Australia's Media Bargaining Laws and the political economy of digital media

Lisbeth Latham

On February 18, Facebook initiated a block of all Australian news media content being posted to the platform and blocking all Australian accounts viewing news posts globally. The blocking, which resulted in much more than media content and pages being removed from the platform, was in response to the lower house passing the Treasury Laws Amendment (News Media and Digital Platforms Mandatory Bargaining Code) Bill 2020. This legislation is aimed at requiring Facebook and Google negotiating with Australian media companies for the presence of their content within Facebook’s timelines or in Google’s search engine. This legislation has been justified on the basis that both of the tech companies are enriching themselves off the sharing of the content produced by companies like NewsCorp and Nine Entertainment, and Seven West Media and that it is this enrichment that is responsible for the parlous state of legacy media companies. However, this justification however does not reflect reality, moreover, the panic and outrage at Facebook’s response underline the real relationship between the organisations.

Globally legacy media, that is media companies that predate the emergence of digital media technology, have been experiencing significant financial difficulties calling into question their viability - and resulting in repeated waves of rationalisation of journalists, photographers, and sub-editors and a shift to an increasing reliance on freelancers in generating content.

Historically newspapers and television stations have primarily relied on providing free or subsidised content to consumers. This allowed them to build up audiences, which they sell access to in the form of advertising - it was primarily via advertising sales that they made profits.

This model was at times disrupted via things such as cable networks which relied entirely on user subscriptions for profits rather than advertising - with the absence of advertising and the exclusive availability of specialist content being the primary selling points.

With the emergence of the internet, and subsequent innovations of the mechanisms through which content could be delivered over the web this model has broken down. This has been primarily for two reasons - the growth in media dispersed audiences, particularly via old mediums such as newspapers and broadcast TV - reducing the capacity for companies to generate income via the sale of advertising - this has also been a consequence of these companies cannibalising this income themselves by establishing their own competing platforms for advertising services that were traditionally dominated particularly by print media. Secondly, legacy media has struggled with finding effective mechanisms to monetise their online presence in order to replace their historical revenue streams - this has been due to both a reduced ability to generate advertising via website visits and efforts at trying to get consumers to pay for content being uneven - given the diversity of media, particularly news available.

In this context, the Morrison government, with the support of the major Australian media corporations proposed the Media Bargaining Code. These laws: 

• make it unlawful for digital platforms that do not pay up to provide links to Australian news;
• give big news outlets quasi-monopoly bargaining power allow deals to be made without the need for authorisation by a regulator concerned about the public interest; 
• provide a regulatory stop-gap should that not happen;

This has been justified on the basis that Facebook and Google generate income from this which is rightfully the media companies. Both Google and Facebook have argued that they don’t directly generate revenue from these mechanisms and that instead, their platforms help to generate income for Australian media companies by providing traffic to their sites which the companies can then seek to monetise that traffic in whatever way they want and are able to.

One of the key challenges for digital platform companies such as Facebook has how to translate their millions of users into revenue and thus profits. In the early period of Facebook’s existence, when it was seeking investment, it’s value was premised primarily on the notion that it would be able to be monetised, not that it was actually profitable at that time. Indeed Facebook, despite being founded in 2004, did not make a profit until 2008 and it was only with the initial public offering of shares in 2012 that it began to reach its full monetising efforts, which is also the point that some would say it began to decline as a particularly useful social media platform.

Facebook makes money out of a number of mechanisms - the primary source is the selling its users, all 1.69 billion of them in 2020, to other businesses - this can be in the form of selling user data or selling access to users via advertising and sponsored content - in 2019 it averaged US$8.52 in revenue per individual user. What gives Facebook power is that people use the platform, if that should decline then so would its power, however, like the legacy media, it might still have sufficient residual power to seek to either diversify or invest in those platforms that emerge to compete and challenge it. As social media emerged older media companies sought to invest to protect themselves. News Corporation bought MySpace for US$580 million in 2005 betting that it would be a dominant platform and that it would be able to be monetised, however, it was rapidly outstripped by Facebook and other platforms and is now little more than a punchline to jokes - which News Corp unloaded in 2011 for just US$35 million.

Facebook’s decision to block news posts from Australia essentially accepted the Morrison government demand that if the news was to be paid for, they would simply stop it from being shared. It was a mechanism by which it could act in the interests of its shareholders by removing the possibility of having to pay companies for the content shared on the platform - making the assumption that this would be more than any loss of income resulting from the blocking of content. Moreover, it was an effective exercise in demonstrating that Facebook needs Australian news content far less than Australian news content needs Facebook. This action caused outrage on two levels the first was that News agencies were outraged - despite Facebook having stopped the practice they were claiming it was making money from rather than paying for said practice - demonstrating that this was primarily about securing money rather than concerns about “theft of content”. The second was that Facebook’s action caught up far more than news, no matter how ill-defined that might be in the legislation, this included the Bureau of Meteorology, health agencies, and satire sites. While some of the anger at this action was legitimate and justified it was also at times overblown, with claims that Facebook was censoring - there was some merit to this with pages being Facebook pages deleted, but with the limiting of sharing - all of that content still existed and was accessible. The much broader blocks and bans - whether deliberate or the consequence of poor coding the algorithm - did not help Facebook’s PR - but needs to be addressed separately from the question of whether the Media Bargaining Code is a good idea.

Given that the claims that Facebook generates money from news companies’ content are thin what is the point of the legislation? It appears to be an attempt by the Australian government to redirect revenue from Facebook to struggling Australian legacy media with little real grounds and to the detriment of media diversity, as has been argued by a number of independent media outlets, with Crikey’s Bernard Keane describing the legislation as “an extortion racket at the behest of the Murdochs on the widely reviled big tech companies”. Joshua Gans, writing in The Conversation, argued that the Code is deliberately aimed at keeping small media organisations out and handing over money to large media corporations. So what position should we take regarding the laws and Facebook? First, it should be clear that these laws are bad and make very little sense, the justifications are at best ill-conceived and at worst demagogic. Second, while it is understandable that people want to hold Facebook, a large and powerful multinational that pays limited tax in any jurisdiction, accountable. However, this legislation does not do that however - it just gives money to other rich unaccountable companies that also don’t pay taxes in order to boost their profits. <

Facebook and all other companies should be made to pay taxes, and the loopholes which allow it and other multinationals to avoid tax by using tax havens as their headquarters should be closed. This money should be used to fund public services including journalism through the ABC, SBS, and community radio, even to commercial media but on terms to create jobs and journalism capacity rather than just a sop to corporate profits, however, I would not hold my breath on the Morrison government doing this. We also need to challenge the power of Facebook - the main way to do this is to just stop using it - that is how it generates power - if people stop using the platform it will wither away - just as the legacy media is currently.

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Tim Wilson's war on Super

Lisbeth Latham

Tim Wilson, Liberal MP and former Institute of Public Affairs mouthpiece has deepened his campaign to undermine the superannuation system supposedly in the name of supporting homeownership amongst young workers. Reality is that his proposals are unlikely to increase the ability of people to own homes, and even if it did increase buying capacity it is likely to further inflate prices, but instead serve to drive more people into poverty in old age.

In a February 6 article by Rick Morton in The Saturday Paper, Wilson argues the following: 

• Workers accessing superannuation during the COVID pandemic was a policy success; 
• The decline in the number of young workers owning their own home is a consequence of the superannuation guarantee; 
• That homeownership will provide greater security in both working life and retirement;

As a starting point, super is deeply flawed, it is not the best way of securing a comfortable retirement for all working people. However, Wilson is not looking to address the weaknesses of the current system. Instead, he is cynically trying to use justifiable angst about retirement, particularly in the context of the COVID pandemic, to undermine and weaken the superannuation system, particularly for marginalised workers.

The Morrison government’s policy of allowing workers facing hardship due to COVID to access their Superannuation balances to meet their needs signaled that the government knew that the financial support it offered people in its stimulus packages was totally inadequate to meet people’s financial obligations. Moreover, the policy allowed people to mortgage their futures to meet the living costs of today. As a consequence, they not only denuded these workers of their retirement savings but undermined the superannuation balances of millions of workers as superannuation funds were forced to liquidate assets, some at a discount, in order to meet the cash demand of people making withdrawals.

While it is true that superannuation is a deferred pay rise, that deferral long ago occurred and cannot be accounted for in declining wage growth. The Superannuation guarantee increased to 9% from July 1, 2002. It did not increase again until 1 July 2013, when it increased to 9.25%, and then to 9.5% from 1 July 2014. The Abbott government delayed the subsequent increases in the guarantee which had been legislated by the Rudd government, with the next increase not due until July 1 of this year, the guarantee is scheduled to increase by half a per cent each year until it reaches 12 per cent in 2025. In the meantime, the average wage price index has moved from 3.6% in 2004 to 3.7% in 2012 and 1.4% in 2020. This decline is more to do with the increasingly combative outlook of employers eager to maximise the share of productivity growth going to profits rather than wage rises. This more aggressive outlook has been encouraged by successive LNP governments and mirrors patterns across the OECD.

Source: Wage Price Index, ABS. 

Brendan Coates, director of Grattan’s household finance program, in states the article that a 12% superannuation guarantee is more than sufficient for most workers, and thus workers should be able to draw down their super balances each year that exceed 9%. However, this does not hold up against the reality of high levels of poverty in retirement within Australia, with the OECD finding in 2019 that 25% of those over 65 in Australia living in poverty. The research found that breaks in contributions, in the study this was primarily due to periods of unemployment or parental leave, resulted in significantly worse financial outcomes. Moreover, given that superannuation is based on compounding value - but may decline due to market fluctuations, judging what counts as “in excess of 9%” would be difficult to judge.

At the same time as wage growth has slowed to record low levels, housing prices have continued to grow. From 2004 to 2020 the average home price in Australia’s eight capital cities has almost doubled, with only a couple of years where prices contracted. Given that wages have not grown anywhere to the same extent, what has been the driver behind this ongoing growth? A major factor has been the availability of historically cheap finance, which is allowing people to borrow much greater amounts compared to their incomes. This creates a real danger that any rise in interest rates could see thousands of homeowners being forced to sell or face foreclosure particularly given that a quarter of all mortgage owners report mortgage stress. In addition, the ongoing growth in house prices has encouraged a significant level of speculation in the housing market, with speculators taking on interest-only loans on the assumption that they will be able to sell the home at a profit prior to any interest rate increases. A final driver of house prices has been successive government policies around negative gearing which allows owners of investment properties to write-off the difference between interest payments and rental income against their income tax. These policies have led to numerous individuals owning multiple “investment properties” and any first home buyers competing with speculators in the marketplace and the driving up of prices but also contributed to increasing rental prices which undermine the ability of renters to save deposits towards their first home.

Source: Residential Property Price Index, ABS

According to Association of Superannuation Funds of Australia, in 2017 the average superannuation balance of workers aged between 30-34 was $43, 593 for men and $33, 748 for women. In most cities, this is insufficient to make up a deposit - in August median house prices in Australian capital cities was $804, 602. Even if you assume you have a couple they would struggle to pull together a full deposit - at the same time they would then need to be able to cover a mortgage - which may or may not be possible based on their combined balances and saving, but they would potentially be left in retirement with a co-owned house (possibly still a mortgage on it) and limited savings.

Given the distance between Wilson’s proposal and the reality that accessing their super accounts will not make buying a house affordable for most workers, why is Wilson pushing this proposal? While it could simply be a public destabilisation scheme, which both Wilson and the IPA are fond of, it is more likely that it is to help soften up the public for the Morrison government pulling back from the legislated super guarantee increases. Either way, the media should reflect this reality rather than accept the proposals in good faith. Moreover, if they are serious about exploring approaches to provide security in retirement, they should explore solutions that don’t pose it as either a choice of owning a home or retirement savings based on a life of work. Instead, we should be looking at ensuring that everyone has sufficient incomes in retirement. Whilst super may have a role in this, we would be better served by increasing all pension payments to livable levels. Moreover, whilst it is true that owning a home in retirement can provide security and capital - this is primarily due to the cost of rentals. Housing security would be better served by greater government investment in quality housing stock aimed at providing affordable and long-term housing to residents.

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The GameStop short squeeze and why any market indigestion can be very bad for working people

Lisbeth Latham

Over the last week social media and the mainstream media has been filled with stories of how Redditors may have bankrupted some hedge funds who had been attempting to short the stock of US games retail company GameStop which had been struggling during 2020 under the dual pressures of the COVID pandemic and the increasing competition from games streaming platforms for market share. Much of the commentary has been a level of schadenfreude at hedge funds being beaten at their own game, which is understandable - however in enjoying the idea that this is ordinary people bringing down mighty capitalists, it is important to understand that the potential impact of the disruption of the shorting of GameStop is potentially much broader than that event, and the impacts will potentially be felt outside the stock market, and if that happens it will be working people who pay the price.

The origin of the stock market was a mechanism for raising capital for the establishment and expansion of companies. Companies, in exchange for investment, would offer other capitalists ownership of part of the company (i.e. shares) these could then be traded on the stock market with other capitalists. Originally the main value of shares was that they entitled their owners to a share of future profits - dividends. However as capitalism expanded and the opportunity to invest in profitable expansion of production in the real economy the stock market became an avenue for the investment of excess capital for speculation, but rather than for long-term returns on company profits speculation was based on short-term returns on variation in stock value and the creation of novel financial instruments that could be traded and invested in. For decades the stock market has primarily served as an avenue for such speculation by capitalists who are able to achieve better returns via such speculation than they can via investment in the “real economy”. This reality has been exacerbated in the last year where disruptions in the real economy caused by the COVID pandemic has further disrupted the real economy and there has been more concentrated speculation in stocks seen as either safe bets - such as big tech stocks - or raiding stocks which are seen as vulnerable, as was attempted with GameStop.

GameStop had been widely seen as one of a number of legacy stocks whose business had had its day. In late 2020, the value of the shares in a number of bricks and mortar companies such as GameStop, AMC Entertainment (US cinema company), and BB Liquidation (the holding company for the liquidation of BlockBuster). A number of hedge funds predicted this rise would be short term and began to short the stock - they were not quiet about their efforts and more and more funds joined the effort, demonstrating the irrationality of the marketer as the total short position of all the hedge funds accounted for 140% of GameStop stock.

Shorting is essentially a bet, or speculation, that a financial instrument will decline in value in either immediate or medium/long term. Depending on the type of instrument you want to short you will do it in different ways. With stocks, an investor will “borrow” stocks from another owner with an agreement to return them at a later date. The investor then sells the stock, reaping the full value at their current price on the assumption that when they need to return the stocks they will be able to purchase the stock at a lower price than they sold it at - they reap the profit between the two values - if the stock instead goes higher then they will lose money on their bet.

In response members of the sub-Reddit WallStreetBets, which regularly coordinates collective short-term investment by small traders, noticed the massive short and proposed an effort to boost the share prices of these three shares using online trading platforms such as RobinHood - as doing so would not just undermine the shorts of the hedge funds but provide an opportunity to also make money as the hedge funds tried to cover their losses.

Between the close of the exchange on Wednesday, January 20 and January 27, the price of Gamestop stock had risen from US$39.12 to US$347.51. A number of the hedge funds had already covered their position by the close of trading on the January - hedge fund Melvin Capital announced they had covered their short position for a loss of US$2.75 billion while Citron Research reported it had covered the majority of their short with a 100% loss of their investment. The need for hedge funds to cover their short position and buy massive volumes of shared was a major factor in the driving up on the share prices, adding to this was other investors seeing an opportunity to make money in the process and buying shares in the hope of selling them again to the hedge funds.

The response by many to the events around GameStop has been one of joy at the pain being experienced by hedge funds. While this demonstrates understandable hostility to Wall Street and more particularly hedge funds, which are thoroughly parasitic, however, the process has a much wider impact than simply these funds losing money or potentially going bankrupt - this has the potential to spread much further through stock markets and more problematically into the real economy.

It is estimated that hedge funds have lost up to US$5 billion in their short, most companies do not have that level of liquidity, as a result in order to cover these losses they have had to sell other assets to meet their obligations - in a number of situations the shares they have gone long. Offloading large volumes of collateral at short notice can only result in driving down the value of those assets and potentially forcing others, particularly those who are heavily leveraged, to dump their position to avoid the risk of losing money themselves. For this reason, there has been a dramatic increase in the level of volatility in stock markets with the Volatility Index rising sharply. A number of tech stocks that had been massively overpriced over the past year have seen massive sell-offs. A primary driver for this has been the need of hedge funds covering their short positions selling their long positions in these stocks - but also other investors selling in response to the volatility with stocks such as Netflix dropping five per cent.

The problem with this process is not that an individual hedge fund may collapse, or that this or that firm may see it’s stock rise or fall, or that a lot of the people participating in the events of Wednesday will lose a lot of money - while others will make a fortune. Let’s be clear everyone involved was participating in a gamble to make money, no matter what their professed motivations. What we should be concerned about is that the stock market - whilst technically separated from the real economy can cause major disruptions to the real economy. An economy which is extremely fragile due to the impact of not the Pandemic but the lingering effects of the 2007-2008 global financial crisis and the ongoing accumulation crisis which was highlighted by the 1973 oil crisis. What this means is that sneezes such as that of January 27 risk a broader financial collapse, the consequence of which will not be primarily felt by billionaires but by ordinary working people who will lose jobs and see their retirement funds evaporate - just as has happened after every major stock market crash.

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