Why Canada’s C-18 Isn’t Working Out As Expected.

Back at the end of June, Canada passed C-18, aka “The Online News Act,” a law designed to make Google and Facebook negotiate with news providers for linking to news. In theory, C-18 is based on the Australia News Media Bargaining Code, which Australia adopted in 2021. It also follows the EU adoption of Article 15 as part of its 2019 Copyright Directive — although supporters of this approach don’t seem to want to talk about Article 15 much. Supporters of the “free market” approach adopted by C-18, which requires Google and Facebook to enter into negotiations with news providers (defined in various ways) argue that the NMBC has been a huge success, forcing Goog and FB to pay $200 million AU and that this money has been spent on reporters and other news-producing stuff not just gone into the pockets of big news conglomerates as critics such as my employer Public Knowledge keep warning will happen. There is a fair amount of evidence to refute this rosy tale of success, but let us set that aside for the moment.

 

The supposed success of the AU NMBC is one of the biggest arguments in support of the Journalism Competition and Preservation Act and the California version. It was a major reason why supporters of Canada’s C-18 assured everyone that FB and Goog were bluffing when they said they would simply stop linking to news if Canada passed C-18. After all, they made the same threat in Australia and, other than a brief weekend when FB stopped linking to news in Australia, they ultimately went along with the AU NMBC. So hang in there, supporters of this approach keep telling Canada! Trust us, they’ll cave, because the AU NMBC is a huge success!

 

My employer Public Knowledge has an entire resource page devoted to what’s wrong with this approach in general and JCPA in particular. I’ve written about this a couple of times as well. So I won’t rehash the problems with JCPA too much below. Instead, I want to focus on one this argument that C-18 (and JCPA) are just like the amazingly awesomely successful Australia approach. After a bit of digging, I found two things:

1. C-18 is not like the NMBC in some really critical ways. Which is why Goog and FB are not reacting the way they did to NMBC. Notably, the NMBC lets Goog and FB negotiate private deals not subject to any sort of review or mandatory arbitration. C-18 fixes these loopholes by requiring mandatory arbitration and transparency. Hence the very different reaction from Goog and FB.
2. The claim that NMBC was a “success” comes from two primary sources: the officially mandated study by the Australian Government one year after adoption of the NMBC (available here) and a follow up report by Rod Sims, the guy who wrote the NMBC and pushed it through. As I will explain in a separate post, and as others have noticed before me (see here and here), the biggest beneficiary was News Corp, whose subsidiaries took in the bulk of the money (Crikey! I’m shocked!), followed by Nine Entertainment, the next largest media conglomerate. Next came AU’s major public broadcaster, which is the primary source of the “the money went to news production — really!” anecdote. After that, you got increasingly smaller deals for smaller outlets, with most outlets cut out altogether and no transparency into this because it relies on private deals.

So if your definition of success was “Goog and FB pay off the major outlets like they were basically doing, but with bigger buckets of loot going to Rupert Murdoch & friends,” then this worked totally great! In fact, this scheme works so much like the way the cable cartel and the broadcaster cartel negotiate with each other (including providing things like C-Span so they can threaten to take it away and squeezing out independent minority-owned networks in favor of vertically integrated ones) that it makes me want to weep tears of Cassandrafreude. Heck, it even includes an official report with unverified industry posting that only true believers can take seriously — just like the old FCC cable competition report!

 

As a result, as reported by Michael Geist, the Canadian government is now apparently trying to use its rulemaking to implement the act to bring this inline with what the AU NMBC actually does, make it possible for Goog and FB to make private payments to the politically powerful media to make this issue go away. Whether that will end up being enough at this point remains to be seen. I would hope that this serves as a valuable lesson in life for those trying to replicate the “success” of NMBC (like, maybe read the source material with a jaundiced eye that comes from 20+ years of reading similar FCC reports). More importantly, the idea that you can pass a law that actually fixes the problems with the NMBC and not have Goog and FB flip out is a delusion because it fails to understand the economics of any of this. Yes, there is a real problem with how online advertising works, but that requires real solutions that identify the real problems and addresses them. (There are some already out there, you can see Public Knowledge’s “Superfund for the Internet” here, FAQ here).

 

I will pick apart the claim that the Australia NMBC worked– if by “worked” we mean actually fed money to small news organizations that dedicated the money to news production rather than simply funneled money to the biggest news media — in my next blog post. For now, I will focus on why Google and Facebook are reacting in such a radically different way to C-18 and why this isn’t just a bargaining tactic. Unlike the NMBC, the law actually designates Google and FB as entities subject to the law and therefore obligated to participate in the government supervised arbitration process. The NMBC — as explained below — does not designate Goog or FB to actually do anything, as long as they keep the big news producers happy.

 

More below . . .

A Brief Restatement of the Problem for Those Just Tuning In.

To review the givens quickly. News has been in crisis for about 25 years now. I started working on this issue back in 1999 when I joined Media Access Project. News production, specifically newspapers really, depends on advertising revenue. (Broadcast news is supposed to be a public interest obligation of broadcasters and therefore is not supposed to be turning a profit as long as the broadcast business as a whole is profitable. But no one remembers that whole “public interest” and “trustee of the public airwaves for the community of licenses” stuff anymore.) Setting aside all the self-inflicted problems I ranted about last time I blogged about this, Google and Facebook dominate online advertising. Even news organizations that have successfully moved into the digital space depend on advertising, and Google’s general dominance of the online ad space (and overall dysfunction of the online advertising market, which I will get into some other time) means publishers have to go through Google to get online ads rather than just taking online ads themselves these days. Facebook doesn’t have anything to do with this issue, but because they are so large they account for a significant chunk of everyone’s online advertising budget, leaving less for newspapers (and everyone else).

 

So to some extent, there is an actual problem that relates to the current market dominance and structure of the online advertising market. But fixing that problem is hard, involves antitrust (which giant news conglomerates would prefer to avoid on general principle) and would benefit other people as well as giant news publishers. This brings us to the problem of how to sustain news production without actually creating competition or doing more than handing over buckets of money to existing news publishers. Unfortunately, to the extent governments have decided to address this problem, they have all pretty much latched on to the same “market based” solution. Find some way to make Google and Facebook pay news publishers in a way that looks as much like a “free market negotiation” as possible. The argument here is: (a) finding news in search or linking to it in social media benefits Google and Facebook; (b) normally people would have to pay for such a valuable benefit; therefore, (c) we should make Google and Facebook ‘negotiate’ for access to news content.

 

As a theory, there are a bunch of things wrong with this so I will reiterate them quickly. First, it’s not really clear who benefits more from the fact that search serves up links to news stories and you can link to news stories on Facebook. As we’ve seen when news publishers withdraw their content, the cost to news producers is fairly high since they no longer get referrals from these very popular platforms. The number of people who organically visit these news websites does not make up for the loss of people who follow links from Google News or Google Search to Facebook, so the news sites lose revenue as a consequence. If you believe that people go to search engines and social media for lots of things other than news, and believe that news forms only a relatively small part of the value proposition of what these platforms offer, then the economics of this simply don’t work and that is why news publishers don’t get paid by Google and Facebook. If you believe that news content is a very valuable part of what these platforms offer, then the problem is an imbalance of market power. That is to say, because Google has so much more market power than any given publisher, the only way to force Google to negotiate is to allow news publishers to get together and collectively bargain for “fair payment” for access to news collectively.

 

There is, however, an even bigger problem for news publishers. They don’t have anything to bargain. Google and Facebook aren’t reprinting the news. They are linking to it, usually with a little thumbnail sketch so you can tell if this article is actually relevant to you. In the United States, this is considered a fair use and does not violate copyright. So even if the news publishers are like “Dormammu, we’ve come to bargain,” Goog and Facebook are like “we don’t have to bargain, because you don’t have a right to a bargain.”

 

This means you have to get governments involved to force Facebook and Google to “negotiate” and you have to create the actual right they are negotiating for in the first place. Again, since you are a government, you could just tax Google and Facebook directly and use the money to subsidize local news. (A strategy some have suggested and I discuss in this blog post here.) But again, for whatever reason, news publishers and governments both want this to look like a market-based negotiation. So instead of solving the problem directly, governments have been trying to create a regime where Google and Facebook have to negotiate with news publishers, and pay news publishers enough money to support news production — where “enough” is based on what the news publishers think is a big enough number to “compensate” them for the “value” of their content without any offset for any benefit provided by the giant platforms.

 

How Google and Facebook Reacted.

 

To extend the Dormammu/Dr Strange analogy, after a period of time of basically ignoring the demands of news producers. But, like Dr. Strange with the Time Stone, they kept coming back. So they chose to bargain, but only on their terms. Google set up “Google News Showcase” as a way to cut private deals with individual news producers to try to get them to shut up and satisfy governments that they were ‘negotiating’ and providing ‘fair market value’ without actually being required to do so and without any sort of oversight.  Facebook did something similar. The idea being that Google and Facebook would still control their primary products and make payments without any sort of government oversight (and could threaten to cut off individual news outlets that didn’t play ball). This also avoided creating any new kind of enforceable right that individual news producers could use to force payments.

 

This was unsatisfactory to major news producers for several reasons. First, they did not feel they were getting enough money and the negotiations weren’t really negotiations — they were Google and Facebook paying pocket change to make them go away. Also, while some news producers cut deals, other did not or could not. Google and Facebook could still pick and choose who to pay, and individual producers either took it or didn’t.

 

So the news businesses went to their respective governments to get them to create a new right under which Google and Facebook would have to negotiate or pay in a more transparent manner. In the EU, this meant basically creating a new kind of “secondary copyright” under which news producers (but only news producers) were entitled to money for linking with a thumbnail sketch. In Australia, they created mandatory arbitration under which a designated entity would need to go to binding arbitration to determine the value the platform received from linking to the news provider without offsetting this by any value the news producer received from the platform. In theory, this would require Google and Facebook to negotiate or give up news entirely.

 

As it happens, in both cases, Google and Facebook tried to give up news entirely. This did not make either government or news producers very happy. But it did demonstrate that even if news producers could get Facebook and Google out of the news business entirely, the companies still regarded it as worth it. This meant that Google and Facebook were now pretty much directly negotiating with governments rather than pretending to negotiate with news producers.

 

So What Happened? EU Version.

 

I will try to compress the details (although, as usual, it is hard to do so and still get my point across). Basically, in France, the news publishers went to the French anti-trust authority to complain that Google wasn’t negotiating because they were simply going to provide links with no thumbnails. France fined Google $500 million Euro for refusing to negotiate, so Google went back and negotiated some more until it came up with some “commitments” that the French authorities found acceptable and the news associations decided they could live with (Facebook agreed to a similar deal).  This pattern pretty much repeated itself across Europe.

 

In other words, as explained in this article here, Google and Facebook pretty much went on doing what they had been doing — engaging in private negotiations. The key difference was that government proved willing to punish Google and Facebook if enough powerful news publishers were too unhappy with what they offered. This isn’t really a market negotiation, since as the French government demonstrated Google (and presumably Facebook) can’t actually stop providing news link. But they can retain enough control over the negotiations and keep them sufficiently private to make Google and Facebook happy. Meanwhile, with the assurance that the government acts as a backstop if the deal has too many strings attached or doesn’t provide enough money keeps companies happy. If you want to call that success, then it succeeded. But it is not anything like the “market negotiations” for “fair value” that proponents say were supposed to happen.

 

So What Happened? Australia Version.

 

Most governments don’t want to go down the pseudo-copyright route, primarily because that looks way too much like a “link tax” and not enough like a “market based solution.” (Frankly, this is a relief. We don’t want to expand copyright to links.) As a result, everyone who likes this approach points to Australia and the NMBC as a great success story that other countries should emulate. The original version of the NMBC was going to require platforms to engage in mandatory arbitration with lots of transparency and stuff. But both Google and Facebook threatened to stop providing news in Australia if that happened. Unlike Canada, and following Facebook demonstrating that it could, in fact, block news links from leaving FB, the Australian government agreed to some last minute changes. Most importantly, Australia did not designate Google and Facebook as subject to the NMBC. Instead, the law as actually passed doesn’t designate anyone as subject to the NMBC. It requires the Treasury Department to designate an entity as subject to the code if it meets the size criteria and hasn’t entered into privately negotiated agreements. Further, the statute as passed allows parties to agree not to use the NMBC as part of the agreements. Finally, the statute instructs that before designating an entity as subject to the NMBC, the Treasurer must take into account the entity’s general contributions to Australian journalism. (For example, Google gets credit in the official Treasury Report for setting up a “digital news academy” in partnership with News Corp.

 

Or, in other words, the News Media Bargaining Code legislation allows Facebook and Google to keep doing what they were doing, cut private deals without government oversight. Better, because general contributions to Australia’s journalism also count against complaints by individual news producers cut out of the negotiations to prevent FB or Goog from being designated as subject to the NMBC. As a result, as the official government report on the NMBC confirms, not a single organization has yet to be designated as subject to the NMBC — despite the failure of FB or Goog to cut deals with numerous smaller news producers.

 

As noted above, I will spend an entirely different blog post poking holes in the argument that the Australia NMBC did anything other than provide lots of money to the two biggest media companies in Australia. For now, it is important to note the two main features of both Article 15 implementation in the EU and implementation of the NMBC in Australia.

1. Neither code requires Google or Facebook to actually do much of anything. Their primary power is to threaten these companies that if they do not make enough people happy enough, the government can take much harsher action against them.
2. Neither code requires Google or Facebook to disclose the actual substance of their deals.

 

How Canada Fixed the Problem with NMBC, And Freaked Out Google and FB.

 

Needless to say, despite the loud and repeated claims that the NMBC has been a raging success in forcing Google and FB to pay big bucks to news media which news producers have in turn invested in local programming, lots of small media producers understand that the NMBC (and Article 15) approach cuts them out bigly. So over the course of the negotiation over C-18, the Canadian Government responded to the complaints of loopholes in the code.

 

You can see the official summary of the bill here. The Online News Act as passed gives extremely broad power to the Canadian Radio and Telecommunications Commission (CRTC, the Canadian equivalent of the FCC) to implement C-18. As long as Google and Facebook link to news, they are “digital news intermediaries” subject to the Act. Even with the government giving credit to past deals (which requires the CRTC to actually waive the bargaining requirement based on whether the deal meets certain criteria), Google and FB would still be subject to ongoing CRTC regulations and forced to negotiate with any news producer the CRTC decides meets the statutory criteria. It did not help that the current Canadian government apparently engaged in a lot of tough talk about how rigorously they would interpret the Act to make sure Google and Facebook pay up to support local media. The Canadian Government has apparently backed away from this somewhat, as Google and FB threaten to drop Canadian news and suspended existing deals with Canadian news companies.

 

In other words, C-18 lacks the two “safety valves” for Goog and FB present in the Australian NMBC. Google and FB are automatically “designated news intermediaries” under the Act and therefore automatically subject to the regulations adopted by the CRTC and CRTC oversight generally. Furthermore, the agreements (including past agreements) are subject to review by the CRTC. No more privately negotiated deals with the big boys to make the problem go away. As long as Goog or FB link to news, they are designated news intermediaries. The only way out for Goog or FB is to stop linking to news in Canada altogether. Which is, apparently, what they are planing on doing.

 

Whichever side you support in this debate (and I think I’ve made my perspective pretty clear), it’s important to understand that these critical differences between C-18 and the Australian NMBC (and Article 15) to understand whether Google and Facebook are just bluffing or if they mean it. As this article notes, the Canadian Government’s estimate of how much Google and FB would need to pay news outlets under C-18 is about $330 million Canadian or $372 million AU — more than twice as much as the $140 million AU Rod Sims is “confident” Google and FB paid in Australia. Canada has a very different antitrust regime than France, so the Canadian government can’t force Goog and FB to carry the links the way the French government did.

 

Folks have suggested other reasons Goog and FB have decided to draw a line here. And sure, I expect that the fact that lots of other countries are now looking at this approach (see JCPA) plays into it. But Google and FB knew that other countries wanted to do something on this when they agreed to NMBC. After all, Australia was simply following the example of the EU. Similarly, the tech companies have decided to lay off tens of thousands of workers in the face of declining online revenues post-Covid. But if the price were low enough, they would pay. That’s the big problem for Goog and FB. Under C-18 (and similar legislation), they lose control of their ability to control how much they have to pay. That is, of course, a feature from the perspective of those pushing this approach. But one should not be surprised that the companies regard this as an existential fight.

 

Finally, it’s not just about news. Phone companies are pushing for the same basic idea in the EU under the name “fair share.” The basic idea is the same. Claim that “Big Tech” companies enjoy some sort of value or benefit while ignoring the value created by those companies for your own business and ride the wave of the Techlash. So again, this becomes something of an existential fight for Google and Facebook.

 

Any compromise around C-18 acceptable to Goog and FB is going to need to provide Google and Facebook the same freedom the NMBC (and Article 15) allow them to structure private deals and keep the government from imposing far greater cost than Google and Facebook are willing to pay. But doing that undercuts the rationale of C-18 (and similar bills) and turns it into a pay off from Google and Facebook to big, politically connected media companies. It is one of the many problems with this “market based” approach. Any structure that pulls control away from Google and Facebook opens them to paying an undefined number of news providers an undefined amount of money — set in arbitration by a government agency or other arbitrator they have every reason to believe will be hostile to them and favor the other side. The insistence that Goog and FB must be bluffing hinges on believing that news is “must have” content and failing to understand what actually happened in Australia.

 

Conclusion

 

I have no idea what happens next on this. I would hope that this prompts JCPA supporters to reconsider — but it won’t. JCPA defines an online platform subject to the act in ways that Google and Facebook can’t avoid. I suppose that solves the problem of Google and FB simply dropping news — although there are a bunch of other issues (such as a lingering First Amendment concern over what amounts to a “must carry” statute). But the idea that news content is so insanely valuable, so “must have,” that platforms will pay any price for it is simply too entrenched among JCPA believers. C-18 provides a fairly straightforward lesson that at a high enough price, Google and Facebook find it economically rational to walk away. Rather than trying to solve the problem of news production by pretending that there is a “market based approach,” we ought to get serious with realistic proposals to save local news.

 

Stay tuned . . . .