“Like playing chess with Kasparov”. That’s how one media executive described talks to end Australia’s standoff with Facebook. This is the inside story.
“Like playing chess with Kasparov”. That’s how one media executive described talks to end Australia’s standoff with Facebook. This is the inside story.

How Frydenberg sealed the deal with Facebook’s Zuckerberg

It was a very modern stoush keenly watched across the globe - a standoff between two of the world's most powerful companies - Google and Facebook - and the Government of Australia.

And it ended in a very modern way, in a flurry of calls and text messages between a Generation X treasurer and a Millennial billionaire.

Treasurer Josh Frydenberg, 49, and Facebook CEO Mark Zuckerberg, 36, struck a deal on Tuesday to end the brawl which had seen millions of Australians barred from using Facebook to view or share Australian news.

The "Fruckerberg'' negotiations had run for a week, with one video call, a dozen phone calls and multiple text messages, as the pair negotiated over the Government's news media bargaining code, which requires Big Tech firms to compensate Australian media companies for the news items they use on their platforms.

Unusually, the Government was not legislating to get more tax for itself, but on behalf of Australia's media companies, who had been unable to extract compensation from the Big Tech firms using their content to encourage people onto their platforms.

Google and Facebook, so omnipresent in modern life their names have become verbs, were fiercely opposed to the code, not for what it would cost them in Australia but for the global precedent it could set.

At the height of the brawl, Google threatened to shut its search engine down in Australia. Frydenberg and Communications Minister Paul Fletcher intervened, with Frydenberg beginning direct communications with Sundar Pichai, the 48-year-old CEO of Google's parent company Alphabet.

The stakes were high - Alphabet is worth up to $1.8 trillion, a little more than the Australian economy. The men talked business and cricket, then more business. Google dropped their threat and instead struck a deal to pay the media companies and co-operate with them in sharing news.

 

Facebook took the nuclear option, flicking a proverbial switch and shutting down the Facebook pages of hundreds of Australian news sites - along with potentially thousands of charities, health organisations and small businesses who became collateral damage. The global condemnation was swift.

Frydenberg was advised just after 5.30am on February 18 that millions of Australians were waking up to discover news on Facebook had gone dark, along with domestic violence charities, health services working on the COVID-19 pandemic, and even the weather bureau.

And so began an intense week of negotiations, which saw Frydenberg and Zuckerberg going backwards and forwards trying to reach a deal which was being carefully watched by businesses and governments across the world.

Prime Minister Scott Morrison spoke to Indian Prime Minister Narendra Modi and Canadian PM Justin Trudeau about it.

The four biggest European press publishers watched on approvingly, then joined with rival firm Microsoft to call for "Australian-style arbitration.''

The US State Department stayed out of the public fray, with spokesman Ned Price telling the media "this is a business negotiation between multiple private companies and the Australian government.''

 

 

 

But behind the scenes, the Americans had been deeply interested about what was happening with the big American tech companies as the Australian Government worked for three years to develop the world-first code.

Former Ambassador Arthur B Culhavhouse Jr had come into Frydenberg's office for a discussion about it before he moved back to the States in January.

Frydenberg refused to release specific details about the negotiations other than to say he had told Zuckerberg he had spoken more to him than to his wife in recent days.

"The discussions with both Sundar and Mark were at all times respectful and constructive and I deeply appreciate the personal engagement and the significant time and commitment given to resolve the issues,'' the Treasurer told News Corp.

"We all knew we were negotiating the details of an agreement that had global ramifications.

"Let's face it, Big Tech doesn't like regulation, and it was clear neither Google nor Facebook wanted the code in the first place.

"But they realised the Morrison Government was not for turning and would put a priority on commercial deals being put into place.

"The negotiations were difficult and complex and at one point reached a stalemate. But fortunately we found a way through and got the deal done.''

 

 

 

The tech giants had made clear they had no time for the Australian Competition and Consumer Commission, which had developed the code, moving it from voluntary to mandatory, but also agreeing to consider two-way value, meaning the Government accepted the tech companies' argument that media organisations also benefited from posting their content on the Big Tech platforms.

The Government was going to have to do the deal itself. Frydenberg and Fletcher worked up a plan with ACCC chairman Rod Sims, Treasury officials, and Prime Minister Scott Morrison.

By last weekend, Frydenberg was in a position to tell Zuckerberg he was prepared to make a few changes to the legislation.

The phone calls flew between Zuckerberg, somewhere in the US, and Frydenberg, who was driving around Melbourne ferrying his kids to swimming lessons.

The amendments allowed extra time to strike deals, and gave the big digital platforms a month's notice if the Treasurer intended to "designate'' them. Designating them under the code is the route to forcing them to pay, or fining them up to 10 per cent of their local revenue, if they haven't done a deal.

Critics would say the changes to the legislation mean it is now unlikely the Treasurer will have to designate anyone.

That overlooks the fact the legislation aimed to incentivise the parties to do a commercial deal, something Facebook has now begun, following Google's agreements earlier in the month.

 

 

Throughout Monday and Tuesday, the Fruckerbergs inched closer to a deal. Frydenberg, now in Canberra, nipped out of Cabinet to take a call from Zuckerberg. He skipped a leadership meeting to make another call.

Prime Minister Scott Morrison used his Facebook account to accuse Facebook of "unfriending Australia''. Frydenberg said he was disappointed at the news blackout, but avoided strong public criticism.

One media executive said to him: "These one-on-one calls are like playing chess with Kasparov or going five sets with Djokovic.''

Finally, on Tuesday morning, Frydenberg and Zuckerberg had enough of an agreement for Frydenberg to take the proposed changes to the Government's weekly partyroom meeting. The changes were approved.

Frydenberg left the meeting and called Pichai, who had already agreed to deals with the media, but who thought the amendments were "sensible.'' The Government was reassured the changes would not upset the deals Google was agreeing to.

Frydenberg and Fletcher hit the phones to the media proprietors. In recent weeks they'd kept in regular touch with News Corp Australasia's executive chairman Michael Miller, Nine Entertainment Co's chief digital and publishing officer Chris Janz, Seven West Media CEO James Warburton, ABC managing director David Anderson and Guardian Australian managing director Dan Stinton.

Seven's billionaire owner Kerry Stokes, Nine chairman Peter Costello and the Australian-born, New York-based chief executive of News Corp, Robert Thomson, also received regular calls.

Five minutes before Question Time on Tuesday, Frydenberg rang Zuckerberg one last time, to finalise their deal and discuss the wording of their respective press releases announcing the ceasefire.

"Are we ready to go?'' Frydenberg asked.

"Yes.'' Zuckerberg replied.

The deal was agreed on WhatsApp, the encrypted messaging service owned, naturally, by Facebook.

 

 

 

Originally published as How Frydenberg sealed the deal with Facebook's Zuckerberg



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