How Facebook and Australia Became Friends Again
Five minutes before question time in Parliament on Tuesday and after days of back-and-forth negotiations, Treasurer Josh Frydenberg rang Facebook chief executive Mark Zuckerberg for one final WhatsApp chat.
In the wake of Facebook’s shock blacklisting of Australia’s local news pages and following more than a dozen calls, Frydenberg wanted confirmation from the social media network founder – worth AU$100 billion (FJ$154.77bn)– that they had reached a compromise and Facebook would reboot its full services.
Frydenberg had deliberately engaged oneon-one with Zuckerberg to short-circuit the “lawyers at 50 paces”.
He set Zuckerberg a deadline of Tuesday to agree to changes, coinciding with the Coalition’s joint party room meeting to sign off on legislation. It went down to the wire, but the investment banker-turned-politician and the tech titan finally agreed to a deal. Frydenberg even joked to Zuckerberg he had been speaking with him more than his wife.
This was a deal that had been coming since the government launched a review of the market power of Facebook and Google four years ago.
That review by the competition watchdog resulted in the proposal for internationally significant legislation to force Facebook and Google to pay media companies for displaying and sharing original news content on their platforms.
Zuckerberg was not the only prominent American Frydenberg had sparred with over the legislation.
France an example
Former US president Donald Trump’s Treasury secretary, Steven Mnuchin, and then-ambassador to Australia, Arthur B. Culvahouse, had lobbied the Treasurer late last year, voicing their concerns about the crackdown on two of America’s largest companies. Trump’s trade officials in Washington privately warned Australian diplomats that the unpredictable US president might retaliate with sudden tariffs on Australian goods. There was a recent precedent. In response to France’s digital services tax on America’s internet giants, Trump slapped US$1.3 trillion (US$2.61tr) of tariffs on French handbags, cosmetics and soaps last July.
The US warned Australia the media bargaining code may breach international trade rules, particularly the mandatory final-offer arbitration and forcing Google and Facebook to hand over their secret algorithms. Australia’s ambassador in Washington, Arthur Sinodinos, wanted to retain the country’s unique tariff-free status during Trump’s four-year presidency – a position he had inherited from Joe Hockey and a feat most countries had failed to achieve. Australia told the US the media bargaining code was not a tax, but rather a nudge to encourage Facebook and Google to negotiate commercial deals with local publishers. Prime Minister Scott Morrison and Frydenberg were mindful of the US political relationship since Morrison had launched that first competition review when he was treasurer, with the strong backing of News Corp owner Rupert Murdoch.
Market dominance
The Australian Competition and Consumer Commission found Facebook and Google dominated the AU$9 billion (FJ$13bn)-a-year online advertising market in Australia, with AU$81 (FJ$125.36) in every AU$100 (FJ$154.77) going to the two tech giants.
Parliament conveniently delayed finalisation of the code until after the November 3, US presidential election.
Even though Joe Biden had received strong financial backing from Silicon Valley, the Democratic candidate was considered less hostile towards the media bargaining code and more likely to follow official process if the US decided to challenge it.
That pre-election hunch was confirmed when the Biden administration said this week that the dispute was a commercial matter between a corporation and a government, so the US administration would not get involved.
At the same time, Australia received support from countries such as Britain, India and Canada, including the latter’s Deputy Prime Minister and former journalist Chrystia Freeland.
For months, Facebook and Google had made threats to quit Australia in response to the code they said fundamentally misunderstood the internet companies.
Above all else, they were worried about the international precedent it would set for other countries.
“We all knew we were negotiating the details of an agreement that had global ramifications,” Frydenberg says.
He and Morrison considered the companies’ withdrawal threats credible.
“We never dismissed their threats, but neither were we intimidated by them,” he says. They had made contingency plans should either company push the nuclear withdrawal button.
Game changer
A game-changer for the debate was USbased Microsoft intervening to back the code and offering Bing as an alternative to the Google search engine.
Nevertheless, Google won some legislative concessions from Frydenberg last week.
The Treasurer and Communications Minister Paul Fletcher told local media leaders they must come to the negotiating table with reasonable expectations and do commercial deals with Google and Facebook.
Frydenberg spoke regularly to Seven West Media owner Kerry Stokes and Nine chairman Peter Costello, a former Liberal federal treasurer.
Also regularly consulted were News Corp global chief executive Robert Thomson and Australia chief Michael Miller, Nine chief digital and publishing officer Chris Janz, Seven chief James Warburton, ABC managing director David Anderson and Guardian Australia boss Dan Sinton.
Frydenberg had found himself wedged between the desires of powerful media moguls who could influence his political trajectory and two of the world’s biggest corporations. Facebook is worth US$730 billion (FJ$1,466.19bn)and Google’s parent company, Alphabet, is worth US$1.4 tr (FJ$2.81tr) – roughly five to 10 times the size of BHP and Commonwealth Bank of Australia.
Google swiftly signed more than AU$150 million (FJ$232m) of payment deals with Seven West Media, Nine (owner of AFR Weekend) and News Corporation, among others. Facebook had been close to signing commercial deals before its abrupt banning of the news pages.
Then it overreached, drawing international condemnation for shutting down hundreds of news, health and community service sites in Australia.
Stranded in his tennis whites at Parliament House last Thursday, Frydenberg received the news in a call from Zuckerberg about the Facebook ban. The Treasurer never made it to the parliamentary tennis courts that morning.
He had already experienced the tortuous negotiation of the National Energy Guarantee as energy minister, which ultimately brought down Malcolm Turnbull. Frydenberg had refined his negotiating skills through that experience and was determined to avoid the same fate. He told Zuckerberg the abrupt and broad withdrawal of Facebook pages in Australia was very disappointing.West Australian Labor leader Mark McGowan likened Facebook’s behaviour to a “North Korean dictator”.
Union leader Sally McManus tweeted her disapproval, and British politicians slammed the social media juggernaut.
Morrison drew a line in the sand with his own Facebook post: “They may be changing the world, but that doesn’t mean they run it.” But this was a global corporation controlled by one founder who called all the shots. Zuckerberg explained to Frydenberg that its business model was different to Google’s search engine and argued that Facebook delivered value to news business by delivering readers and clicks.
Workable code
So confident was the Silicon Valley giant in the reach of its social media platform that Zuckerberg said news was not so crucial to its existence.
Facebook simply wanted a workable code that did not become too rigid if it was adopted by other countries.
Facebook executives and lawyers scrambled to meet Treasury officials, led by deputy secretary Meghan Quinn, last weekend. Zuckerberg and Frydenberg also spoke about a dozen times over several days. Frydenberg says Zuckerberg was always respectful and the talks were constructive.
Nevertheless, they hit a stalemate. Talks in effect broke down.
“The negotiations were difficult and complex and at one point they reached a stalemate, but fortunately we found a way through and got the deal done,” Frydenberg says.
The Treasurer said the legislation had to pass Parliament this week, and he needed to take amendments to the joint Coalition party room on Tuesday. Facebook knew that if the legislation passed, it would be too difficult to change again.
Among the government’s concessions were that there would be a mediation process before final arbitration, it would take into account the costs incurred by the digital platforms, and there would be no undue burden on Facebook and Google.
Treasury had been concerned that Facebook could try to circumvent the rules by creating Facebook 2.0 to avoid the code. Facebook insisted it had not such intention.