Facebook & Google – The Wizard of OZ pt. III.

Regulator claims a victory which looks like defeat.

• The Australian regulator is claiming victory in its fight with Facebook and Google, but I suspect that its only achievement is to put in writing the same terms that were already in place before all this fuss started.
• In an interview with the FT (see here), Rod Sims the chairman of the Australian Competition and Consumer Commission delights in forcing big tech to the table and claims success from the fact that “we are on track for deals all around”.
• Estimates vary but the prevailing wisdom seems to be that the value of all the deals when they are struck, could be around $155m or A$200m.
• The keyword here is “could” because the commercial terms of the deals are not being disclosed as exemplified by Nine Entertainment whose deal with Google and Facebook triggered the regulator to claim victory.
• The evidence that is available today suggests that Facebook and Google will be paying very little if anything to put the news on their services because of the reach that both of these companies provide to the news services.
• This is because events have shown that the Australian media needs Facebook and Google far more than Facebook and Google need them.
• While the law governing these deals was being drafted, Facebook took the step of removing all Australian media from its service which resulted in the Australian news sites taking a big hit in terms of traffic.
• Facebook was accused of acting like North Korea in its actions, but I think that they were fully justified as Australia (and everyone else) still seems to be viewing Facebook as a free public service rather than a business.
• As the news sites have quickly realised, their advertising revenues will be lower without Facebook than with it even if Facebook pays them no money at all for their content.
• This clearly demonstrates that the previous arrangement was better than no arrangement at all, leading me to conclude that these new deals that the regulator is touting are simply more of the same.
• This notion of free internet is the classic misconception that is held both by the general public and lawmakers and the sooner that this is dispelled, the sooner the correct working relationship can be established.
• Facebook’s action showed the value that it provides to the news sites, and this will have featured heavily in those “good faith negotiations”.
• Hence, I suspect that the “good faith negotiations” are resulting in commercial arrangements that are almost identical to the arrangements that were already in place and that very little will have changed.
• Facebook has proved the power of the network that it has built and, in this instance, highlights the value that it provides to content providers simply by having their content on its network.
• This situation is being closely monitored around the world and I think that the coast is now pretty clear for the business models of Facebook and Google to continue as they were before.
• Despite the regulator’s commentary, I see this is a major win for Facebook which takes Google along with it and Mr. Pichai should buy Mr. Zuckerberg (or Sheryl Sandberg) a beer.
• In general, I think that more regulation will only hurt competition and raise barriers to entry for the very competitors that the regulations are designed to encourage but then again having so much power concentrated in so few hands has the potential to become a major problem.
• Hence, I remain split on what action needs to be taken in order to strike the correct balance.
• Both Facebook and Google look fully priced and I continuing to look at the long-ignored, much-maligned value end of the market for my picks this year.