As we reach the pointy end of the Australian government’s negotiation on the mandatory news media bargaining code, it’s worth thinking through some of the consequences if the code becomes law. The most dramatic would be a nationwide pull-out of Google’s search engine.
Last week, Google provided the most serious indication yet that it is contemplating withdrawing its search service from Australia. In guidance issued to the market, the parent company stated:
Changes in international and local social, political, economic, tax, and regulatory conditions or in laws and policies governing a wide range of topics may increase our cost of doing business, limit our ability to pursue certain business models, offer products or services in certain jurisdictions, or cause us to change our business practices. We have in the past had to alter or withdraw certain products and services as a result of laws or regulations that made them unfeasible, and new laws or regulations, such as the News Media Bargaining Code drafted by the Australian Competition and Consumer Commission currently tabled in parliament, could result in our having to alter or withdraw products and services in the future. These additional costs of doing business, new limitations or changes to our business model or practices could harm our business, reputation, financial condition, and operating results.
For the uninitiated, the mandatory media code is a highly unusual bit of policy. It attempts to address two policy problems in one hit. The first is how to tax large, multinational technology companies. The second is how to ensure that Australia maintains a strong, independent media. The code’s solution is to mandate transfer payments from the tech companies to news organisations.
For those concerned about the survival of Australia’s news outlets, requiring tech companies to pay for news is a better solution (although not the only one) than having the government directly subsidise them, which would result in obvious conflicts. For market-minded people, though, it’s an awkward solution.
There’s no question that both issues are worthy of policy consideration, but compelling one industry to subsidise another, unrelated industry is a suboptimal solution that creates a bad precedent. It’s like forcing computer manufacturers to sustain typewriter manufacturers, or airlines paying wheelwrights. And given that search engines link to everything, there’s no end to who should be paid for referrals to their business.
Discussions continue on finding a way out of this jungle, but if Google does indeed pull its search function from Australia, it’s worth considering how things might play out. There are two key markets to consider: search and online advertising. For search, the ACCC estimates that Google has 95% market share in Australia. Microsoft Bing is the only search engine with the product and advertising heft to fill the vacuum and would likely assume a position similar to Google’s (pre-withdrawal). Others, like DuckDuckGo, may also make much smaller inroads.
If Bing assumed this dominant position, you would have to anticipate it would soon be designated under the code, and Microsoft has indicated that it would abide by the code. So, the most likely outcome in the search arena from a Google withdrawal would be the replacement of one dominant provider with another. It would only be if Bing decided the code was unsustainable and also withdrew that a genuine scramble for market share would occur, potentially opening up opportunities for more problematic providers.
The fallout in the online advertising field is a little more complicated to predict. The unwinding of Google’s dominance in online advertising may not lead to a straight transfer of this $9.1 billion industry to Bing. A few factors could come into play. First, the initial uncertainty about where consumers are going and unfamiliarity with Bing’s advertising platform could lead advertisers to experiment and diversify.
Second, alternatives to advertising on search engines are growing, and app-based advertising is likely to take an increasing market share. It’s here that things could become interesting and potentially complicated. TikTok, which the Trump administration tried to ban in the US, has a substantial and growing user base in Australia (2.5 million, according to Roy Morgan), is rapidly growing its Australian presence, and has launched a range of advertising services, including a self-service advertising platform for small businesses.
Australian regulators have so far focused their efforts on Western platforms, but when they inevitably turn their minds to more problematic non-Western platforms, the deeper they are embedded in the Australian market the harder the eventual unwinding will be.
So, if Google does withdraw, in the area of search we will most likely end up with a less competitive market but the same effective situation of one dominant player. In the area of online advertising, Bing should be able to eventually win over a large chunk of Google’s online advertising business, but the market is likely to splinter somewhat, especially to app-based advertising via platforms like TikTok.
For Australian public policy students, the code will provide rich ground for analysis and head-scratching for many years to come.