Regulation in the Online Space

The Fair Digital News Bargaining Bill - Overly Complex and Unnecessary

A shorter version of this piece appeared in Law News a couple of weeks ago. This is an expanded and more detailed analysis of the issues surrounding news media and the Fair News Digital Bargaining Bill which is in abeyance at the moment. I am grateful for some comments on the Law News piece from the Honourable Raynor Asher, Chair of the New Zealand Media Council. Those comments pointed out something of an unexplained non-sequitur in the Law News piece which I have remedied in this piece. I thank him for his comments - as always.

Introduction

Governments love to regulate. Its what they do. For years governments 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. The HDCA is an example of Internet Exceptionalism. The remedies available via the HDCA are not available if someone sent you a similar message by post or said the same words to you to your face. So you have an anomaly. Something that is lawful in “meatspace” is not so online.

Further steps are proposed. The Department of Internal Affairs proposes 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 New Zealand Parliament and had its first reading on 30 August 2023 – the day before Parliament rose. Submissions on the Bill close on 1 November 2023.

In this article I briefly outline what the Fair Digital News Bargaining Bill provides. I also identify some of the problems underlying the Bill – problems that the Bill has in common with the Safer Online Services proposals – and I suggest another route that might achieve the same result sought by the Bill by using existing law.

Background to the Bill

It may come as some surprise that for a number of years the State has been subsidizing mainstream media. The State has provided a total of $105 million by way of subsidies for mainstream media since 2020 by means of the 2020 Media Support Package ($50 million) and the Public Interest Journalism Fund ($55 million).

But the problems facing mainstream media predate these injections. The onset of the Digital Paradigm means that there has been a shift in the way in which people consume news media. News media is now access 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 (

http://news.google.com

) It is a news aggregator service that presents a continuous flow of links to articles organized from a large number of publications and magazines. The link that is provided allows the user to access the full article on the MSM website. Facebook provides a similar service as do a number of other news aggregator platforms.

As I said, this has been going on for some time and it has had an effect on MSM outlets profitability and especially on the revenue derived from advertising.

Between 2011 and 2020 newspaper advertising revenue in New Zealand fell from $533 million to $210 million. 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 that 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 Government interest and this is where the regulation comes in. I emphasise that there is a Government interest at play although it 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.

There have been a small number of arrangements 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 $2.5 – $3.5 million 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 inherently limits news media companies’ ability to negotiate about what is 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 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 Government considers that fair and appropriate commercial arrangements are unlikely without government intervention.

Let the Market Decide?

Under normal circumstances, absent State subsidization 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 and Netflix and streamed content, MSM should develop a new business model.

But the State steps in to provide a subsidy so that 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 brought and sold and sadly the Fair Digital News Bargaining Bill does little to redress that problem.

Rather than the State subsidizing 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 a 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, 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 the edifice up.

What the Bill Provides

The objectives of the Bill are to:

-      support news media entities to maximise the benefits they receive from the content they create that is aggregated and displayed on digital platforms

-      ensure that implementation of its provisions will impose a minimal financial cost and compliance burden on the affected parties and government

-      create equitable treatment and support for New Zealand’s diverse news media industry, including smaller, rural, regional, and ethnic news media entities, and, specifically, Māori news media entities

-      support a free and independent news media industry by enabling media companies to be viable in a digital marketplace.

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.

In detail the proposal is to achieve the “fair revenue sharing” between platform operators and news media organisations 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

-      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. 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.

The Purpose of the Bill

The purpose of the Bill can be seen from the background information provided. It is to provide support for MSM now that the various State based support mechanisms are coming to an end. The purpose as stated is to support sustainable production of New Zealand news content by ensuring that operators of digital platforms make a fair contribution to the cost of producing news content that is made available by their digital platforms.

That purpose is achieved by the following means:

-      “incentivizing” operators to enter into news content agreements and other arrangements that contribute to sustainable production of New Zealand news content

-      facilitating fair bargaining between news media entities and operators about the terms on which news content produced by the entities may be made available by the operators digital platforms; and

-      where necessary, imposing news content agreements that require operators to fairly compensate news media entities for that news content through binding arbitration.

Thus there is a range of “stick and carrot” approaches. Operators will be “incentivized” by the threat of compelled coercive action if there is non-compliance or hesitancy in complying. This is not incentivization. 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 or describing a threat.

How the Process Works – A Quick Summary

The Bill has a total of 125 clauses and I do not intend a clause by clause discussion. I shall very briefly summarise how the process is going to work.

The first step is to provide a means by which news media entities and operators may be registered so that they may participate in the bargaining process. Both news media entities and operators must comply with a bargaining Code that would be issued by the Regulator and bargain in good faith when engaging in news content bargaining.

There are various criteria for the registration of news media entities and for platform operators.

The Bill sets out provisions for the bargaining process. There are three stages – negotiation, mediation and final offer arbitration.

It is clear that if there are existing satisfactory arrangements in place the bargaining process does not override existing news content agreements or other contractual arrangements.

If the parties cannot reach agreement by negotiation the process moves to mediation. There is a period within which mediation takes place. If an outcome cannot be reached by mediation or withing the mediation period the matter goes to final arbitration conducted by a panel of 3 approved arbitrators.

Parties submit their final offers and the panel selects the final offer that fairly compensates the news media entity party for its news content being made available by the operator’s digital platform on the terms provided for in the offer. If both offers fairly compensate the news media entity party, the panel must select the offer that, in its opinion, better supports sustainable production of New Zealand news content.

The Bill provides that the Authority should have information gathering powers and may share information gathered with overseas agencies.

The Authority has certain enforcement powers.

These powers are similar (but not identical) to those contained in the Unsolicited Electronic Messages Act 2007 which dealt with spam. Undertakings may be given relating to enforcement. Corrective notices may issue where a person has contravened or is likely to contravene various provisions of the legislation. Warnings may be issued.

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. Those provisions impose substantive duties including:

·         compliance with the bargaining code:

·         bargaining in good faith:

·         participation in the bargaining process:

·         compliance with the terms and conditions of an exemption from the bargaining process:

·         compliance with corrective notices and disclosure notices.

Pecuniary penalty orders would be imposed by the High Court. Three tiers of penalties are proposed.

Tier 1 has maximum penalties of $500,000 for an individual or $10 million for a body corporate (or a higher amount based on 3 times the commercial gain from a contravention or 10% of turnover). Tier 1 covers—

·         contraventions of the duty to participate in the bargaining process:

·         contraventions of the terms and conditions of an exemption from the bargaining process.

Tier 2 has maximum penalties of $200,000 for an individual or $3 million for a body corporate (or a higher amount based on the commercial gain from a contravention or 3% of turnover). Tier 2 covers—

·         contraventions of the bargaining code:

·         contraventions of the duty to bargain in good faith:

·         contraventions of certain terms and conditions imposed on an exemption from specified provisions of the Commerce Act 1986 under subpart 2 of Part 6.

Tier 3 has maximum penalties of $30,000 for an individual or $300,000 for a body corporate. Tier 3 covers—

·         contraventions of the requirement to give the Authority a copy of a news content agreement entered into through the bargaining process:

·         contraventions of corrective notices and disclosure notices.

In determining an appropriate pecuniary penalty, the court must have regard to all relevant matters, for example, the nature and extent of the relevant conduct and the loss or damage caused by that conduct.

There are specific offences proposed relating to compliance with the Authority’s information-gathering powers and misleading or deceiving the Authority. The penalty for an offence under that clause is a fine not exceeding $500,000 for an individual and $10 million for any other person.

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. The paper stated:

In 2019, an EU directive on copyright law created a “neighbouring right” so digital platforms cannot use news extracts without a licence from the publishers of the original news content. Taking a similar approach in New Zealand would not be feasible given New Zealand’s broader competition and copyright settings. Under current settings, a neighbouring right is not a requirement to license and would not be infringed by digital platforms opting not to purchase licenses from press publishers.

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 and does not require a neighbouring right but rather platforms should obtain and pay for a licence from an organization representing MSM providers and which 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 which is in the business of providing licenses to organisations who 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.

An example of a licensing scheme may be found in the case of Trustpower Ltd v NZ Press Association [2005] NZ Copy T 1 (27 July 2005) which dealt with print and digital copies of newspaper articles but which demonstrates the way in which a licensing scheme could work.

Enforcement Problems

The way in which the Court has the power to make decisions about civil liability and impose pecuniary penalties depends upon whether or not the Court has jurisdiction to do so,

The way that jurisdiction is attracted is set out in the High Court Rules and essentially depends upon the ability to serve a potential defendant. This is not a problem for a defendant within the territorial jurisdiction of New Zealand. Problems arise in circumstances where an overseas defendant may be subject to the jurisdiction of a New Zealand Court.

The Bill does not provide for an extra-territorial application of the Bill in the way that the Unsolicited Electronic Messages Act 2007 does.

This demonstrates a fundamental problem with brining local law to bear upon an offshore entity. Prior to the internet there would generally be some sort of physical connection between an off-shore company and the jurisdiction – generally where the off-shore company had a local office or did business within the jurisdiction. This no longer applies where a platform may have New Zealand subscribers but has no physical presence in New Zealand territory.

Within the context of the Bill this probably will not be a problem because both the major aggregators – Facebook (Meta) and Google have a presence in New Zealand but requiring compliance by those that do not raises interesting issues.

I have written elsewhere about the difficulties of enforcement of the criminal law against off-shore scammers. Section 145A of the Films Videos and Publications Classification Act provides for extraterritorial jurisdiction for certain offences under the Act.

When it comes to enforcement of civil penalties a situation similar to the enforcement of penalties in the case of Department of Internal Affairs v Mansfield [2013] NZHC 2064 – the defendant was resident in Perth, Western Australia and had been served with proceedings overseas. He took no active steps in the proceedings. In that case the penalties were imposed under the Unsolicited Electronic Messages Act 2007.

Enforcement and compliance – as I have suggested – are not so much a problem where the platform operators have a local presence. The effectiveness of the law is limited where the operators are off-shore. And this suggests that they could continue to operate with impunity. This doesn’t do much for the effectiveness and universal application of the Rule of Law but sadly it is a reality of that area of law known as private international law or conflict of laws.

From the point of view of MSM who will be the beneficiaries and a State-imposed platform summary, a few dollars will probably be more welcome than none at all.

Conclusion

Over the past few years the State has subsidized 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 that 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 that 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.