Microsoft calls on Canada to back Australian model forcing Big Tech to pay for news

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Microsoft Corp. is calling on Canada and other nations to adopt an Australian plan to force internet behemoths Google LLC and Facebook Inc. to pay for local news in a move that could vastly expand its own Bing search engine.

Brad Smith, president of Redmond, Wash.-based Microsoft, disputes the tech giants’ arguments against the Australian legislative proposal, championing Canberra’s stand to boost local journalism and the democracy it in turn supports. He’s urging the U.S., Canada and the European Union to follow suit.

“An independent press has often inflamed differing opinions,” Smith said Thursday in a blog on the Microsoft website. “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.”

And it would be good for Microsoft, too.

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The company no doubt has its eye on some of the US$4.7 billion a year Google earns just on the back of news content, according to a 2019 study by News Media Alliance, a Washington, D.C.-based industry lobby group that Smith cites.

Google, which dominates the planet with 92 per cent of search traffic (94.5 per cent in Australia), according to statcounter.com, had said it will bar its search engine from Australia rather than pay media outlets. That leaves an opening for Bing (with 3.6 per cent of the Australian market).

Facebook, which also owns Instagram, said it may block users in Australia from sharing local news stories if the proposed law is passed. Google has softened it stance somewhat, saying it actually didn’t want to leave the country and removed a statement of intent on its search window after Microsoft began cozying up to the centre-right Liberal Party government of Prime Minister Scott Morrison.

But Google rejects the proposal’s concept of collective bargaining by media outlets and the mechanism of “baseball arbitration” to settle impasses over compensation. That method uses an arbitrator to choose one of the final offers made by one of the sides, without modification.

“Both sides have very different ideas of what the prices should be — and asking the arbitrator to pick a ‘final offer’ is an extreme way of resolving that,” Mel Silva, Google vice president for Australia and New Zealand, said in a company blog last fall. “The reality is that baseball arbitration often fails and doesn’t produce quick outcomes.”

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Smith countered that baseball arbitration is effective “precisely when there is this type of unequal bargaining dynamic.” The threat of being saddled with a deal that one side will consider unfair pushes both to find more common ground from the outset, he argues.

Silva objected to how the proposal’s arbitrator wouldn’t value Google’s traffic to news media sites, which the Australian Competition and Consumer Commission had recommended and he valued at more than A$200 million ($197 million) a year. Nor would the proposal credit the A$1 billion a year Google invests in its Australian operations. But it would instead consider news outlet production costs, he said.

Smith rebuffed Google’s proposal to use multiple submissions by lawyers using fair market value of news, instead of the benefit it gives the platforms, as an attempt to slow the process and add costs to struggling media outlets.

Prime Minister Morrison has said he wants to work with the companies for “a practical outcome” without a long court battle. “The world has changed, digital technology has affected that,” he said this month. “And we’re trying to ensure our regulatory system keeps pace with that change.”

Microsoft says it will pay news outlets should the company’s use of their content indeed swell to the size contemplated by the proposed legislation. In part responding to Google’s threat to abandon Australia, Microsoft said in October it would share “a large portion” of its revenue with news publishers.

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Canada has pledged to study the Australian example, with Heritage Minister Steven Guilbeault promising legislation this year to charge the tech giants for using news content.

“We must address the market imbalance between news media organizations and those who benefit from their work,” Guilbeault said last week. He’ll also be looking at France, which is preparing to tax the revenue of tech giants, while the 37-member Organisation for Economic Co-operation and Development is considering approaches, too.

It remains to be seen how the new Biden administration will respond to the concept after the Trump government went to bat for the tech giants in urging Australia to reconsider the proposed law.

Microsoft’s Smith says the insurrection at the U.S. Capitol last month, fuelled by disinformation on social media at a time when traditional media outlets have been gutted by massive job cuts and 70 per cent declines in revenue, should spur Biden to back a U.S. law similar to Australia’s effort.

“News deserts — communities with no local paper at all — have spread across the country, with terrible effects,” Smith said. “Democracy has always started at the local level. Today, far too many local communities must nurture democracy without a Fourth Estate.”

Financial Post