and conservatives have been regarding tech companies with increasing skepticism. We usually think of anti-tech skepticism as ideological—conservatives are at odds with socially liberal Silicon Valley types while progressives look at Silicon Valley as the new robber barons. But in Australia, it is strikingly obvious how the economic collapse of traditional media causes anti-tech sentiment.

Throughout the 20th century, the newspaper business model was simple: Newspapers sought to match readers with advertisers. Advertising paid for journalism, which attracted readers, which then attracted more advertising, and so on. The more readers the better. So newspapers tried to appeal to the median reader. 

The history of the media in the last two decades is the slowly unfolding consequences of advertising migrating from the print media to the internet. This creative destruction not only undermined business models that paid for mass-market journalism, but reshaped how public debate is conducted. The growth in media partisanship in recent years could be because media outlets no longer try to appeal to the median reader—they try to engage a passionate few who will stump up a subscription fee. That is, media partisanship has economic causes.

The other consequence is political backlash against the big tech companies. 

For generations, the art of politics involved serenading the local press, getting an audience with the regional media mogul, or building a relationship with a sympathetic journalist who could be relied on to get a political message out. 

Now those friendly moguls and journalists are on the backfoot, shocked by the extraordinary growth of the digital platforms that seem to have ripped both the economic high ground from under them. And the political class is starting to respond to the new media normal the best way they know how: with threats of regulation.

It is easy to laugh at the odd populist attempts to tame digital platforms, such as Sen. Josh Hawley's (R–Mo.) 2019 proposal to ban autoplay videos and infinite scrolling. But the Australian experience shows that the greater threat to digital platforms comes from antitrust regulators, dressed up in bizarre claims about "bargaining power imbalances."

Antitrust policy in the 21st century is particularly vulnerable to this sort of strange thinking. Antitrust was conceived in a world of monolithic corporate hierarchies—factories that built physical things and distributed those things using physical infrastructure like rails and ports. Digital platforms are hard to understand through the traditional antitrust lens. 

The more users a digital platform has—the more it dominates a market segment—the more valuable that platform is to those users. We want to use the social media network that everyone else is using. And to get more users, platforms often provide access to one side of the market for free. For regulators used to hunting for predatory pricing, this just looks weird. At the same time these digital markets are highly dynamic; firms tend to dominate them, but not for long. This too leaves regulators in a bind. They've spent more than a century warning of the dangers of monopolies, but now they're struggling to identify the actual harm these digital platform "monopolies" are causing.

Australian regulators are confused as to what to do and have proposed everything from regulating Facebook and Google's algorithms, to enacting new privacy laws, to giving more money to public broadcasters.

It's clear that U.S. regulators are confused too. In early September, The New York Times reported that while the Department of Justice plans to imminently bring an antitrust case against Google's parent company, Alphabet, there is much internal disagreement about what the grounds of the government complaint should be. 

As the Australian experience shows, this combination of confused regulators and aggrieved, politically connected industries is a dangerous thing.