As Bill C-18, the Online News Act, continues its step-by-step process through the Canadian Parliament, another shoe has dropped. Meta, Facebook’s parent company announced it will be laying off 13 percent of its global workforce (11,000 people) owing to two quarters of losses and a sinking share price. Meta’s valuation is down more than 70 percent so far this year, to levels not seen since 2015. This announcement came just a few days after Facebook executives appeared before the Parliamentary committee (Standing Committee on Canadian Heritage) holding hearings on C-18 to object to the draft legislation because it will require Facebook to negotiate payment with eligible news providers for use of, or facilitation of access to, news content. Their appearance was arranged as a result of the company publicly complaining it had not been invited to testify, notwithstanding the fact it had failed to request an invitation, the normal procedure if a stakeholder has something to say. And Facebook certainly had something to say, given that it is one of two mammoth internet platforms (the other being Google) that are the current intended targets of the legislation.[i]
On a global scale Meta, which owns Facebook, Instagram, WhatsApp and others, is facing a problem common to many companies that become very successful very quickly. Growth is not infinite. As everyone knows, Facebook took an early lead role in the online social networking space and never looked back, gobbling up competitors or putting them out of business. But after almost two decades of success, Facebook’s rose is fading. With the younger demographic, it is no longer the go-to app, with the “cool crowd” migrating to newer platforms like TikTok. History tells us that many companies fail to stay on top, no matter how dominant they are for a time, unless they periodically re-invent themselves. Sticking to the original playbook while the world moves on has negative consequences. Just ask AOL, BlackBerry or BlockBuster. Growth is a heady drug for the market, but unrealistic expectations are often created.
Reinvention and getting ahead of the curve is what Mark Zuckerburg has been trying to do with his bet on the metaverse (the world of virtual reality) without, however, much financial success to date. He may well be on the right track but is a few years ahead of his time. Meanwhile, 11,000 of Meta’s employees are paying the price. This is as an abrupt turnaround in plans. Just a few months ago, Meta was announcing expansion plans in Canada where it was going to hire up to 2500 new staff in Toronto.
All this comes at a time when Facebook is in the sights of various governments because of its market dominance–despite its current challenges–particularly with regard to online advertising. To sell ads, Facebook needs to keep users on the platform. To engage them, you need content. As anyone who uses Facebook knows (and that is most of us—it is pretty hard to avoid) much of the content is provided by the users themselves in the form of posts, photos, and videos. Users also add news items to discussion threads, through articles, snippets and links. The posted news content is often expensively and laboriously produced by media outlets who are in competition with Facebook for ad revenues, yet Facebook and other social media platforms have managed to corner most of the ad market while producing almost no original content of their own. In other words, part of the intermediaries’ product offering is based on freeriding and monetizing the content of others, the “others” being struggling news media whose main source of revenue has gone to the platforms because of the latter’s ability to micro-target users through tracking their online habits. Is this fair? Is this legal?
From the perspective of copyright law, in most cases it is almost certainly legal insofar as snippets or links to news content are concerned. The limited amount of content actually displayed on the platform normally meets the threshold of fair dealing, or fair use in the US. However, infringement of copyright is not the issue. It is market dominance. In other words, it is a competition rather than a copyright issue. Canada is not the only country trying to get its arms around this. Australia has done so, through legislating its News Media Bargaining Code. The US is looking at the issue. The US Copyright Office conducted a review of US copyright law to determine if changes were needed to allow news publishers to better protect their content. The Office recognized that adequate funding for journalism may be at risk but concluded that the “press publishers have significant protections under existing law and…the challenges of funding journalism in the internet era do not appear to be copyright-specific”. In other words, look to other remedies, like competition law, which is the approach taken by Australia and Canada.
Bill C-18, the Online News Act, is following Australia’s example, with some minor tweaks, to require large digital intermediaries (Google and Facebook for starters) to negotiate financial compensation with news content providers for use of news content to attract users. This is not because the platforms are infringing on the copyright of news providers but because of significant market imbalance that is putting in jeopardy the viability of professional media. Governments have recognized that without a professional media, the field is open for misinformation, conspiracy theories, manipulation of the news and other threats to an informed citizenry, a key element of democracy. But when Australia brought in its legislation, Facebook, in a clumsy move that spectacularly backfired, (“Facebook in Australia: READY, FIRE, AIM”) shut down all news feeds on its platform, including sites that provided public safety information, access to health services, etc. Under a torrent of criticism, it climbed down from this position and was suddenly able to find a way to reach content deals with Australian media, thus avoiding being designated under the Code. (The Australian government also agreed to minor concessions such as giving digital platforms one month’s notice before they would be formally designated, which Facebook claimed as a victory). The platform is now threatening to play a similar game of chicken in Canada.
In his appearance before the Parliamentary Committee studying the Bill, Facebook Canada’s head of public policy Kevin Chan commented that if the Bill was passed in its current form, Facebook “may be forced to consider whether to allow sharing of news content on Facebook in Canada”. If that is not a threat, I don’t know what is. That threat led to an op-ed from Australian commentator Emma McDonald,
“Big Tech will threaten, but Canada doesn’t have to listen”. One of the members of the Committee, Liberal MP Anthony Housefather, wrote in another op-ed;
“Whistleblowers have told us that Facebook deliberately caused havoc in Australia in the hopes of intimidating its people and legislators into making the changes it wanted. It blocked fire and rescue services’ pages during wildfire season. Suicide prevention support. Domestic violence services. Kids’ cancer charities. Children’s hospitals. The list goes on and on. The majority of pages were restored only a week later, after the Australian Senate had adopted a bill that included amendments demanded by Facebook.”
In his testimony Chan claimed that Facebook provides hundreds of millions of dollars of free advertising for news publishers by carrying links to their content. From his perspective, Facebook doesn’t benefit from having the content on its platform; it “helps” media. He claimed that the legislation would force Meta to pay for links posted to the platform by the publishers themselves, exposing the platform to open ended financial liability. Let’s be kind and just say this is hyperbole. It is perfectly true that the publishers derive some benefit from exposure on Facebook which explains why they will at times post their own articles to the platform. Will Facebook have to compensate a publisher each time it promotes its own content on Facebook? The legislation says nothing of the kind.
What C-18 will do is to require negotiation of fair compensation for use of news content or providing access to news content. As I wrote in an earlier blog, a version of which also appeared as an op-ed in the National Post;
“The platforms argue that they should not be required to pay news publishers when they themselves have posted the link. The answer comes in the wording of the legislation requiring “fair compensation.” Fair compensation negotiations will take into account the benefit that news publishers gain by posting links to the platforms. That benefit will be offset against the greater benefit the platforms gain by using news content to attract viewers and advertisers. That trade-off will normally be worked out during bilateral negotiations between the publishers and the platforms, with the government stepping in only if there is a failure to reach agreement”
While links are not mentioned in the Bill, facilitation of access to content “by any means” is. This includes links, which will be factored into the negotiation of compensation (a) either “voluntarily” or (b) as part of mandated arbitration. This is how the legislation will redress the imbalance in the online advertising market built on the back of uncompensated content. Meanwhile, Facebook will huff and puff and threaten to block news content on its platform in Canada.
It would be self-defeating for the platform to do so. It is in enough trouble without damaging one of the key attributes it employs to attract users; providing an essential channel for the exchange of information. It may be engaged in broad cost-cutting, and understandably does not want to give up any more of its revenues than it has to (estimates of the annual amount that would accrue to news media from internet intermediaries is in the range of CAD$300 million), but Facebook is not about to shut down news feeds in Canada. That would be a self-inflicted wound that would hasten its own demise by undermining its relevancy for users.
Facebook will continue to oppose the Canadian legislation, just as it did in Australia, because it knows that other governments are watching. That is part of the price of being the big dog on the block. At the same time, it is having to grapple with its own competitiveness issues–although Meta is a long way from being counted out. Watching how these two intersecting issues play out will be an interesting exercise.
© Hugh Stephens, 2022. All Rights Reserved.
[i] Neither platform, called a “Digital News Intermediary” (DNI) in the legislation, is named. Rather, DNI’s are required to self-identify based on a number of criteria if there is a significant bargaining power imbalance between them and news businesses, having regard to the following factors:
(a) the size of the intermediary or the operator;
(b) whether the market for the intermediary gives the operator a strategic advantage over news businesses; and
(c) whether the intermediary occupies a prominent market position.
If a platform does not do so, and if so requested, it must provide the CRTC with sufficient information for the Commission to determine if a given internet intermediary is exempt from being categorized as a DNI.