Meta, News Outlets and the Canada Online News Act
On Thursday last week, the Canadian Senate finally passed into law the Canada Online News Act, which will force tech giants (predominantly Meta and Google) to pay news organizations in Canada for content that is shared on these platforms. The foundational premise of the law is that tech platforms have benefitted heavily from content created by news organizations, while the news organizations continue to not receive a fair share of the upside. According the Canadian government website, the law:
ensures fair revenue sharing between digital platforms and news outlets
provides for collective bargaining by news outlets
promotes voluntary commercial agreements between digital platforms and news outlets, with minimal government intervention
as a last resort, establishes a mandatory arbitration framework when digital platforms and news outlets cannot reach commercial agreements
Immediately after the law passed, Meta announced that they will pull all news content for Canadian users on Facebook and Instagram.
How did we get here?
Before diving into the new law, let’s understand how we got here.
Let’s start with the Canadian news market. As in most countries, the Canadian news market has been predominantly driven by a few large players (some English and some French given languages most spoken). Based on a few sources and web traffic, the market looks something like this:
Four large corporations (CBC, CTV, Global News, The Globe and Mail) get majority of English news traffic
Three large corporations (La Presse, TVA Nouvelles, Radio-Canada) get majority of French news traffic
Few global news companies (BBC, Daily Mail, Guardian, CNN) and mid-size Canadian publications (The National Post, The Toronto Star) together get a smaller subset of the news traffic
New digtially native companies (The Resolve, The Narwhal, Indiegraf, Village Media to name a few) have much smaller but growing traffic
These news organizations and journalism in general have been under a tremendous amount of pressure over the last two decades - Pew Research Center estimates a 26% decrease in newsroom employment from 2008 to 2020. This decline was primarily driven by the disruption cause by the internet which broke the traditional newspaper business:
Emergence of large online marketplaces meant advertisers would rather spend ad dollars there
Internet publishing meant that everywhere online is a newspaper
Emergence of AdWords, Google/Meta ad display networks which enabled highly targeted advertising meant advertisers could more effective spend dollars there
In response to this, traditional news organizations reacted by publishing all their content online, and then relying on traffic from Meta (users sharing links on Facebook, Instagram) and Google (Search, Google News) for distribution. While that made sense as a quick pivot, unsurprisingly, they became heavily reliant on tech platforms for distribution and consumers no longer came to them directly for content. Case in point - French-language newspaper Le Devoir reported that they get 40% of traffic from Google search, 30% from social and 20% direct.
While some organizations like the New York Times in the US successfully managed to pivot to subscriptions (now an impressive ~70% of their revenue), most others continue to rely on ad revenue to date. Which brings us to where we are today - news organizations, disrupted by the internet and heavily reliant on large tech platforms for distribution, are now in a position of minimal negotiating power with no silver living in sight.
The Online News Act (C-18) - an attempt at balancing negotiating power
Despite journalism being a declining business, we can all agree that journalism is key to our society - it’s how we know what’s happening in the world, it’s the loudest manifestation of free speech, it gives us a wide variety of perspectives (whether we agree with them or not), and it helps keep our institutions and elected representatives accountable.
The Online News Act is essentially an attempt at preserving journalism and making sure it can sustainably thrive in the long term. The mechanism through which the law enables this is by balancing the negotiating power between large tech platforms and news publishers, albeit in a somewhat brute force way. The law “forces” tech platforms to arrive at a deal with news publishers, and in situations where they cannot, establishes a mandatory arbitration framework with the Canadian Radio-television Telecommunications Commission (CRTC) as the regulator. In simple terms, Canada is telling Google and Meta - “sign a deal yourself, or we will make you”. The act is modeled after Australia’s News Media Bargaining Code, which was signed to law in 2021 after a fierce PR battle between all players involved.
Criticism for the law - and why Meta, Google hate it
Meta and Google have both come out with blistering critiques of the law, which have also been supported by analyses from some independent journalists. In all fairness, these critiques are pretty well articulated - let’s unpack some of the top arguments against the law.
First, the platforms argue that the law’s premise of tech platforms getting value from news is incorrect, and it’s actually the other way around - that news platforms receive traffic from Meta, Google and derive large monetary value out of it
Meta claims less than 3% of what Canadians see in their Feed is news, and they sent 1.9B clicks to news sites over the past year amounting to CAD $230M in value (the math behind the $ number is unclear)
Google claims they send more than 5B visits to Canadian news publishers a year amounting to $500M in value (they quote a Deloitte report paid for by Google)
This argument is factually correct. However, neither platform has shared deeper metrics around the value they get from news - such as how much engagement is generated by news vs other posts (you can imagine why, news especially controversial ones, creates more engagement), as well as what impact news content has on user retention. They have run tests shutting down news and likely have this data but have not shared it so far.
Second, the law unfairly benefits large legacy news organization at the benefit of startups and digitally native publishers.
Meta points to an independent report by Canada’s Parliamentary Budget Office which states that of $329M generated from this bill, $248M would go to large legacy organizations that have struggled to adapt to the online environment
This is also supported by independent journalist Sue Gardner’s critique of the bill. She writes:
Big legacy media companies have deal-making capacity and lobbying power and presence in Ottawa. The platforms will make deals with them first (indeed, they have already been doing so, in anticipation of this legislation) because they know that if they don't, they risk getting dragged in front of the regulator.
We know the big guys will benefit because that's what's happening elsewhere. Last February, Australia brought in the News Media Bargaining Code, upon which the Canadian legislation is modeled. Since then, it's estimated that about 90% of revenues negotiated as a result of the new law have gone to Australia's three largest media companies.
This is a pretty reasonable critique and it’s undeniable that the big companies will benefit from this more. However, big companies are also the ones that employ the most amount of journalists and receive the most number of eyeballs from readers, thereby justifying that the money goes towards benefiting journalism in Canada.
Third, Google makes the argument that the law would break Google Search by changing how “linking”, a concept foundational to the Internet, is treated.
Right now, anyone can search for information and find relevant websites. Publishers and businesses want to be found by Canadians. If they don’t, they can easily opt out of Search. The Online News Act would change this, requiring companies like Google to pay news businesses simply so that we can help you find what you’re looking for. This is what’s known as a “link tax” and it fundamentally breaks the way search (and the internet) have always worked.
Google is being a bit hyperbolic - the law only applies to news, and it does not force Google to host any of these links (and only forces them to the negotiating table if they want to continue showing these links). However, there is some truth to Google’s concerns that the internet is built on being able to freely link to content, and this law could set precent that could go beyond news and beyond Canada, opening Google and Meta to more forced dealmaking across the world.
In fact, Meta also makes the same argument from a financial exposure perspective:
In the current economic climate, and as we prioritise long-term investments in the metaverse and in the growth of short-form video in response to user preferences, we are being asked to acquiesce to a system that lets publishers charge us for as much content as they want to supply at a price with no clear limits. No business can operate this way. If this draft legislation becomes law, creating globally unprecedented forms of financial liability for news links or content, we may be forced to consider whether we continue to allow the sharing of news content on Facebook in Canada as defined under the Online News Act.
There are a few more long tail critiques to how the law is drafted but are very solvable through future iterations of language in the legislation:
It prohibits platforms from providing undue preference to specific news businesses which limits platforms’ ability to promote relevant content as well as penalize spam / misinformation
The definitions for who qualifies as a news organization is loose which could lead to unintended consequences such as platforms being forced to make deals with state-owned outlets that are involved in misinformation and propaganda
To summarize, Meta/Google believe that they are the ones driving value for news organizations (and not the other way around) + a lot of the money would go few large news organizations, and therefore the bill is unfair and should not be passed.
Support for the law and Australia’s success story
Despite all the criticism, to look at the potential upside of Canada’s Online News Act, it’s important to understand the impact and relative success of Australia’s News Media Bargaining Code that was signed to law in 2021.
News Media Bargaining Code, has enabled Australian news organizations to extract more than AUD $200 million (USD $150 million) in the year the law went into effect. Columbia Journalism Review reports:
As a result, the public Australian Broadcasting Corporation can place at least fifty new journalists in underserved parts of the country, while the McPherson Media Group, which publishes such papers as the Yarrawonga Chronicle and the Deniliquin Pastoral Times, expects tech money to fund up to 30 percent of editorial salaries. Monica Attard, a journalism professor in Sydney, says she can’t persuade many students to take internships these days because it’s so easy for them to land full-time jobs—and that change coincides with the gusher of code money: “I swear to God, I have not seen it like this in twenty years.”
The fresh influx of money from the law has clearly gone into strengthening journalism in Australia. It’s important to note the mechanism that has resulted in this outcome: law getting passed → better negotiation position for publishers → more dealmaking / higher deal velocity in the ecosystem.
Also valuable to note is that deal making has happened across organizations of all sizes and not just with large organizations:
Nine Entertainment - $30M AUD annually for 5 years with Google, est. $50M AUD including Meta
New Corp - $70M AUD with Google and Meta
The Guardian - $5M AUD (also resulted in growing Australian newsroom from 70 to >100 journalists)
Country Press Australia (trade group that represents about 160 regional newspapers) collectively bargained with Google & Meta resulting in an est. $31k-$62k AUD per year deal for local newspapers
Another fascinating observation is that no deals have gone into arbitration so far. In other words, the mere presence of the law (and the fear that unresolved deals can go into arbitration) has in fact resulted in more effective dealmaking and leveled the playing field. It’s not clear whether deals in the future might go into arbitration but the results so far are very promising.
There have been critiques to how the Australia law has played out, the primary one being the lack of transparency in deal details and accountability for how news organizations use this money. CJR writes:
If you want to know how much money the platforms have paid to news organizations, you’re out of luck. If you want to learn whether newsrooms are spending that money to bolster journalism, rather than pad executives’ salaries, you’re out of luck.
Another colorful version:
In the words of one Sydney media executive, “It’s like a brown paper bag gets stuffed with money, is shoved across the table, and then the platforms can say, ‘Now just shut the f*** up.’”
That’s a fair argument but the intention of the law was never transparency. Rod Sims, former Chair of Australian Competition & Consumer Commission, explains:
“The objective was never transparency. The code is being criticized for not achieving things it never intended to achieve. The simple thing was evening out the bargaining power. If deals are done that the media companies are happy with, then it’s a success.”
And he is right.
What this really is - a “Disruptor Tax”
Is this “fair”? Should Meta, Google be penalized for being disruptors of legacy media organizations that have not managed to keep up with the Internet?
I think what this comes down to is being sort of a “disruptor tax” to support what is basically a public utility for a thriving society - journalism.
Journalism matters, and I think most of us agree that it should continue to thrive. There’s an abundant amount of evidence that broad journalism (that helps inform people on a broad variety of topics, maintains journalistic ethics and keep our institutions accountable) is not a great business:
Only a handful of large media companies like NYT, WSJ have managed to build sizable subscription businesses
Most mainstream media relies on ad dollars, which in term makes them focus on content that gets eyeballs, including content that is highly polarizing and sometime straight up false
Other media companies got purchased and are subsidized by (generally well meaning) billionaires, such as the Washington Post / owned by Jeff Bezos
There is evidence of some sustainable approaches that could work - the Guardian has 1M+ voluntary donations, BBC & NPR are subsidized through government funding.
These new laws (currently in Canada, Australia, and potentially being considered in other countries like the UK) are essentially a “disruptor tax”, and part of ongoing experimentation to make journalism sustainable. Is it fair to Meta, Google?
Let’s look at the math for Australia:
According to some estimates, Google and Facebook collective generate about USD $13B in annual revenue in Australia
Of that, USD $150M is paid out to news organizations through these deals, which is about 1% of their revenue
Also, there is a clear but unquantified amount of value (Meta, Google can quantify this if they choose to, they have the data) that these platforms derive from having news content available on their platforms; for example, imagine searching for “titanic submarine” last week on Google search and there are no news articles
I think some of the gaps in the current legislation language should (and will) be addressed - eg. Google should not have treat a spammy media organization equal to a reputed one in the interest of “fair”.
But personally, I think it’s quite fair for these large high margin platforms to subsidize a public utility that they derive non-trivial value for (I understand if you are a passionate free markets purist and think this is not fair but in that case, I would urge you to propose constructive solutions for journalism to thrive at scale). Meta, Google will continue vehemently pushing back against this legislation as more countries put a dent to their bottom line but the trend is clear - journalism needs be sustainable, public sentiment is not in favor of Big Tech, and governments are going to continue aggressively trying to bring more balance of power.
(This is the first post in this Substack and I’m excited to be writing again - comments / feedback / suggestions welcome, you know where you reach me!)