Big tech platforms' market power is "significantly overestimated", new paper finds

Credit: Photo by Rob Hampson on Unsplash

A new paper by the Institute of Economic Affairs (IEA) warns against platform-to-publisher payments to host news content.

The report ‘Pressing Matters’ builds on two previously published papers in the same area of study; ‘Breaking the News’ by Matthew Lesh for IEA and ‘Meta and the News: Assessing the Value of the Bargain’ by Jeffery A Eisenach of NERA Economic Consulting.

The context

Australia's News Bargaining Code was an unprecedented piece of legislation adopted by the Australian parliament in 2021. It argued that big tech platforms, chiefly Meta and Google, dominated the digital advertising ecosystem, undercutting news publishers. The Code was successful in allowing publishers to negotiate repayments estimated at around AU$200m. Now, other countries like Canada are trying to follow suit.

However, the 'Pressing Matters' paper finds that the market power of these platforms is "significantly overestimated". It argues that existing repayment mechanisms could stunt tech platforms' development and do long-term harm to consumer interests.

It also says that cases of market dominance should be dealt with by domestic competition law, rather than "custom-made" regulations that are prone to lobbying from interest groups.

"There's a motivation here in the minds of too many people which says that the platforms are damaging traditional news providers and moves straight to the conclusion that the platforms ought to be paying news providers," says Dr James Forder, academic research director and author of the paper.

The numbers

The traffic from Facebook to news publishers is estimated to be worth something like 1 per cent or 1.5 per cent of the publishers' total revenue, according to the paper. If Facebook was not there, that traffic would probably come by other routes.

At the same time, Twitter - which does not pay for news either - is not seen as having disproportionate market power and publishers are not seeking payments from the platform. Surprisingly though, Twitter will soon enable micropayments for news articles although there was no negotiation or pressure from publishers.

One of the problems with Australia-style bargaining codes is that the payments disproportionally benefit the largest publishers who can keep on lobbying governments and regulators and are least in need of subsidy.

The economics of news publishing is unlikely to improve simply by forcing tech platforms to pay out settlements. So far, publishers benefit more from platform-to-publisher payments than the platforms ever did from freely hosting news content.

Dr Forder recommends that countries weighing up their own News Bargaining Code need to properly assess whether market dominance is truly occurring.

"If Meta and Google are not abusing market power it’s absolutely crucial that we would not be making them pay because they are the agents of progress."

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