Microsoft’s Endorsement of Australia’s Proposal on Technology and the News

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Editor’s Note: Last week, Microsoft endorsed an Australian proposal that would require tech gatekeepers like Facebook and Google to share revenue with local independent news organizations. Microsoft’s endorsement followed a statement by Google that it would pull its search service out of the country if the Australian Parliament approves the proposal. Facebook similarly said that if the proposal is adopted, it would stop Australian users from sharing news on its Facebook and Instagram platforms. Microsoft instead committed that its Bing search service would remain in Australia and that it is prepared to share revenue with news organizations under the rules that Google and Facebook are rejecting.

This has made for an unusual split within the tech sector, and we’ve heard from people asking whether Microsoft would support a similar proposal in the United States, Canada, the European Union, and other countries. The short answer is yes. In the blog below, Brad Smith explains why we believe the Australian proposal deserves serious consideration, including in the United States.


Why an Australian proposal offers part of what’s needed for technology, journalism and American democracy itself

By Brad Smith – President

As the dust slowly settles on a horrifying assault on the Capitol, it’s apparent that American democracy is in a fragile state. As the Economist concluded last week in its annual review of democracy around the world, the United States is “polarized not only on policy issues but on core values, and the social cohesion needed to support a ‘full democracy’ has collapsed.” Well put. Perhaps the most remarkable development in recent political history is not that Americans disagreed in 2020 about who to elect as president; it’s the fact that, after the election, so many disagreed about who had actually won.

As in so many other instances, technology has been both a positive and negative force for democracy. It has created unprecedented opportunities for people to learn about events, share their views and even organize their efforts. It was only a decade ago that technology created optimism about democracy amid an Arab Spring. And, in 2015, when two extremist brothers in France brutally killed a dozen journalists at Charlie Hebdo, almost two million people in Paris used social media to organize a peaceful Sunday march to support democracy and a free press everywhere.

[Read more: Five fast facts: Australia’s model to strengthen news and journalism | Microsoft On the Issues]

But the last five years have also seen this tool become a weapon, and January 2021 unfortunately saw this come home to roost. Democracy’s cornerstone has always been the peaceful transition of power. It was far from unusual for a losing candidate to request a recount or take a dispute to court – both parts of the democratic process. But, this year, even after losing more than 50 lawsuits in a row, President Trump waged a sustained campaign that successfully persuaded tens of millions of his supporters that the election was rigged. Without this sustained disinformation barrage, it’s hard to imagine that January 6 would have become such a tragic day.

This highlights the symptoms of a deeper, two-sided disease. On the one hand, the internet and social media have unfortunately become powerful engines of disinformation and misinformation. First pioneered by the Russian government in the 2016 U.S. election, the disinformation disease has now spread much more broadly. Without new and greater restraints, there is a growing risk that more politicians and advocates will exploit the algorithms and business models underlying social media and the internet to turn disinformation into a new political tactic of choice.

There is another side of this disease, and it’s the erosion of more traditional, independent and professional journalism. In 1787, the same year Americans were drafting the Constitution, a leading British statesman reportedly gave the press its label: “The Fourth Estate.” Just as a chair needs four legs to remain sturdy, democracy has always relied on a free press to make it through difficult times. Never free of controversy, an independent press has often inflamed differing opinions. But it has helped ensure that the public considered a common set of events and had a generalized understanding of common facts. In short, independent journalism is vital to the social cohesion that is essential for democracy.

As the 21st century began, the internet eroded the news business as dotcoms like Craigslist disrupted advertising revenue, news aggregators lured away readers, and search engines and social media giants devoured both. Many other factors have been at work and there is a pressing need for innovation across the news sector. But one thing is clear – the internet and social media have not been kind to the free press.

[Read more: Australia, journalism and search: What people are saying | Microsoft On the Issues]

While a few of the bigger papers have weathered the storm, most outlets have been hard hit. Since 2000, newsroom revenue in the United States has fallen by 70% and employment has been cut in half. More than 2,000 newspapers have closed entirely. In many places, local news has been decimated. News deserts – communities with no local paper at all – have spread across the country, with terrible effects. As one citizen said poignantly about his Florida town that no longer had a newspaper: “After years without a strong local voice, our community does not know itself.”

Democracy has always started at the local level. Today, far too many local communities must nurture democracy without a Fourth Estate.

What has taken the place of local news? As Pew Research reported last month, “About half of U.S. adults (53%) say they get news from social media ‘often’ or ‘sometimes.’” Part of what feeds the interest in social media sites – and search engines as well – is the ability to scroll and see headlines generated by traditional news outlets.

As we know from our own experience with Microsoft’s Bing search service, access to fresh, broad and deep news coverage is critical to retaining strong user engagement. This means that news content generates significant indirect value for search and social media sites – as much as $4.7 billion annually for Google, according to one recent study – even though people often do not click through to the original story. This means that news organizations go uncompensated even while all this traffic fuels platforms that have become profitable tech gatekeepers on which businesses must advertise to reach consumers.

The cure will likely require multiple medicines. However, part of an innovative prescription has emerged from halfway around the world. In Australia, Prime Minister Scott Morrison has pushed forward with legislation two years in the making to redress the competitive imbalance between the tech sector and an independent press. The ideas are straightforward. Dominant tech properties like Facebook and Google will need to invest in transparency, including by explaining how they display news content.

Even more important, the legislation will redress the economic imbalance between technology and journalism by mandating negotiations between these tech gatekeepers and independent news organizations. The goal is to provide the news organizations with compensation for the benefit derived by tech gatekeepers from the inclusion of news content on their platforms.

It’s an idea that some governments have pursued in parts of Europe, but with only limited success. The reason is that it’s hard to negotiate with a monopolist. With only one or two whales on one side of a nation’s table and dozens or hundreds of minnows on the other, the result is often a lengthy and expensive negotiation that leaves the minnows short on food.

But the Australians have thought about this, and they’ve developed a creative answer. First, they permit the news organizations to join for purposes of collective bargaining. And second, in the event of an impasse, they require the parties to appoint an arbitration panel that will engage in “baseball arbitration” – an approach in which an arbitrator chooses one of the final offers made by the two sides.

The reaction from Facebook and Google has been dramatic – and this is where we at Microsoft have entered the picture. Facebook said publicly that if the parliament passed the new law, it would stop Australian users from sharing news on its Facebook and Instagram platforms. Google went even further, stating repeatedly that, if the bill became law, it would pull its search service out of the country entirely. For Australians used to going to Google’s clean-looking search page to type in a query, under the search bar they found a link to a video explaining that, if they wanted to continue to use the service, their government would have to back down.

At Microsoft, we started 2020 by listing our policy priorities and saying that “technology needs to give the news business a boost.” In October, we launched a new initiative to invest in and support local news and, through Microsoft News, we have been sharing a large portion of revenue with news publishers. In the hunt for better ideas, Google’s threat to boycott an entire country got our attention.

Satya Nadella and I reached out to Prime Minister Morrison. It was an opportunity to combine good business with a good cause and, as we explained, even if Google wanted to leave Australia, we would stay.

Microsoft’s Bing search service has less than 5% market share in Australia, substantially smaller than the 15-20% market share that we have across PC and mobile searches in the United States and the 10-15% share we have in Canada and the United Kingdom. But, with a realistic prospect of gaining usage share, we are confident we can build the service Australians want and need. And, unlike Google, if we can grow, we are prepared to sign up for the new law’s obligations, including sharing revenue as proposed with news organizations. The key would be to create a more competitive market, something the government can facilitate. But, as we made clear, we are comfortable running a high-quality search service at lower economic margins than Google and with more economic returns for the press.

Our endorsement of Australia’s approach has had immediate impact. Within 24 hours, Google was on the phone with the Prime Minister, saying they didn’t really want to leave the country after all. And the link on Google’s search page with its threat to leave? It disappeared overnight.

Apparently, competition does make a difference.

But yet not enough. Google continues to fight Australia’s proposal, and it’s using tough tactics with news publishers themselves. Immediately after its about-face with the Prime Minister, Google sent a new batch of private proposals to news publishers that conditioned an offer to pay more money on “explicit provisions allowing Google to terminate any deals it strikes if the government’s proposed digital media regulation is not revised.”

It’s an extraordinary maneuver.

Google is hoping the U.S. Government will continue to do some of the fighting for it, too. For two years, Google and Facebook have successfully been urging officials in Washington to protest the Australians on  their behalf. And it’s worth looking at their arguments.

First, Facebook and Google object to the fact that they are singled out by name in the Australian legislation. It’s not an approach that would be used in the United States and, in fact, it’s easy enough to redress. For example, the obligations described above could easily be written to apply to any search business that has more than 20% market share in Australia. At Microsoft, we are fully prepared to aim for this search share and become subject to the law’s obligations the day we do.

This points to part of the problem that more governments will need to address. Google and Facebook have shown they are prepared to tamp down their services or pull out of a country entirely if legislatures force them to share more of their revenue with the press on terms they don’t like. This creates a new vulnerability for the world’s democracies, and it underscores the need for new competition rules in regards to opening up digital markets, something more governments are now considering.

There’s a second issue that has also become important in Australia. Google objects strenuously to what it regards as the injustice of having to engage in baseball arbitration. It argues that this type of arbitration is appropriate only “when the parties are already close in price.” In contrast, according to Google, there is a wide gap between what news organizations are seeking and what Google is prepared to pay. Ignoring the fact that an imbalanced bargaining position has created this disparity in the first place, Google in effect asserts that its own inflexibility at the negotiating table means that it should not have to participate in an arbitration that rewards reasonableness over intransigence.

More importantly, Google’s position ignores the fact that baseball arbitration was invented, and is now used, to encourage a reasonable outcome precisely when there is this type of unequal bargaining dynamic. In baseball, an arbitrator’s selection of the most reasonable of two final offers is not used for every player. Instead, it’s used for players at an earlier stage in their career and are under team control, meaning they cannot negotiate joining another team as a free agent.

As one commentator has put it, “Undergoing the arbitration process is a risk for both the baseball player and for the team: the team may be required to pay more than they want or the player may get paid much less than they want. Because of this, most of the time players and teams find a deal without having to use the arbitration process.” In other words, don’t save baseball arbitration for when two parties are close to an agreement. Use it instead to encourage faster and fairer negotiations that get them closer to an agreement in the first place.

This is why baseball arbitration has migrated to other similar unequal negotiating dynamics, such as between a commercial landlord and multiple small business tenants. The Australians deserve credit for studying this landscape and discerning the similarity to negotiations between tech gatekeepers and smaller news organizations that have no choice but to do business with them.

Finally, Google has implied that, if there is to be any arbitration, it should follow a more traditional process that involves multiple submissions by lawyers and focuses on the fair market value of the news content rather than the benefits the tech gatekeepers derive from the inclusion of that content on their services. But a slow and legalistic process clearly would benefit those with deep pockets rather than the smaller parties that need the help. At the end of the day, what is wrong with compensating independent news organizations for the benefits the tech gatekeepers derive from this content?

These are now pressing questions for the Biden administration. Facebook and Google persuaded the Trump administration to object to Australia’s proposal. However, as the United States takes stock of the events on January 6, it’s time to widen the aperture.

The ultimate question is what values we want the tech sector and independent journalism to serve. Yes, Australia’s proposal will reduce the bargaining imbalance that currently favors tech gatekeepers and will help increase opportunities for independent journalism. But this a defining issue of our time that goes to the heart of our democratic freedoms. As we wrote in 2019, “The tech sector was born and has grown because it has benefited from these freedoms. We owe it to the future to help ensure that these values survive and even flourish long after we and our products have passed from the scene.”

The United States should not object to a creative Australian proposal that strengthens democracy by requiring tech companies to support a free press. It should copy it instead.

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