Governments love to regulate. It’s what they do. For years, they have regulated aspects of our daily lives. Little by little, our liberties are eroded incrementally with every regulatory interference.

Governments have become aware of a largely unregulated ecosystem in the form of the digital paradigm and especially in the form of internet-based platforms. We already have the Harmful Digital Communications Act (HDCA) which provides remedies for individuals who suffer harm – serious emotional distress – from an electronic communication.

Further steps are proposed. The Department of Internal Affairs (DIA) lays out ways and means of regulating online content in its Safe Online Services and Media Platforms discussion paper. On 17 August 2023, the Fair Digital News Bargaining Bill was introduced into the House and had its first reading on 30 August, the day before Parliament rose. Submissions on the Bill close on 1 November 2023.

The market

It may come as some surprise that for several years the State has been subsidising mainstream media. The State has provided $105 million through subsidies for mainstream media since 2020 via the 2020 Media Support Package ($50m) and the Public Interest Journalism Fund ($55m).

But the problems facing mainstream media (MSM) predate these injections. The onset of the digital paradigm means there has been a shift in the way people consume news media. News media is now accessed via online digital platforms. The explanatory notes to the Bill and the Cabinet Paper of 23 November 2022 that argued for the introduction of the Bill do not provide any statistics to support this, but it has been well-known for many years that online platforms have been the entry point for news consumption.

The digital platforms act as content aggregators. They gather news information from a number of sources and provide access to it. An example is Google News. It is a news aggregator service that presents a continuous flow of links to articles organised from a large number of publications and magazines. The link allows the user to access the full article on the MSM website. Facebook provides a similar service, as do several other news aggregator platforms. This has affected MSM profitability and especially on revenue derived from advertising.

Between 2011 and 2020, newspaper advertising revenue in New Zealand fell from $533m to $210m. In contrast, all digital advertising revenue tripled to $1.06 billion. Since 2003, New Zealand newspapers have generated $1 in digital advertising for every $4 they have lost in print advertising.

This has meant that to remain viable, MSM have had to make cutbacks. The increasing cost to produce news content, combined with reduced income, has contributed to the halving of the number of journalists in New Zealand and, consequently, reduced public interest journalism. Local and community news, investigative journalism and international news have been particularly hard hit.

The platforms, on the other hand, have a different business model and derive their revenue from advertising which has shifted from MSM. But by the same token, according to MSM, the platforms are “free riding” by aggregating the content from MSM sources and presenting it to the public.

What is unstated by MSM is, as I have observed, if a user follows a link from the aggregated site, that user ends up on the MSM platform. So, it isn’t a complete free ride. The MSM platform still benefits but not from direct access to its platform.

But underlying all of this is a State interest and this is where the regulation comes in. The State interest is cunningly presented as a public interest. The State has an interest in maintaining MSM because of its objectives of countering misinformation and supporting democracy and social cohesion.

The State argues that a sustainable, local news media sector provides reliable, balanced information on which the public base choices as participants in political, economic and social life, and acts as a watchdog on those in power. It also supports broader social wellbeing through, for instance, the use of te reo Māori and promoting the culture of New Zealand. For those reasons the State has been propping up MSM but can no longer afford to do so.

For news media companies to survive in an online environment, they are increasingly engaging in business relationships with large digital platforms, particularly Google and Meta as the dominant players in online search and social media. News media organisations are attempting to reach commercial arrangements for the use of their content online, such as headlines, short blurbs and images used on Google News and on Facebook or Instagram.

A small number of arrangements have been reached. I am aware that Google has entered into commercial arrangements with BusinessDesk, Newsroom, RNZ, Pacific Media Network, Crux and NZME (the latter could potentially see a new revenue stream of $2.5m to $3.5m per annum over the next five years, with scope for this to potentially increase towards $5 million per annum). These arrangements are to supply Google News Showcase with content and receive financial compensation. Meta has not made any similar arrangements but has provided some companies with grants to assist with transition to the digital environment.

Bargaining imbalance?

The Commerce Commission has found that despite a two-way value exchange between news media and digital platforms, individual news media companies are likely to be in a relatively weak bargaining position.

While media companies are dependent on the digital platforms for a relatively significant segment of news consumers, the digital platforms are less dependent on any given news media company for New Zealand news content. We consider that this in turn is likely to result in an imbalance of bargaining power in favour of the digital platforms.

Google and Facebook are operating on a “take it or leave it” basis. This suggests a limitation on MSM companies’ ability to negotiate a fair return for their investment in news content. It also means there is no opportunity to negotiate in relation to other concerns, including the lack of warning of changes to algorithms that impact directly on the distribution of content and therefore the number of views the content receives, or the lack of access to their customers’ engagement data.

Since the Commerce Commission’s provisional authorisation in May 2022 to allow collective bargaining, the NPA (Newspaper Publishers’ Association) has indicated it has had little engagement from Google or Meta. This is consistent with overseas experience and suggests regulatory action is required to improve the quality of commercial deals. The State considers that fair and appropriate commercial arrangements are unlikely without government intervention. Let the market decide?

Under normal circumstances, absent State subsidisation, MSM would have to adapt or die. Rather like the recording and movie industries when faced with digital music and film piracy and which adapted new business models like Spotify, Netflix and streamed content, MSM should develop a new business model.

But the State steps in to provide a subsidy so MSM will continue to provide a convenient outlet for State messaging. This may not be the reality, but the optics are terrible. It looks as if MSM has been bought and sold and sadly the Fair Digital News Bargaining Bill does little to redress that problem. Rather than the State subsidising MSM, the aggregating platforms will do so, compelled to go to the bargaining table by the State.

The State is too invested in MSM and is in fact dependent upon it for messaging. Although there are comfortable words such as the media “speaking truth to power” or its importance in democracy as the Fourth Estate, current trends suggest that there is a lack of public confidence in the media and the behaviour of MSM over the course of the pandemic and afterwards conveys a strong suggestion of partiality.

There is no problem with an MSM outlet taking a position but it should be transparent in doing so. MSM potentially carries a lot of informative power and must be careful to use that power judiciously. Fact-based stories should report the facts without underlying subjective analysis. Opinion pieces should be clearly labelled as such to distinguish them from news. Opinions are a subjective analysis of facts, rather than objective reporting.

But despite these obvious shortcomings, and the difficulty in getting any firm direction from the NZ Media Council or the Broadcasting Standards Authority, the State has a vested interest in the preservation of MSM in the current – albeit unsustainable – model. And it is going to require the platforms to prop up the edifice.

The Bill sets out to ensure fair revenue-sharing between digital platforms and news media organisations by:

• promoting voluntary commercial agreements between digital platforms and news media organisations, with minimal government intervention;
• where agreement cannot be reached, establishing an arbitration process to determine commercial arrangements between digital platforms and news media organisations; and
• providing for collective bargaining with digital platforms by news media organisations. “Fair revenue sharing” will be achieved by:
• creating a fair bargaining environment through a bargaining code that will be established by the independent regulator and operate as secondary legislation;
• requiring bargaining parties to comply with the bargaining code and to bargain in good faith, as well as requiring parties registered under the legislation to participate in the bargaining process;
• promoting voluntary commercial agreements between operators of digital platforms and news media entities, with minimal government intervention;
• where agreement cannot be reached, creating a stepped bargaining process to facilitate fair and equitable outcomes;
• providing for collective bargaining by news media entities; and
• establishing civil penalties for non-compliance with the legislation

An independent regulator will be appointed and the Bill proposes that this be the Broadcasting Standards Authority (BSA). It is interesting to note that the appointment of an independent regulator is an integral part of the DIA proposals for safer online platforms, although that discussion paper envisages a reduced role for the BSA, given that MSM disseminates news via online platforms.

There is a range of stick-and-carrot approaches. Operators will be “incentivised” by the threat of compelled coercive action if there is non-compliance or hesitancy in complying. This is not incentivisation. It is velvet-glove compulsion. The iron fist comes later. If “fair bargaining” does not produce a satisfactory result, the State steps in and imposes agreements on platforms.

To be fair, it should be observed that in overseas jurisdictions, the threat of a compulsory bargaining regime has been sufficient to bring companies to the negotiating table. For example, in Australia the bargaining, mediation and arbitration provisions have not been used, with agreements reached outside of the framework. It is suggested that the legislation serves as a backstop encouraging companies to enter voluntary negotiations. The word “backstop” is a polite way of describing a threat.

The BSA has certain enforcement powers. Enforcement of the bargaining provisions does not involve the creation of an offence but the creation of civil liability which may result in a pecuniary penalty order or the issue of an injunction. Pecuniary penalty orders are a feature of the Unsolicited Electronic Messages Act. The remedies are available for contravention of the civil liability provisions. Pecuniary penalty orders would be imposed by the High Court.

Another alternative

In the Cabinet paper that developed the policy for the Bill, it was suggested that changes to copyright law would not be a feasible option primarily because the EU directive referred to in the paper was based on a different copyright model.

This dismissal of a copyright option overlooks the provisions of Part 8 of the Copyright Act 1993 which provides for copyright licensing schemes. This has been in existence for some time. It requires payment for a licence from an organisation representing MSM providers and would distribute the payments proportionately.

This arrangement would remove any State involvement from the equation, would locate the rights and remedies within the existing area of law where they belong – copyright and intellectual property – and avoid the unfortunate optics of a State-endorsed scheme to prop up and subsidise MSM.

A licensing body already exists in the form of the Media Copyright Agency (MCA) which is in the business of providing licences to organisations which copy, store and distribute newspaper, magazine and news website content so that they can do so legally.

The only possible statutory change that might be required would be to bring the aggregation of content and the provision of snippets within the licensing scheme. By obtaining a licence from the MCA, organisations can protect themselves from non-compliance risks and possible infringement proceedings and gain the right to copy articles from most major New Zealand news media publications.

Conclusion

Over the past few years, the State has subsidised MSM. In doing so, it has provided artificial support for the industry. That support is no longer sustainable. So, the State is now going to put in place a compelled bargaining process to ensure online platforms subsidise MSM.

Subsidies are a form of artificial support. They enable businesses that cannot survive in the marketplace or will not adapt to changes in the marketplace or to the disruptive change that follows a new technological paradigm to lumber on in their current way.

I have suggested there is an existing model available that will compensate MSM for the “free riding” undertaken by the platforms. Intellectual property law and principles are well attuned to the problem of free-riding and know how to deal with it. The solution is in the hands of MSM, perhaps with some minor statutory amendments. And it can be undertaken without the interfering hand of the State in the form of the Fair Digital News Bargaining Bill. ■

David Harvey is a retired District Court judge and a member of Sangro Chambers in Auckland ■