Journal of Free Speech Law: "From Hot News to Link Tax: The Dangers of a Quasi-Property Right in Information," by Paul Matzko

Just published as part of the symposium on Media and Society After Technological Disruption, edited by Profs. Justin "Gus" Hurwitz & Kyle Langvardt.

The article is here; here are the Introduction and the start of Part I:

In February 2021, the Australian federal government enacted the "News Media and Digital Platforms Mandatory Bargaining Code," which requires Facebook and Google to pay domestic news outlets for linking to their websites. It was a first-of-its-kind mechanism for redistributing revenue from Big Tech platforms to legacy journalism, and it has attracted global attention from policymakers looking to halt the Internet-fueled decline of the traditional news industry. Thus, the success or failure of what critics call Australia's "link tax" has significant implications for the future of both the World Wide Web and the news industry writ large.

But while the full consequences of Australia's regulatory innovation will not be apparent for several years, there is a precedent from the United States that could shine light on the possible outcomes. In the early twentieth century, U.S. courts created a "hot news" doctrine to bolster the Associated Press newswire service when it faced new competitors and navigated the technological disruption caused by the spread of the telegraph. The intended and unintended consequences of the American hot news doctrine offer a cautionary tale to contemporary policymakers interested in an Australian-style link tax. Both hot news and the link tax are forms of enclosure that turn a category of information into a novel form of property. Doing so has radical implications: rewarding politically connected incumbent firms, punishing insurgent competitors, and producing ideological consensus.

It is not breaking news that newspapers in the twenty-first century have experienced a general decline that has dramatically affected circulation, advertising, and revenue. The rise of the consumer Internet eroded classified advertising, once the single most significant source of newspaper revenue. In Australia, classified revenue fell from $1.5 billion in 2002 to just $0.2 billion by 2018. At the same time, overall Australian newspaper revenue fell by nearly the same margin—from $4.4 billion to $3 billion—suggesting that the migration of classified ads to online clearinghouses like Craigslist was a principal factor in the collapse of the old newspaper financial model.

[I.] Who Should Pay and How?

Australian newspapers had a revenue problem and looked to their national government for redress. A straightforward solution would have been to tax the online classified-ad platforms and redistribute the money to bereft newspapers, whose market share had fallen from 96% to 12%. However, such an approach would have been straightforwardly anti-competitive, would have generated costs that fell directly on consumers, and would have targeted domestic classified-ad platforms. Instead, Australian newspapers sought to take a slice from a much-larger financial pie: online search-and-display advertising, which enjoys quadruple the revenue of online classifieds. Since two companies that are headquartered abroad—Facebook and Google—dominate search-and-display in Australia, the costs of a link tax would not fall as directly on Australian consumers (so long as neither company pulled out of the market entirely).

Online classified platforms derive nothing from newspapers, so taxing them to subsidize newspapers would not have seemed equitable (nor would it have been particularly lucrative). By contrast, Facebook and Google operate as news aggregators, linking to newspaper articles in order to sell ads and garner user data. Since aggregators have a proximate relationship to the news, it is easy to claim that they are free-riding off of journalists' hard work and should pay a fair share. As Australia's Federal Treasurer Josh Frydenberg put it, "This is really a question of fairness. If you prepare the content and the digital platforms are using it to bring traffic to their websites, then they should pay for it."

Note that the justification offered is moral, rooted in a particular concept of what is fair. It is not a proposition that translates well in the offline world. For instance, it would be strange to suggest that brick-and-mortar retailers have a moral obligation to pay manufacturers not only for their product but also for the mere right to resell and display the product on their shelves. (Typically, the relationship is reversed, with manufacturers paying major retailers for prime shelf space. Efficient distribution is a value-added proposition.) Fundamentally, the problem that the link tax is meant to address is not moral but structural, as policymakers attempt to buttress traditional media organizations that are coping with technological disruption, albeit with varying degrees of success.

Yet news aggregators had little to do with the financial decline of the newspaper industry. They were not major players in the rise of online classified advertising. Additionally, online advertising has shifted display-ad revenue away from its traditional proximity to the news. Advertisers have more non-news digital options for placing their ads—social media, streaming, etc.—than they did back when print newspapers were one of the few mediums for reaching large audiences. For example, a clothing store would have once placed an ad in the local newspaper by necessity (and not because it was a newspaper per se); how else could they affordably reach a large group of potential customers? Today, however, that clothing company would be more likely to place an ad with a TikTok influencer or to buy a display ad on Pinterest, neither of which has anything to do with news reporting. Only a miniscule fraction of the revenue lost from display ads in print newspapers was transferred over into advertising on online news aggregators. In other words, even if one were to somehow abolish online news aggregation, it would not return significant display-advertising revenue to newspapers….