Facebook Will Scrap News Sharing In Australia If New Law Passed

Facebook (FB) has announced that it will stop allowing publishers and people in Australia from sharing local and international news on Facebook and Instagram if a new draft code in the country becomes law.

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The draft mandatory code would allow news media businesses to bargain individually or collectively with Google (GOOGL) and Facebook over payment for the inclusion of news on their services.

According to the Australian Competition and Consumer Commission (ACCC) the code addresses the ‘acute bargaining power imbalances’ between Australian news businesses and Google and Facebook, including through a binding “final offer” arbitration process.

This would mean that if a payment deal between the news businesses and the digital platforms could not be reached after three months, an independent arbitrator would choose the most reasonable of the two parties’ final offer within 45 business days.

However, FB believes that the proposal misunderstands the dynamics of the internet and will damage the very news organizations the government is trying to protect.

Will Easton, Managing Director, Facebook Australia & New Zealand stated that “the commission overseeing the process ignored important facts, most critically the relationship between the news media and social media and which one benefits most from the other.”

Over the first five months of 2020 FB sent 2.3 billion clicks from Facebook’s News Feed back to Australian news websites at no charge, says Easton, bringing additional traffic worth an estimated $200 million AUD to Australian publishers.

“We already invest millions of dollars in Australian news businesses and, during discussions over this legislation, we offered to invest millions more” wrote Easton in a blog post, adding: “We had also hoped to bring Facebook News to Australia, a feature on our platform exclusively for news, where we pay publishers for their content.”

However, FB says it is left with a choice of either removing news entirely or accepting a system that lets publishers charge it for as much content as they want at a price with no clear limits. “Unfortunately, no business can operate that way” Easton concludes.

Shares in the social media giant are up 43% year-to-date, and it has a Strong Buy analyst consensus based on ratings from the last three months. However, the $292 average analyst price target implies shares could pull back from current levels over the next few months.

Rosenblatt Securities analyst Mark Zgutowicz recently reiterated a Buy rating on the stock with a $325 price target (11% upside potential) as the social media platform is “paddling out to a big holiday wave”.

“While stimulus spend fatigue may soon set in, Facebook is well-aligned to the now everything e-commerce world and looks to be walking into a can’t miss holiday compare that perhaps only Apple IDFA [Identifier for Advertisers] could disrupt,” Zgutowicz told investors.

“Further, while potentially not as large as the first consumer stimulus, we suspect #2 will be in route preholiday spending, setting up a potentially big 4Q against an enticing compare.” (See Facebook stock analysis on TipRanks).