RSMR Weekly Broadcast: the battle for content – deal or no deal?

There's no shortage of knowledge and expertise at RSMR! Each week we get our heads together and talk about events in the world and how investments are affected by them. Our broadcast tackles a wide range of issues facing investors from green gilts to the global shipping crisis and bot extortion to the legislation of tech giants. We like to think of it as cracking content for the financial adviser. Have a read & get clued up...

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"The advertising industry has hit tough times recently, the coronavirus pandemic has exacerbated the crisis and scores of publishers have had to slash costs and stop printing. Publishers aren't just sitting back anymore and letting the tech giants get away with using their content - the fight back has begun."

How do digital tech giants make their billions? In short, through advertising and other people's content. To attract users Google, Facebook and YouTube feature original content on their platforms. With a captive audience, it's the perfect advertising platform and with 97% of Facebook's revenue coming from advertising, it's a very lucrative one.

As the content generally comes from journalists and publishers, the tech giants are basically benefitting from other people's literary talents and stories. The advertising industry has hit tough times recently, the coronavirus pandemic has exacerbated the crisis and scores of publishers have had to slash costs and stop printing. Publishers aren't just sitting back anymore and letting the tech giants get away with using their content – the fight back has begun.

What are the nuts and bolts of the battles between legislators and the technology giants? Months of talks between Google France and the media groups represented by France's Alliance de la Presse d'Information Generale have led to a major digital copyright deal where Google must pay French publishers for news content. Tech giants faced potential legislation against them and so the agreement was forged. Newspapers are paid based on contributions to political and general information, daily volume of publications and monthly internet audience and Google has said it will negotiate individual licenses with members of the alliance. It's a pivotal moment as it marks the recognition of the neighbouring rights of press publishers and is the start of their remuneration by digital platforms that make use of their online publications.

How come France took on the big technology companies and won? Copyright laws changed a few years ago. With new EU legislation, a platform is responsible for the copyright rather than the author. So, if you post an article on Facebook written by someone else, the platform is now responsible for addressing any copyright contravention rather than the author. France adopted the new legislation early on and fought the two global digital platforms aggressively. The French authorities have now ordered Facebook and Google to negotiate 'in good faith with publishers and news agencies on the remuneration for the re-use of their protected content'. A precedent has been set and other European countries are looking to follow suit.

What's happening in other parts of the world? There's been a breakthrough in Australia. Rupert Murdoch has significant influence and his companies are losing out as they produce the content, so he's been pushing for change. Back in December, the Australian government were debating whether to pass a bill through parliament which would force Google and Facebook to pay for content. The bill has since been passed and Facebook and Google are now forced to pay for content created by traditional media companies.

Google and Facebook are fighting the Australian government over their plans to make them pay for news content and have responded by threatening to stop Australians from sharing news stories on their platforms. In some parts of Australia, Google have been running tests where, instead of making an agreement and paying for content, they have been blocking all the local Australian content. Google said it was conducting experiments to determine the value of its service to Australian news outlets. The Australian government has urged Google to focus on paying for Australian content instead of blocking it, but if Google and Facebook don't feature the content and Australian users are still happy to use the platforms, they could effectively just cut them out. This may be a dangerous strategy though as several countries could join forces to significantly curb the power of the tech giants.

Part of what makes Google and Facebook unique is that they leverage their platforms from a very low base cost. If they're paying for content or risking large fines for contravening new laws, it will diminish the power of their platforms as their cost base will be increased, which is an afront to their reach and earning potential. The tech giants have flourished during the pandemic and investors like them, but they need to continue making high revenue going forward as this is built into their share price. If their value is diminished by sharing their slice of the pie with content creators, their business model is void, and if their current business model becomes unsustainable, their stocks may well take a nose-dive. The power of the digital technology giants is being threatened and tough choices are on the horizon…will it be deal or no deal?

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