After the Bell: Setting the scene — the Competition Commission and the media inquiry

Hearings start this week on something called the Media and Digital Platforms Market Inquiry at the Competition Commission. There are several aspects to the inquiry including, of course, artificial intelligence. But the heart of the investigation is whether there are market features on digital platforms that distribute news content “which impede, distort or restrict competition”.

Ouch. Big Question. And, of course, one that is close to my heart (and salary cheque). The issues are complex because, as I hope to show, there are good arguments on both sides. I say “hope to show” because naturally, as a participant in the industry, I’m biased; so, please keep that in mind.

There are two issues here: one is whether by referencing a news article, Google and Facebook get most of the traffic upside while having to bear a fraction of the costs. Let’s call that the search issue. Then there is also the cost-benefit ratio involved in advertising, especially something known in the industry as “programmatic advertising”. Let’s call that the programmatic issue.

Let me first sketch the background, which is essentially the reason for the inquiry. The news industry is in crisis, not just in SA but around the world. As a journalist fairly long in the tooth, I have personal experience of this. 

I worked at The Star in its heyday in the late 1980s when the newspaper was publishing 230,000 copies per day. There were two floors of journalists; to speak to the news editor, you had to stand in a queue. Now, however, The Star’s paid circulation is around 8,000. Given the wanton destruction imposed on the group by its awful management, the newspaper is not a great example. But broadly speaking, most estimates put the number of journalists around the world down by between 20% and 40% over the last 30 years. 

Publishers, therefore, are extremely grumpy and are looking for scapegoats everywhere. Some of their arguments are legitimate, some are not. It’s noteworthy that in this brave new world, there have been a few winners: The New York Times, the Financial Times and The Wall Street Journal; their common link has been that they are large international brands for whom any marginal increase in globalisation was a boon. For city newspapers, magazines and television news organisations, the effect has been dire.

The counterargument is this: welcome to the digital world. You can’t blame the mousetrap maker for making a better mousetrap. Digitalisation has revolutionised the distribution of information, largely to the enormous benefit of the world. Publishing might have suffered as a result. But that is the price we, as humanity, pay for the ability to find a crankcase for a 1956 Toyota in milliseconds and/or the latest news (if we must) about Donald Trump.

From a slightly more sophisticated point of view, it works like this: when you search Google for news about Donald Trump, Google can monetise that search request in various ways, notably by charging for ranking the responses of your search and by throwing up advertising around the search. But here is the thing: the publisher of the specific article on Donald Trump on which you decide to click can also monetise that visit. In a sense, there is a kind of mutual back-scratching going on here. 

The question is: Who is getting the actual scratch? The answer to that is pretty obvious: Google. And Facebook and Instagram, etc, etc. Google won’t publish this figure — which is suspicious in itself — but the speculation is that collectively, the social media companies probably make a profit in the billions a year. That’s profit; that’s what they send home. That is a multiple of the turnover, never mind the profit (because there practically isn’t any) of the entire media industry in SA.

Distribution is king