Facebook sends the world a warning with threat to Australian news

Facebook has flashed a warning to global regulators by taking a hardball stance against Australia’s plan to force it to pay media companies for stories.

The Australian government has drafted legislation to force the US tech giant and Google to compensate publishers for the value their stories generate for the platforms. Facebook lobbed a grenade on Tuesday seeking to hollow out the proposed law. If it passes, the company will block Australians and publishers from sharing news on Facebook and Instagram, an unprecedented step.

The scene is now set for an acrimonious battle after the Australian government said it won’t buckle to “coercion or heavy-handed threats.” The standoff has turned one of Facebook’s most distant markets, with a population of 25 million, into a test case as watchdogs around the world turn their own power against digital behemoths.

“This is a microcosm for other markets and what may happen as Facebook defends its turf,” said Dan Ives, an analyst at Wedbush Securities in New York. The company has come out “throwing punches,” he said.

Traditional media companies have long complained their content is being exploited by digital platforms without due compensation. The Australian government has said it’s trying to level the playing field as once-dominant publishers lose advertising revenue to Google and Facebook. In May, for example, Rupert Murdoch’s News Corp. announced plans to cut jobs and close or stop printing more than 100 local and regional newspapers in Australia.

The draft Australian law, which needs approval in parliament, calls for an arbitration panel to decide how much Facebook and Alphabet Inc.’s Google must pay publishers if the two sides can’t agree.

‘Line in the Sand’

By pushing back in Australia, Facebook is telling other European regulators what to expect in disputes over the platform’s use of news, said Rob Nicholls, an associate professor at the business school of the University of New South Wales in Sydney. At the very least, Facebook wants to force a change in the legislation, or even delay its introduction, he said.

“If you draw a line in the sand here, you’ve effectively provided that benchmark for negotiations,” Nicholls said.

The chairman of Australia’s competition watchdog, Rod Sims, said in an interview in July that he knows of several counterparts overseas who are considering taking similar steps to Australia’s. Facebook’s explosive intervention follows recent gains by publishers in Europe against digital platforms.

In April, France’s antitrust regulator ordered Google to pay media companies to display snippets of articles. Last October, Facebook introduced a separate news section, paying some publishers whose stories are featured. Last week, the company said it plans to expand the news section to other markets globally.

Facebook said in a blog post on Monday that Australia’s legislation is based on the flawed assumption that it benefits most from its relationship with publishers. “The reverse is true,” Facebook said. Google also opposes the law, saying in an open letter it would “put the free services you use at risk in Australia.”

Nine Entertainment Co, publisher of the Sydney Morning Herald, called Facebook’s response to the proposed law “strange.”

“It is a demonstration of Facebook’s use of its monopoly power while failing to recognize the importance of reliable news content to balance the fake news that proliferates on their platform,” Nine said in a statement.

A spokesman for News Corp. in Sydney declined to comment.