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12 July, 2017

Message To Media Companies: A Product Is Worth What Someone Will Pay For It

In this guest column, the editor of business marketing site Which-50, Andrew Birmingham, says asking the government to overly regulate for Australian media companies is not the answer to their Facebook/Google dilemmas…

Market disruption tends to bring out the rent seekers. This month it’s the media companies that have decided the answer to their salvation lies in government regulation.

They would be better served making products that people will pay for.

As Which-50 reported previously, two separate entreaties on opposite ends of the world describe the current thinking of traditional media businesses (typically print publishers) toward how they might staunch the flow of money into new media — basically Facebook and Google.

A few points need to be made.

Facebook and Google are running a very successful grift, hoovering up money from communities the world over and giving relatively nothing back to those same communities. And no, a few thousand jobs don’t count — they need to pay their fair share of tax.

The way to ensure they do this is to clean up the tax code, not to subsidise management and industry incompetence.

Until the tax codes are modernised, simplified and coordinated to an extent across geographies, company accountants can and will drive a truck through the current provisions and hold onto as much as they can legally justify.

In fact, there is an argument that companies are required to do so. The risk is shareholder litigation.

The issue with companies not paying their fair share is a matter of poor public administration, and of the power of lobbyists to influence lawmakers.

It is not even particularly a technology industry issue. Australia’s biggest miners do it all the time, and we hear little moral outrage. But for now, it’s technology in the spotlight.

Gimme, gimme

In Australia, some in the media are apparently pushing an absurd idea in Senate hearings that the government should tax Google and Facebook to fund private-sector journalism.

No, it shouldn’t.

Governments absolutely must tax Google and Facebook more effectively — but only to fill the coffers of consolidated revenue and in turn fund schools, hospitals, roads, universities and other public infrastructure (which also includes public broadcasters like the ABC and SBS).

All. Perfectly. Reasonable.

It should not, however, tax one private concern to fund the interests of other private concerns — like those owned by billionaire ex-Australian Ruper Murdoch, or the Guardian Trust, or the fund managers who unwisely bet on Fairfax when its price was higher.

Put plainly, the government has no place funnelling money from successful businesses to failing ones. It would be like taxing Uber to subsidise the earnings of the taxi companies. Or subsidising Hilton Hotels by taxing Airbnb and depositing the proceeds into the bank account of Paris’s wealthy antecedents.

A surplus of antitrust

On the other side of the world, US media companies are arguing for a change in regulation to allow them to negotiate collectively with Facebook and Google. Basically, they want the US government to make it easier for them to force Google and Facebook to pay more for their content.

So they don’t just want a cartel, they want a government-mandated one.

As a function of their market power and their behaviour, both Facebook and Google will run into antitrust problems eventually. But that is precisely because they are governed by the very antitrust provisions that the media companies now want adjusted to suit their own proprietary advantage.

Generally speaking, it’s a bad idea to allow businesses — especially sellers — to collectively bargain with buyers.

If these sellers of content are allowed to bargain collectively with the buyers of their content, where do you draw the line? Who else should they be allowed to bargain collectively with? And if it’s ok for media companies, then why not coal miners, or car manufacturers or everyone else on the wrong side of a shift in consumer sentiment?

As anyone who has ever filled their car up with petrol can tell you, cartels are a bad idea. And they tend not to have the best interest of consumers in mind when they are parlaying with regulators about rewriting the rules.

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