Extortion shouldn't be a good business model

My column in last week's Insights newsletter:

For decades, newspapers’ business model was simple.

Classified ads paid most of the bills. Print ads paid much of the rest. Subscribers paid a bit, sometimes just for the sports section. A few news-hounds demanding in-depth journalism were cross-subsidised by everyone else, including newspaper owners who enjoyed the prestige.

That model is long gone. Classified ads fled online in the 2000s. Companies wanting to advertise have a broader and better targeted set of online options. And a small number of infovores willing to pay for rigorous journalism has a hard time covering the cost.

There have been many experiments in finding better models but the most unfortunate recent gambit is, at its heart, an extortion racket.

Australia’s News Media Bargaining Code can compel online platforms to bargain with new sites, under threat of final offer arbitration. Simply linking to a newspaper’s website can there lead to compelled payment.

This week, the Commerce Commission granted preliminary authorisation for New Zealand’s media companies to launch their own collective bargaining efforts with online platforms.

But bargaining seems the wrong word when any negotiations will fall under the shadow of potential regulation or compulsion if the government does not like the results. Extortion may be more accurate.

The whole approach is misguided.

The web is built on links. Any website can link to any other website, can choose to set a subscription paywall, and can decide to block search engines from indexing their site.

Coercing payments for links breaks fundamental principles of the web.

Doing so when Sapere’s report for the Ministry of Culture and Heritage, released in February, concluded that “digital platforms provide considerable commercial benefits to news firms” is absurd.

No principle of public economics justifies taxing platforms like Google and Facebook to subsidise news.

If you think that web platforms are undertaxed, support multilateral efforts around tidying tax on multinationals – but you may find that plenty of tax is already being paid.

If you think that good journalism deserves better funding, contribute to it and encourage others to do likewise. If that isn’t enough to support the public goods provided by rigorous journalism, look at measures like the public interest journalism fund.

But extorting web platforms to pay for journalism is worse than taxing hipsters’ beard oil to fund tīeke recovery. It breaks principles of good tax policy and foundational principles of the web.

Viable business models should not rely on extortion.