• by Ray Schultz , Columnist, Yesterday

The scenario is all too familiar: A nation or a state passes a law requiring that tech firms like Facebook pay publishers for using their content. 

Facebook threatens to cut off news to the locale, and often does so, arguing that news is not a critical part of its business so it can well afford to drop it.

Not true, says a study published in Marketing Science, a publication of the Institute for Operations Research and the Management Sciences (INFORMS).

On the contrary, news lifts engagement with non-news content and that should be factored into compensation agreements, the authors state. 

This is a serious issue. “News publishers say that news aggregators, especially large tech firms like Meta, cannibalize advertising dollars from news publisher websites. On the other hand, news aggregators assert that they provide a channel that connects people to news websites, and this helps publishers reach a wider audience and boost their advertising revenues.”

One caveat: This study reflects events that took place in 2021. But it has value because “there is virtually no research that focuses on the impact of carrying news on news aggregators,” the authors write. 

Australia passed its Treasury Laws Amendment Bill 2020 on Feb. 16 of that year, and Facebook promptly blocked all news content to the country.

The news shutdown ended on Feb. 23, when Facebook and the Australian government reached an agreement. But the short-term shutdown had some serious effects: total engagement of non-news posts decreased by 10.7%.

Moreover, the news shutdown reduced comments by 8.6%, likes by 8.8%, and shares by 11.4%. And daily generation of non-news content fell by 8.8%.  

In addition, there was a total loss of 4.3% in ad revenue. That was economically significant and indicates that “carrying news content provides a clear economic benefit to Facebook Australia,” the study says. 

“As regulators and lawmakers seek solutions to the conflict between news publishers and news aggrega- tors, any compensation required from news aggregators to news publishers should consider both the increased traffic to publishers (and associated advertising revenue) and the monetization of additional engagement and production of non-news content,” the authors write.

They continue that “payments to news publishers should reflect not only engagement driven by news but also its spillover effects on non-news. Furthermore, social media platforms facilitate engagement through interactive features (e.g., comments, likes, shares), creating peer effects.” This has implications for how social media platforms could manage various content types to maximize user engagement.”

This may not solve the entire issue. But, as the study says, it is a starting point. 

The study was authored by Yu Song and Puneet Manchanda.