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50 Shades of Free – 17th March 2021

-- 10 min read --

A hot tech policy topic this year is whether internet services should pay news media companies for the news stories they carry on their platforms.

A number of countries have previously passed laws with the intent of moving money from internet services to content publishers, but a new legislative proposal in Australia made this a headline story over recent weeks.

A lot of (physical and digital) ink has been spilt over the details of the Australian legislation and I do not intend to go over the same ground in this post, but rather to step back and develop a framework for the relationship between content producers and platforms more generally. 

[NB If you are looking for an explainer about what has been happening in Australia, this one from the BBC is good and links to other useful sources].

We often talk about services being provided ‘for free’ but this masks a variety of forms of value exchange that are happening under the hood. 

My goal here is to describe the shapes of some of the common forms of the deals between users/businesses and online services in the hope that this additional granularity will help us better discuss what is going on.

The Deal

When we access internet services, either as users or as businesses, we are entering into some kind of deal with those services based on there being value to both parties.

These deals are set out in painfully laborious legal language in the terms of service documents and other policies that most of us rarely read.

I will describe a number of different models for those deals using more descriptive terms for the factors that I think most of us consider are important for the value exchange.

These models are largely based on thinking about ‘information society services’, ie online resources providing digital content and services, rather than ‘ecommerce services’, ie where the main event is the provision of physical goods ordered through some kind of online interface.

I have broken down the value that users can offer to an information society service into four categories :- 

ATTENTION (A), BEHAVIOUR (B), CONTENT (C), and MONEY (M)

And there are also four categories for the value that users can derive from the information society service :-

CONTENT (C), HOSTING (H), DISTRIBUTION (D), and MONEY (M)

I can best illustrate what I intend these categories to mean by describing some of the different models.

[NB In the shorthand equations, the deal between the User/Business and Service Provider is in the square brackets [ ] while other sources of income are in curly brackets { }].

USER-ADS-BROADCAST (the ‘old-fashioned’ world wide web version 1)

[A = C]

The user pays with their Attention for the Content they receive from a website as the site can sell that Attention to advertisers who show generic ads to everyone who visits the site.

If the website wants to increase revenue it has to win more Attention by offering more compelling Content.  If the User loses interest in the Content offered by that website they will withdraw their Attention. 

This deal is comparable with that offered by free-to-air commercial television stations where you receive the Content for free in return for (they hope) sitting through broadcast ad breaks.
USER-ADS-TARGETED (the state of most of the web in 2021)

[A + B = C]

The website now collects information about User Behaviour on their site (and often merges this with information about their activity on other sites) and uses this to show different ads to each User based on their interests. 

The website is still focused on getting as much of your Attention as possible so it can show you the ads, but hopes to make more Money per unit of Attention when showing targeted rather than generic ads.  

The User is still most interested in whether the Content is sufficiently valuable to them when set aside the cost of paying Attention to ads. 

They may feel the cost of accessing the Content has increased if they dislike the targeted ads or are concerned about the Behaviour data collection. 

Conversely, they may feel that the cost has decreased if they find targeted ads less of a drag on their Attention than generic ones and they are unconcerned about the Behaviour data collection.
USER-CONTENT-SHARING (social media sites are classic examples of this genre)

[A + B + C = C + H + D]

The User continues to provide their Attention and allows the website to collect data about their Behaviour but is now also uploading their own Content to the service.

Where they upload their own Content they benefit from the service providing Hosting and Distribution saving them the technical and financial burden of doing this themselves.

The value of the Content the User receives from the service may also be significantly greater than for traditional websites as it comes from a wide variety of sources and is curated to reflect the User’s interests.

The introduction of user-generated Content helps the website owner command more Attention from Users as they have a constantly renewing stream of Content to show, and it can provide more data to feed into targeted advertising systems increasing revenue per ad.
USER-SUBSCRIPTION (mostly used by news media and audiovisual content providers)

[M (+ A?) (+ B?) (+ C?) = C (+ H?) (+ D?)]

The User is willing to pay Money to the service provider in the form of a subscription in order to access Content that they find especially valuable.

The exchange may include an element of Hosting and Distribution where the subscription is to a Content-sharing service, though this model is more typically associated with access to premium licensed content than with social media today.

The Money may reduce or remove the need for the User to contribute their Attention and Behaviour data but this is not a given with subscription models.

A common model is that of the ‘Freemium’ service where users who offer Money get a discount on their Attention as they are no longer shown ads, but their Behaviour may continue to be of value to the service provider and get collected.

News media sites that sit behind a ‘paywall’ often continue to show advertising and collect activity data so Users are paying with Attention and Behaviour as well as Money but they may consider this a fair exchange if the Content they receive is sufficiently valuable.
USER-INFLUENCER (individuals who produce popular content on social media)

[C (+ M?) = H + D] + {M}

Where a User is able to produce Content that is especially interesting for large numbers of other users of a content-sharing service, the deal can look different than for a regular user.

The value of these Users to the platform lies in their Content rather than in capturing their personal Attention or Behaviour to show them targeted ads.

These Users may also give Money to the platform by using advertising tools to promote themselves and build up their personal brand.

The service in return provides the User with Hosting and Distribution which can represent a significant value if we consider what it would otherwise cost to, for example, host and serve a large catalogue of video content to millions of people around the world.

The platform does not directly offer Money to the User in this model but they are rather able to derive significant income from other sources, eg sponsorship deals, which makes their presence on the service a lucrative proposition for the influencer.
USER-PARTNER (a number of platforms now have programs for content producers)  

[C (+ M?) = H + D + M] {+ M?}  

Content-sharing services believe they offer sufficient value to most Users in the form of Hosting and Distribution such that they do not also need to hand over Money.  

But platforms also understand that Users who share highly popular Content generate significant value for them in the form of increased Attention from their broader User population.  

There is a logic to platforms offering Money to Users where they believe this will incentivise the production of more of the most popular content, and we have seen a number of the large social media services develop programs to do this [see YouTube, Snapchat, TikTok, Instagram].  

A User who is in such a program may give some Money to the platform to promote themselves and may derive external income, just as in the USER-INFLUENCER model, but they now have direct payments from the platform related to the Content they are sharing.  

After looking at some of the types of deals available to Users, we can consider those that Businesses enter into as they offer their services online.

BIZ-SIMPLE (a plain old web hosting service) 

[M = H + D] + {M} 

The standard way for a Business to operate on the internet is for them to set up a website where they can offer their service to the world. 

The Business pays Money to a hosting service, either directly or through a web design agency, and they receive Hosting and Distribution in return for this payment.  

They do not receive Money from the hosting service but rather directly from Users who come to the website or from other sources like advertising income. 

They will scale their investment in the website according to how much Money they are able to make from all sources and their assessment of any other value it brings, such as improved customer service.
BIZ-PLATFORM (a presence on a social media service)

[C (+ B?) (+ M?) = H + D] + {M}

It has become increasingly common for Businesses to create a presence on platforms like social media services in addition to, or sometimes instead of, their own websites.

A core benefit for the Business remains Hosting and Distribution which they now no longer need to pay for directly, though they may hand over Money to enhance their Distribution through advertising.

The platform benefits from the business Content attracting more Attention from Users and it may also derive some value from Business Behaviour if this produces insights that help it to develop its offer to other Businesses.

The Business will weigh the cost of its investment in the platform, whether in staff time to maintain a presence or in ad buys, against the Money it believes will flow from customers due to its activity there.
BIZ-PARTNER (a paid provider of Content on a social media service)

[C (+ M?) = H + D + M] {+ M}

This model has the same shape as that for individual Users who are brought into a Partner program, with the service now paying the Business directly for the Content it is sharing across their platform.

In many cases. the calculation for the platform is similar to that for individual Users, ie that the platform wants to incentivize content that captures Attention, but there may also be other factors involved.

A platform might provide Money to particular business sectors when they are trying to extend their service into new areas or add features, eg if they add a ‘TV-like’ product then they may be willing to pay for original video content.

They may also feel that certain types of Content are an important part of the mix they offer to Users even if they are not highly popular and be open to paying to maintain their presence, eg news media services whose value is more social than commercial.

A Copyright Special

There is one other variant I want to consider, which is the position of ‘rightsholders’, ie those who are legally entitled to benefit from copyrighted content of all types.

[NB We discussed a broad range of copyright policy issues in a recent episode of the regulate.tech podcast],

Where a rightsholder is promoting their own content then they are operating like any other Business in line with the Models I have just described.

But it is also common for copyrighted material to be used by Users, eg adding someone else’s audio or video into their own uploaded content.

Where this happens the law in most countries makes it possible for rightsholders to demand their material is either not used or properly licensed, typically for some form of payment.

COPYRIGHT-THIRD-PARTY (rightsholders not directly sharing their own Content)

[C = M]

This is a more straightforward 'Cash for Content' arrangement than most of the other deals we have considered.

There is a lot of legal complexity in how specific uses of copyrighted material should be treated but it is risky for content-sharing services to ignore demands from rightsholders whose Content is being shared widely. 

Platforms will either have to pay Money to rightsholders who may have no other relationship with them and are not interested in using them for Hosting or Distribution, or find ways to remove offending Content.

The relative simplicity of this model has made it attractive for news media providers who have lobbied for laws that would allow them to demand paid-for licenses for 3rd party uses of their content, ie Users sharing stories. 

They likely have in mind the music industry that has secured many licensing deals, often for large sums of Money, with major platforms, but face the challenge that their product may be seen as of much less important to the creation of the popular Content that platforms value.

The European Union created a framework for publishers to seek licenses under the latest incarnation of its copyright law and this is a factor in Platforms offering Money to news publishers in countries like France.

Return to Oz

After that tour around some different forms of deal, we can come back to the recent situation in Australia and consider how it fits into these models.

The news media companies have been operating within the BIZ-PLATFORM model where they trade their Content for Hosting and Distribution, but they want to move to the BIZ-PARTNER model where they would also receive Money for their Content. 

The Australian government has sided with the news media companies and created legislation intended to help them persuade platforms to move them en masse to the BIZ-PARTNER model by saying there will be a regulator-designed and imposed new deal if a voluntary one is not agreed.

The platforms argue that the BIZ-PLATFORM model still provides a good return for news media companies generally but they have also offered to provide some Money to some news media for some purposes.

It can seem puzzling that platforms are prepared to take pain to fight this legislation at the same time as stating that they are willing to provide Money to the news media industry.

But this fight is about much more than Money, it is rather about who gets to decide which deal is right for any particular User or Business.

From a platform perspective, they would like the discretion to decide when to move any particular content producer – User or Business – over to a partnership program and starting paying them, rather than have any external party decide this for them.

They also want to be able to set the terms of any partnership deals, factoring in all the value they believe they contribute, rather than have a regulator set the prices for how much they have to offer content producers.

I dislike ‘slippery slope’ arguments, but the fear that, once they have done this for news media, regulators might try to rewrite all of the deals offered to Users and Businesses is a key part of platform opposition to this legislation.

You may feel that this would be a good thing and be looking to the various competition cases that have been kicked off to do exactly this – redefine the terms of the deals that platforms can offer to people.

Whichever side of the argument you are on – ‘let the market decide’, or ‘let’s have robust regulator intervention’ – I hope you will find the models here helpful for describing and debating the deals we make with platforms.

[NB I am sure there are plenty of other models I have not covered, and refinements (or challenges) to the ones I have, so please treat this as a contribution not a comprehensive solution].

2 Comments

  1. Paul Paul

    Very nice explanation. What happened to the new Australian law? Did the scrap it or did Google and FB just get exempted after FB called their bluff and removed all news links? FB now has a BIZ – PARTNER relationship (with some media outlets) on their own terms?

    • Thanks, Paul. As I understand it, the Australian government have proceeded with their law but made some tweaks that effectively give platforms more space to negotiate their own deals with publishers before the regulator steps in. And we have seen announcements from both Google and Facebook that they have reached deals with some of the major Australian publishers that put them into the BIZ-PARTNER category under commercially agreed terms.

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