Facebook – The Wizard of OZ pt. II

I am not convinced that Facebook is paying anything.

• Facebook has struck a 3 year deal with News Corp (see here) to “pay” for the Australian news that hosts on its site but given that financial terms were not disclosed, I suspect that Facebook may be paying almost nothing to News Corp for its Australian content.
• This is because the events of the last few weeks have clearly demonstrated that the media needs Facebook more than Facebook needs the media.
• This deal builds on the deal that was struck in the USA in October 2019 where News Corp publications in the USA receive payments in return for being made available for Facebook’s News service.
• The 2019 deal is very different from this one because, in the USA, Facebook is buying content for a specific service that it is running.
• The situation in Australia is quite different and refers to anyone who posts news stories anywhere on the service.
• The statement by News Corp (see here) is extremely misleading in that it says that Facebook is paying for the USA content but stops short of explicitly saying that Facebook is paying money to News Corp for the Australian content.
• The intent here is to lead the reader to assume that because it “builds on the 2019 deal” where Facebook is paying for content, that it is also paying money for the Australian content.
• It does not explicitly say that anywhere which makes leads me to believe that the real price being paid here could well be $0.
• This is the price that makes the most logical sense because the events of the last few weeks have clearly demonstrated that the revenues of the Australian media will be lower if they are excluded from being on Facebook’s platform.
• Prior to this deal, Facebook cut off access for all Australian news outlets to its platform due to the proposed government regulations which provoked a large public outcry.
• Critically, the Australian news sites took a big hit in internet traffic clearly demonstrating that Australian media needs Facebook more than Facebook needs it.
• Facebook was accused of acting like North Korea in its actions, but I think that they were fully justified as Australia (and everyone else) seems to view Facebook as a free public service rather than a business.
• As the news sites have quickly realised, their advertising revenues are likely to 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 is better than no arrangement at all.
• 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 clearly demonstrated the value that it provides to the news sites and I am sure that this featured heavily in the “good faith negotiations”.
• This is why I think that the commercial arrangement is almost identical to the arrangements that preceded it and that very little has changed.
• This is a major win for Facebook, and I think further regulation may only make the situation worse.
• This is because more regulation will only hurt competition and raise barriers to entry for the very competitors that the regulations are designed to encourage.
• However, having so much power concentrated in so few hands also 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 after their great runs in 2020 and I am continuing to look at the long-ignored, much-maligned value end of the market for my picks this year.