High stakes talks with Rupert Murdoch's News Corp pushed social media giant into taking a stand.
It was cast as a battle between Facebook and Australia, as the world's largest social network stripped all news from its platform in protest at a new law forcing it to pay publishers.
But at the heart of the drama was also a high-stakes negotiation with a familiar figure — Rupert Murdoch — according to several Facebook executives, one of whom said the news empire had tried to hold "a knife at their throat".
Everyone has now stepped back from the brink. Australia has passed its law, but with concessions that grant Facebook more leeway to negotiate with publishers, including Murdoch's News Corp. Facebook users in the country are seeing news on their feeds again.
But the broader issue remains unresolved. The negotiations in Australia have set a precedent for politicians and news publishers across the world to reassess their own relationships with Facebook and also Google, the other company targeted ahead of the new law.
"This probably weakens Facebook's hand [in the longer term]," said Josh Pasek, associate professor of communication, media and political science at the University of Michigan. "The point that was reached was that it was clear that there is capacity for Facebook to engage in a public service role."
Meanwhile, Big Tech remains ambivalent about the value of news to its business. "We neither take nor ask for the content for which we were being asked to pay a potentially exorbitant price," wrote Nick Clegg, Facebook's vice-president of Global Affairs, this week.
For Facebook, the concessions it won in Australia have restored some bargaining power with the world's most powerful publisher, the owner of two-thirds of Australia's news market as well as the Times and Sun in the UK and the New York Post and the Wall Street Journal in the US, among others.
Negotiations between the two sides date back to at least December 2017, when Murdoch and Robert Thomson, News Corp's chief executive, hosted Mark Zuckerberg, Sheryl Sandberg and a couple of dozen other Facebook executives at their headquarters in New York for a day-and-a-half of talks, a dinner at the Four Seasons, and a tour of Fox News.
Facebook became the first Big Tech company to strike a deal with News Corp two years later, when it started making significant payments to feature its journalism in its Facebook News Tab, along with a dozen other US news outlets. Appearing together to launch the partnership, Thomson praised Zuckerberg's "digital Damascene moment".
Yet within 18 months, the blossoming relationship appears to have frayed. Even as it agreed the deal with Zuckerberg in America, News Corp was mounting an all-out campaign for regulation in Australia, the cradle of the Murdoch empire.
In the UK too, as Facebook last year began negotiating deals to roll out its news service overseas, News Corp held out, demanding payments far in excess of any other publisher, according to one person familiar with the discussions.
When demands came through to Facebook for payment in Australia, stretching into the hundreds of millions of dollars over a three-year period, according to one person involved, the social media platform decided it had no option but to take a stand. What another executive likened to a "heist" had demonstrated how the underlying law was impossible for Facebook to accept.
"Facebook would have been forced to pay potentially unlimited amounts of money to multinational media conglomerates," wrote Clegg in his blog.
One News Corp executive strongly denied that the demands it made were untenable, noting that it had reached the broad outlines of a deal with Facebook before the news blackout, and that those negotiations had since been restarted.
Facing similar pressure, Google decided to strike a deal with News Corp, not just for Australia, but globally, to try to put to rest the spectre of further bargaining. Facebook, on the other hand, will eventually have to come back to the table with News Corp, or repeat its move to withdraw from Australia. News Corps has publicly said that the value of news in Australia to Google and Facebook is as much as A$1 billion a year.
Facebook declined to comment on the News Corp negotiations.
A spokesperson for News Corp said: "Mark Zuckerberg and [News Corp chief executive] Robert Thomson have had a positive and productive relationship over a number of years, and that continues to this day."
But the battle has unsettled other publishers, and demands for payment elsewhere are likely to grow.
In a letter by Lord Rothermere published in the Financial Times, the executive chairman of Daily Mail and General Trust, questioned whether Google and News Corp were now locked in an "unholy alliance" that could "give rise to unfair competition unless its terms are made public". The Financial Times has commercial deals with both Facebook and Google.
Facebook has said it will increase its spending, pledging to pay $1 billion to publishers over the next three years. By comparison, it pledged the same amount to helping California's housing crisis in 2019 and posted $85 billion in revenue in 2020.
But its core dilemma remains the same. The company insists that news is of "negligible" direct value to its business and only accounts for 4 per cent of content on its feeds and that it is publishers who reap the rewards, with traffic flowing to their sites. "Many users say they would like to see even less news and political content," said Clegg.
It has been hard to quantify how much news boosts engagement on Facebook's platforms, though news audiences are another segment that the company can sell to its advertisers.
Big Tech's general approach so far has been to give news publishers money as a public affairs exercise, to improve reputations and ward away the threat of greater regulation.
But most of Facebook's interactions with the news industry have disappointed publishers, from a video initiative it launched several years ago to its decision to reduce the amount of news in its news feed in 2018.
"Every single one of the tools they have introduced turned out to be pretty much an economic disaster and a series of broken promises," said Emily Bell, a journalism professor at Columbia University.
Zuckerberg himself is unsure whether he wants to support news as a public service or not. "The whole point is, he changes his mind all the time," said one person familiar with the chief executive's thinking, who added that factions inside the company constantly debate its social obligations.
In the meantime, Facebook is making progress with an international rollout of its news tab, due to launch across France, Germany and other European countries shortly.
On Thursday, Facebook announced deals with small publishers Private Media, Schwartz Media and Solstice Media in Australia, while others are in negotiations.
But its progress is likely to be offset against calls for politicians in Canada, the UK and the EU to give their publishers more power in their negotiations with Big Tech.
On Thursday, the UK culture secretary Oliver Dowden held a meeting with Clegg, during which he said he raised concerns to Facebook that its news blackout appeared to put "its bottom line above the public interest" and warned that "such nuclear options" should be avoided in future. "Recent events have strengthened my view that we do not have properly functioning digital markets," Dowden said.
"[The outcome in Australia] could easily embolden other countries to do the same," said Pasek. "Countries know they are going to be able to get a deal at least as good as Australia's, if not better."
He suggested that Facebook may try to get ahead of regulation by introducing "blanket" initiatives in the space, in the hope lawmakers no longer feel the need to act. "Goal number one [for Facebook] is to avoid having this game play out everywhere and avoid getting heavily regulated."
Written by: Hannah Murphy, Richard Waters, Alex Barker and Jamie Smyth
© Financial Times