Has the U.K. Found a Way to Curb Facebook and Google?

(Bloomberg Opinion) -- Slowing the inexorable rise of Facebook Inc. and Google, the gatekeepers for news consumption online, can be a fool's errand.

For all the noise of the Cambridge Analytica scandal, Facebook's revenue still grew by 37 percent last year, while Google parent Alphabet Inc.'s sales climbed 23 percent. Meanwhile, publishers' revenue has faced a relentless squeeze as Silicon Valley sucks up more advertising dollars.

Which is why the approach taken by Frances Cairncross in her U.K. government-commissioned review into the sustainability of high-quality journalism looks to be sensible. Rather than attack the online platforms head-on, she has tried to strengthen the hand of publishers — an approach that will be harder for Silicon Valley to contest.

The drip-drip assault on tech firms from Europe is quickly developing into a torrent — but so far the punches have, at best, taken years to implement and, at worst, ended in embarrassing climbdowns. Spain and Germany are examples of countries that tried to crack the whip more forcefully, but their efforts to force Google to share more ad revenue with news organizations backfired: Some publishers couldn't cope with the loss of traffic when Google simply erased them from news search results.

France has imposed an early data-protection fine on Google (which it is appealing) and the European Parliament could well reclassify tech firms and put them in the same category as utilities this week, which could ultimately force them to share more data or technology. But neither move is likely to have an immediate impact.

Click here for a QuickTake on digital media in Europe

I won't seek to engage with all 10 of Cairncross's sweeping proposals here, but two in particular did stand out as being the most immediately actionable: a code of conduct to rebalance the relationship between publishers and online platforms, and cutting the 20 percent value-added tax for online publications to zero. (Books and newspapers have long been exempt.)

The latter is particularly astute because it provides an incentive for publications to charge digital subscriptions rather than to lean on ad sales — which are dominated, particularly on mobile, by Facebook and Google. The two firms' U.K. advertising revenue will climb to almost eight times the country's newspaper industry's revenue from print this year, according to estimates from eMarketer, a research firm.

Cutting the cost of a digital subscription to the consumer provides an immediate incentive, as if one were needed, for publishers to curb their reliance on ads. It would come at little cost to the exchequer: At 210 million pounds ($270 million), it equates to some 0.03 percent of total U.K. tax income, according to a report commissioned by publishing industry trade groups.

The code of conduct with independent oversight will be harder to implement, but both Google and Facebook have indicated they're open to the idea. Whipsawing decisions about what content to favor, particularly by Facebook, have blindsided publishers in the past. As I've written before, the CEOs of the two firms would be wise to be amenable to such proposals if they're to improve relationships with lawmakers and regulators.

That will be particularly important given that there are more crackdowns to come — particularly in the field of antitrust, where regulators are already probing the dominance of the big tech firms. Cairncross shrewdly recommends that they should also scrutinize the digital ads market.

In the meantime, Cairncross's report provides some limited help for traditional publishers. Its measured ambitions may be its greatest virtue: It might stand a better chance of success than previous, bigger efforts.

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

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