In November 2023, just before Bill C-18—the Online News Act—came into effect, federal Heritage Minister Pascale St-Onge announced that she had struck a deal with Google to avert its threat to ban news from appearing on its Search platform. Meta’s blackout of news for its Canadian audiences on Facebook and Instagram continues.
Under the agreement, Google will provide Canadian online news publishers with $100 million annually in compensation for their news content appearing on Search. Those expecting a much larger figure—at one time, the independent Parliamentary Budget Office speculated on a combined figure of $329 million to be paid by Meta and Google—no doubt were disappointed.
Although further newsworthy events may unfold in the months ahead as Meta sticks to its news ban and the Google cash is divided among news websites, now is an appropriate point in the policy timeline to pause and take stock of the Online News Act, a bill once touted as indispensable to saving a failing news journalism industry.
A crisp policy idea
Canada’s ‘news compensation’ legislation had its origins in a crisp policy idea: the unchecked market power of Big Tech’s leading digital news intermediaries—Google and Meta—made them so indispensable to news publishers seeking online audiences in Search and Social Media that the state ought to intervene and ensure the platforms paid ‘fair compensation’ for news content to the publishers.
Critics of legislating this policy idea were never persuaded. They lampooned the policy as an opportunistic shakedown of Big Tech, motivated not by a solid theory of intermediary chokeholds on news distribution but envy, green envy over the fact that the platforms offered better advertising distribution than publishers, once lords of mass media advertising. Whatever the remedy to the platforms cornering the advertising market might be, news publishers had no special claim to their lost advertising revenue. If those critics had any thoughts about the platforms’ market power over publishers’ news distribution, they offered no comment.
The crisp policy idea of directly addressing online platforms’ market power in news distribution made little impact on the debate over the legislation. Instead, public debate of the bill focused on how to divide compensation among news publishers, the independence of a journalism industry that is increasingly reliant on government action, and the consequences of challenging Big Tech.Could a nation as small as Canada weather the Big Tech counteroffensive, or would the whole thing backfire on Canadians and Canadian news publishing?
Net value exchange
When my daughter was six years old, she was distressed by her parents’ parsimony in dispensing cash. “You have so much money,” she cried and stamped her feet. “And I have none!”
She had a kernel of legitimate complaint. We may never have signed a binding contract stipulating a weekly allowance, but nonetheless she had claims to good behaviour and limited needs, things of value to her parents. She had no other parents to give her money. Where was the fair compensation?
Sorry to say, but her parents exercised their market power, and our daughter went without remedy. I like to think it was because of ‘net value exchange,’ although in intellectual condescension I didn’t offer her that explanation at the time. Even now I remain unmoved in my conviction that our generous parental supply of material and emotional sustenance obviated any requirement for a better (or any) children’s allowance.
Bill C-18 was written using a set of assumptions around a concept called “net value exchange.”. The concept was advanced by Rod Sims, Australia’s Competition Commissioner and chief architect of the Morrison government’s New Media Bargaining Code—the Australian equivalent to the Canadian law. The “Australian model” of fair compensation for news content was enacted in March 2021 and became the footprint for Canada’s bill in April 2022.
Sims’ policy idea was that platforms owed compensation to news publishers because the value of news content to the platforms exceeded the countervailing value of the platforms’ free distribution of that content. This is the “net value exchange” that animated both Australian and Canadian legislation.
He contended that net value favoured the publishers and that the platforms’ market power was so great that platforms could refuse to pay for content because the publishers had nowhere else to go—no alternative distributors in search engines (dominated 90 per cent by Google) or social (controlled 60 per cent by Meta). To fix this, the state had to rebalance bargaining power between platforms and publishers over net value exchange by, one way or another, bringing government power to bear.
While Sims’ concept of net value exchange favouring news publishers was plausible and even likely, it was difficult to prove.
There were two problems. The first was establishing a fair market rate in the absence of brisk competition in news distribution on search engines and social media. Ideally, the distribution market would be divided equitably among ten Googles and ten Facebooks with whom publishers might negotiate—but that is, of course, not the case. In a market distorted by market power, setting fair rates is much more difficult.
The second was the lack of content consumption data that would allow policymakers to run an economic model of a hypothetically competitive market. Google and Meta owned all of the confidential data, each news publisher had some of its own, and independent researchers had access to almost none of it.
The lack of content consumption data could have been remedied by market studies carried out by national competition regulators in which they commanded the release of platform and publisher data, but this never happened in any jurisdiction. That left the field open to research studies usually tied to one of the contestants that relied on plausible suppositions.
A Swiss study commissioned by publishers claimed that platforms owed publishers millions based on net exchange value. An independent American study made similar findings. Google and Meta both hired consultants estimating a dollar value of the platforms’ free news distribution bestowed upon publishers. Neither of the Big Tech intermediaries suggested a net value exchange (even in their own favour) because their unwavering public position was that publisher content delivered no monetizable benefit to the platforms. None at all.
Australia’s Sims remarked that throughout his investigation Google and Meta had “asserted, without compelling evidence, that they provided more benefit to the news media businesses than they received in return, and in their view that was the end of the matter.”
This left the proponents of net value exchange making thoughtful economic arguments based on limited information but lacking conclusive proof, allowing the platforms to deny that net value exchange favoured publishers. The lengthy analysis Sims put forward in Australia was that Google and Meta demonstrably drew audiences to their platforms due to the availability of news content, which was more easily documented for the information-searching Google audience than the content-sharing public who logged on to Facebook.
Regardless of whether you could prove Google or Meta matched their advertising placements to individual pieces of news content, it was easy to satisfy any reasonable observer that news content was drawing users to the Google and Meta platforms. During their online engagement, consumers were digitally tracked as they were exposed to advertising. That data tracking sold advertising for the platforms and enriched the data profiles at the heart of their business model of matching content tastes to individual consumers.
Confident that net value exchange in a truly competitive news distribution market would favour publishers, the Australian government agreed to redress the imbalance of bargaining power between publishers and platforms with a mandatory bargaining code with two key measures.
First, the publishers could combine into one or more collective bargaining consortia—although this was mostly aimed at getting small publishers a seat at the table.
More importantly, the bargaining for net value exchange would be backstopped by binding arbitration. In the event of a bargaining impasse, the ‘baseball-style’ arbitration empowered an independent adjudicator to choose between one of two final offers by the warring sides. This was anticipated as being effective in soliciting reasonable offers—and, as a bonus, relieve the arbitrator of detailing a defensible outcome in the absence of adequate data and an agreement on the best economic model.
Most importantly, arbitration did two other things. It gave the platforms a forum where they could show up to prove their contention that they did not monetize news, and it provided state-enforced consequences, an “or else,” if they couldn’t or wouldn’t do it.
The “or else” was vital to getting the Australian code to take flight. Both tech companies fought the legislation. Google threatened to shutter its Search platform to Australians and Facebook notoriously blacked out Australian news for a week during fire season.
But the Australian government—and the Canadian government as well—must have taken note of the years-long effort of the European Union states to achieve the same ends as the Australian code.
The Europeans took the first stab at creating an expanded definition of copyright for news publishers so they could negotiate content licensing with Google and Facebook. Initial efforts failed in Germany in 2013—attributed to a weakly drafted law and an unsympathetic competition tribunal—and Spain in 2014. The Spanish law is often cited incorrectly as neutered by Google’s ruthless delisting of news content from Search, a warning for other nations. In fact, Spanish news continued to be found on Search, it was the Google News aggregation site that banned Spanish content.
It wasn’t until March 2019 that the European Parliament decided to settle the matter by legislating Directive 2019/790—an amendment to existing copyright law which created intellectual property rights for news publishers making their content available on Google and Meta platforms. Like most EU directives, the framework was downloaded to member states for implementation.
France was the first member state to implement the EU Directive in October 2019, instructing the platforms to bargain with French news publishers. The French transposition of the Directive included a joint platform-publisher dispute resolution committee, chaired with a deciding vote by a high court judge.
When Google stalled the bargaining, the French Competition Authority ordered good faith negotiations. When Google thought they had triumphed by getting French publishers to sign a deal in which compensation was based only on news content displayed on Google’s news aggregation site in January 2021, the Authority imposed an eye-watering 500 million euro fine in July 2021 (three months after the Australian code was passed) for trying to limit the scope of compensable news content, among other tactics. Google paid the fine and negotiated a more generous deal with publishers in March 2022, a month before Bill C-18 was tabled in the Canadian House of Commons. Facebook reached its own deal with French publishers in October 2021.
The lessons that Canadian policy makers could draw from the European and Australian initiatives were there to be learned, not the least of which was the grinding resistance of Google and Meta.
Canada’s Heritage Minister, Steven Guilbeault, could see that he had his work cut out for him.
