What Google and Facebook owe news publishers

Image: Reuters

It’s the same story around the world. Faced with an avalanche of misinformation and disinformation online, declining trust in media and government, and the proliferation of “news deserts,” governments, philanthropists, and publishers are desperately looking for ways to fund quality journalism.

In 2021, Australia broke new ground by passing the News Media Bargaining Code, compelling Alphabet (Google) and Meta (Facebook) to pay media outlets for news content shared on their platforms. This model has since gained traction worldwide, with Canada adopting its own version of the Australian law (C-18) in June and South Africa launching an investigation into the digital advertising market. Countries like Indonesia, Japan, New Zealand, and Switzerland have all considered similar bills, and Brazil’s ambitious Fake News Law, which was thwarted in May, has recently been revived.

Meanwhile, in the United States, the Journalism Competition and Preservation Act, aimed at allowing news publishers to engage in collective bargaining, was introduced in March by US Senator Amy Klobuchar and has since stalled. In June, California’s State Assembly passed the California Journalism Preservation Act, which would require large tech companies to share their advertising revenues with news outlets. But the bill has been put on hold until 2024.

In opposing these laws, tech giants like Google and Facebook have downplayed the importance of news content on their platforms, asserting that it can be dropped easily since audiences do not really need it. Google has also resorted to paying publishers directly, hoping that a modest sum will discourage media companies from supporting platform remuneration laws.

Our recent working paper shows that such deals do not capture the full value of the news content produced by US publishers. Our conservative estimate is that Facebook and Google should pay US news outlets roughly $14 billion annually to use their content. Our study shows that Facebook owes publishers $1.9 billion a year while Google owes $10-12 billion. We also include a detailed explanation of our methodology and invite others to build on and refine it.

Over the past 20 years, Google and Facebook’s advertising revenues have soared while the advertising income that traditional media rely on to fund public-interest news and investigative journalism has declined. That is not an accident. Advertising revenue shifted to platforms as individuals started consuming news on the platforms directly, giving advertisers a large and stable user base in the process. While Google and Facebook argue that news outlets should be grateful that platforms drive traffic to their sites, our findings suggest otherwise.

Our study builds on a large body of economic research that shows that when two parties come together, they create value. Large digital platforms and news-content creators provide complementary services that generate more economic value when used together than separately. News media supply tech companies with high-quality content that keeps their users engaged and encourages them to return to their platforms. Similarly, the platforms provide news publishers with popular, easy-to-use channels through which to disseminate news content to a larger audience.

At present, Google and Facebook dominate US digital advertising markets, allowing the two major platforms to siphon virtually all of the economic value created by online news content. Moreover, as the US Department of Justice and 38 states’ attorneys general argue in their ongoing antitrust lawsuit against Google, the company was able to maintain its dominant position in digital advertising markets by monopolizing key technologies.

Our findings underscore the glaring disparity between what Google and Facebook currently pay news publishers and what they would pay if they were not powerful monopolies. Our approach to determining fairer compensation is simple, transparent, and compelling. Government officials are already incorporating it into policy discussions, and publishers worldwide can use our work in their own negotiations with Google and Facebook.

Our methodology can also be useful to publishers who wish to learn how their content is being used by large language models like ChatGPT-4. Regardless of how technology evolves, however, the basic principle underpinning the media system should remain the same: If you reap massive profits by using news content, you should pay for it.

Copyright: Project Syndicate

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Haaris Mateen is Assistant Professor of Finance at the University of Houston. Haris Tabakovic is a senior associate at The Brattle Group. Patrick Holder is a senior associate at The Brattle Group.