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Breaking News? The Future of UK Journalism Contents

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Chapter 4: A sustainable future for journalism

Online platforms

Advertising

196.As discussed in Chapter 2, the decline of print journalism has seen news organisations increasingly rely on online revenue. The internet provides significant opportunities, but many have so far struggled to replace print revenues. As only 7 per cent of people pay for online news, the online advertising market is crucial to news publishers’ success. Figure 10 shows how online advertising has grown.

Figure 10: Digital ad spend in the UK as a share of total advertising revenue (in 2019 prices)

Source: AA/WARC Expenditure Report in Competition and Markets Authority, Online platforms and digital advertising: Market study final report (1 July 2020) p 58: https://assets.publishing.service.gov.uk/media/5efc57ed3a6f4023d242ed56/Final_report_1_July_2020_.pdf [accessed 19 November 2020]

197.In UK Advertising in a Digital Age in April 2018, we identified concerns with the fairness of the online advertising market and asked the CMA to conduct a market study.310 Which?, Dame Frances Cairncross and the Furman review made the same recommendation in June 2018, February 2019 and March 2019 respectively.311 The then Secretary of State for Digital, Culture, Media and Sport Jeremy Wright MP asked the CMA to conduct the market study, which ran from July 2019 to July 2020.312

198.Approximately £14 billion was spent on digital advertising in the UK in 2019, of which around 80 per cent was spent on Google and Facebook.313 The CMA found: “Google and Facebook’s collective share of digital advertising revenues is significantly greater than the share of time spent by users on these platforms, suggesting that their ability to monetise through advertising is not simply a function of scale.”314 The report explained that Google and Facebook “are now protected by such strong incumbency advantages—including network effects, economies of scale and unmatchable access to user data—that potential rivals can no longer compete on equal terms.”315

199.Revenue from search advertising (paid-for listing in search results), a market in which Google has a 90 per cent share, was £7.3 billion in 2019.316 CMA analysis shows that Google’s revenue per search in the UK has more than doubled since 2011 and Google’s prices are 30–40 per cent higher than rival search-engine Bing’s.317 The CMA concluded: “This is consistent with Google exploiting market power in its search auctions. It is also consistent with Google benefiting from data or scale advantages arising from its market power on the user side.”318

200.Revenue from the display market (adverts shown to users alongside other content) was £5.5 billion. Facebook and its subsidiary Instagram have a 45–55 per cent share of this market, with YouTube, which is owned by Google, taking 5–10 per cent, other platforms taking 5–10 per cent, and 30–35 per cent being spent in the open display advertising market in which publishers, including newspapers, compete in real time to sell inventory to advertisers.319

201.The open display advertising market (see Box 4) is a source of significant concern. Publishers receive only around 65p from every £1 advertisers spend. The rest is taken by intermediaries which operate across the value chain between publishers and advertisers. The CMA commented: “Although intermediaries are undoubtedly performing valuable functions, including targeting advertising and evaluating bids from multiple demand sources in real time, it is striking that collectively they are able to take more than a third of the total amount paid by advertisers.”320

Box 4: The open display advertising market

The open display advertising market is worth around £1.8 billion a year in the UK. Publishers, such as news websites, compete to sell their advertising space. Publishers and advertisers rely on a series of intermediaries to manage the process of ‘real time bidding’. When a consumer clicks on a webpage, there is an auction—which takes place in milliseconds—for the advertising they will see. Publishers and advertisers cannot observe directly what the intermediaries are doing or, in some cases, how much they are being charged. A study by PwC and the Incorporated Society of British Advertisers was unable to account for 15p of every £1 spent.321 The CMA found that intermediaries take 35p of every £1 advertisers spend, while Plum Consulting put this figure at 38p.322The principal intermediaries are: Advertiser ad servers—used by advertisers and media agencies to store the ads, deliver them to publishers, keep track of this activity and assess the impact of their campaigns. Demand Side Platforms (DSPs)—provide a platform that allows advertisers and media agencies to buy advertising inventory from many sources. DSPs bid on impressions based on the buyer’s objectives and on data about the final user. Supply Side Platforms (SSPs)—provide the technology to automate the sale of digital inventory. They allow real-time auctions by connecting to multiple DSPs, collecting bids from them and performing the function of exchanges. They can also facilitate more direct deals between publishers and advertisers. Header bidding solutions allow publishers to send ad requests to, and receive bids from, multiple SSPs simultaneously, making SSPs compete against each other for each impression. Publisher ad servers—manage publishers’ inventory and are responsible for the decision logic underlying the final choice of which ad to serve, based on the bids received from different SSPs (possibly through header bidding solutions) and the direct deals agreed between the publisher and advertisers.

Source: Competition and Markets Authority, Online platforms and digital advertising: Market study final report (1 July 2020) pp 263–4: https://assets.publishing.service.gov.uk/media/5efc57ed3a6f4023d242ed56/Final_report_1_July_2020_.pdf [accessed 19 November 2020]

202.Figure 11 shows Google’s dominance throughout the intermediation chain, on both the demand and supply side.323

Figure 11: Google’s roles in advertising intermediation

Source: Competition and Markets Authority, Online platforms and digital advertising: Market study final report (1 July 2020) p 271: https://assets.publishing.service.gov.uk/media/5efc57ed3a6f4023d242ed56/Final_report_1_July_2020_.pdf [accessed 19 November 2020]

203.The CMA concluded:

“the fact that Google has a very strong position as: a publisher ad server, with influence over which ads are served and at which price; an SSP [supply-side platform], which sells inventory on behalf of publishers; and a DSP [demand-side platform], which buys inventory on behalf of advertisers, raises clear conflicts of interest. Google has been able to exploit these conflicts in the past and retains the ability and incentive to continue to do so.”324

204.Professor Damien Geradin, Professor of Competition Law and Economics at Tilburg University, agreed:

“The presence of Google on all sides of the market is a source of major conflicts of interest. There is significant evidence of selfpreferencing and other anti-competitive behaviour to the detriment of rivals and, in the end, advertisers and publishers. Clearly, this is not a wellfunctioning market.”325

205.Acknowledging that Google has relationships with both publishers and advertisers, Tom Morrison-Bell, UK Government Affairs and Public Policy Manager at Google, told us: “We have to balance those relationships very carefully and give adequate controls to both parties without unduly influencing one side or the other in giving them a preference.”326 Mr Morrison-Bell was unable to name any other market in which one company would be allowed to play these multiple roles.327

206.An example of the consequences of this position is Google’s decision to remove publishers’ ability to set per-buyer price floors. Many publishers had used this function to set the floor (reserve price) for bids advertisers made through Google at a higher level, because these bids are generally higher. The willingness of Google Ads advertisers to pay more than non-Google Ads advertisers may be explained by the fact that Google Ads offers advertisers unique targeting capabilities, making each view of an advertisement more valuable to the advertiser. As there is a risk that setting a higher floor for everyone might result in missing out on bids from those willing to pay less (for example, non-Google Ads advertisers), publishers have little choice but to lower their floor for everyone: including advertisers using Google Ads.328

207.The CMA confirmed that internal Google documents show that removing publishers’ ability to set per-buyer floors was “motivated by the fact that publishers tended to set higher floor prices for AdX [Google] compared to other SSPs. Introducing a uniform reserve price would therefore improve AdX competitiveness by giving it an ‘equal footing’ with third-party SSPs.”329

208.Google told us that it:

“enables publishers to impose price floors on ad buyers participating in its Ad Manager auction; it just does not enable publishers to discriminate against a particular ad buyer by imposing a higher price floor on that ad buyer than on other ad buyers in the auction.”

It said that restricting the options available to publishers in this way was “an important balance for advertisers”.330

209.Vertical integration can give rise to technical efficiencies in the market.331 However, it has allowed Google to make use of practices which exclude rivals. For example, AdX (Google’s SSP) can be easily accessed for real-time bidding only through Google Ad Manager (Google’s publisher ad server) as AdX does not participate in header bidding (see Box 4). As AdX has a 50–60 per cent share of the SSP market, this creates a strong incentive for publishers to use Ad Manager (which, as shown in Figure 11, now has a 90 per cent share of the publisher ad server market). The CMA was not convinced by Google’s justifications for why AdX does not participate in header bidding.332

210.The CMA found that Google may also be able to leverage its 90 per cent market share in the search market to give its DSP power in the open display market. Smaller advertisers often choose to use a single DSP to minimise costs. These advertisers have a strong incentive to use Google Ads as it gives them exclusive access to Google search advertising and YouTube inventory. The CMA concluded: “these advertisers would find it costly or difficult to switch to different providers.”333

211.When the CMA completes a market study it has a statutory duty to consider whether to launch a ‘market investigation’. Completing a market investigation allows the CMA to intervene in the market.334 Nine news organisations asked the CMA to conduct a market investigation into the open display advertising market, including the News Media Association, News UK, DMG Media and the Guardian Media Group.335

212.The CMA concluded that the test for a market investigation had been met but decided not to launch one.336 Instead, the report supported the recommendation of the Furman review that the Government legislate for a new ex-ante competition regime. Such a regime would be able to prevent harm before it has occurred and would be enforced by a new Digital Markets Unit (DMU). The DMU would have power to enforce codes of conduct for platforms with ‘strategic market status’ and make transformational ‘pro-competitive interventions’.337 These interventions could include separation remedies in the open display advertising market, requiring Google to provide data to rival search engines, and requiring social media companies to increase the interoperability of their platforms such as by giving users the ability to view posts from friends on other social platforms.338 The Digital Markets Taskforce, a working group led by the CMA with representatives from the Information Commissioner’s Office and Ofcom, is due to provide advice to the Government by the end of the year on the establishment of a DMU.339 The CMA said that it may revisit its decision not to begin a market investigation if the Government fails to address relevant issues.340

213.Daniel Gordon, Senior Director, Markets at the CMA, told us:

“You need a regime that is agile, monitors the market on an ongoing basis, takes steps to address it and sets the rules up front. Otherwise, you are permanently in a position of dealing with yesterday’s problem. That is the central reason why we have not chosen to go for a market investigation reference at this point. A market investigation reference is a one-off exercise.”341

214.Mr Gordon acknowledged that pressures on the CMA’s resources were a factor in the decision. However, he told us that the main reason was that a market investigation could delay the creation of the Digital Markets Unit:

“If we run a market investigation alongside development of policy and legislation, there is always a risk that that is played off against and delays the policy development process further. Parties will, perhaps not totally unreasonably, take the opportunity to ask, ‘Why are we doing this now? Why are we not waiting until the CMA concludes its market investigation?’”342

215.News UK found the CMA’s decision not to launch a market investigation “perplexing”, arguing: “a focussed market investigation into this issue would be complementary to, and mutually reinforcing of, recommendations to government for regulatory reform.”343

216.The CMA stated that a further reason for not launching a market investigation was “the pressures that so many companies are under during these challenging times”, suggesting that some may not have the capacity to engage with an investigation.344 However, the CMA noted: “Several publishers indicated they consider their existence to be under threat, and as such argued in favour of a market investigation because it could take effect more quickly than a code of conduct.” The News Media Association warned that the delay could be “lethal” for some publishers.345

217.Mr Gordon told us that, if legislation were introduced early in 2021, the Digital Markets Unit could be in place in 2022.346 When asked whether the CMA’s proposals would implement changes in a timely manner, Dr Lovdahl Gormsen said: “The timely manner would have been 2012, when most of the regulators around the world woke up.” Estimating that 2023 was the earliest the DMU could be operational, she warned: “In the meantime, the platforms will have a free pass. Publishers and content providers will suffer immensely. … I see a very bleak immediate future.”347

218.Peter Wright, Editor Emeritus of DMG Media, criticised “the apparent lack of any urgency regarding the setting up of a DMU”. He reported that briefings by the Department for Business, Energy and Industrial Strategy (BEIS) contradicted the CMA’s timescale:

“we were told by BEIS that the Digital Markets Taskforce would be followed by another consultation, starting in 2021, and legislation would not be prepared until after publication of its findings. BEIS appear to believe there will be no legislation until 2022 and the DMU will not be functioning until 2023.”348

219.Mr Wright concluded that whereas Facebook’s motto was “move fast and break things”, the Government’s seemed to be “move slowly and allow the platforms to break everything”.349

Box 5: Regulating in a Digital World

The inadequate pace of digital regulation has become a theme in our reports. In March 2019, in Regulating in a Digital World, we found: “Policy-makers across different sectors have not responded adequately to changes in the digital world.”350 There are over a dozen regulators with a remit covering the digital world and this fragmentation has led to both gaps and overlaps in regulation. We recommended a new, more agile way of regulating, underpinned by a co-ordinating body called the ‘Digital Authority’. This centre of expertise would have a horizon-scanning role and be able to direct regulators or make recommendations to Government where problems are not being addressed adequately. Its work would be scrutinised by a new joint Committee of Parliament.351

220.The News Media Association warned: “with every month that passes the prospect of a substantial news publishing company going out of business increases. Furthermore, it is regional and local publishers which are hardest hit, and although reform of the digital advertising market will help everyone in the long term, smaller local publishers will inevitably take longer to use the reforms to turn traffic into revenue.”352

221.The CMA did not quantify the impact on publishers of waiting for the DMU rather than launching a market investigation immediately. Mr Gordon said that the market study found a “significant detriment” to publishers but the delay was not “amenable to a quantified impact assessment.”353 He added: “the difference in implementation timescales [between a market investigation and setting up the DMU] is unlikely to be as large as some observers have speculated.”354

222.Mr Gordon said that a market investigation would take between two and two and a half years, or longer if there were an appeal to the Competition Appeal Tribunal.355 However, Dr Lovdahl Gormsen and Professor Geradin told us that an investigation could be conducted much more quickly as it would be able to draw on work the CMA has already done.356

223.Professor Geradin believed that the CMA could, alternatively, use the evidence already gathered to move straight to enforcement action: “At the end of the day, the CMA has enforcement powers. I do not see why enforcing the law would be incompatible with building the tools of the future. The two can be done in parallel.”357 He explained: “A finding of infringement would in turn allow the victims of Google’s behaviour to obtain redress in court for the damages they have suffered.”358

224.Professor Geradin and Dr Lovdahl Gormsen suggested that the CMA was cautious about taking enforcement action because it was worried about losing an appeal to the Competition Appeal Tribunal.359 Professor Geradin added that the CMA “is a bit of a think tank … It is good at doing very polished reports and studies. … There should be more enforcement. It is nice to do reports and studies, but very often the end of a study suggests another study.”360

225.Dr Lovdahl Gormsen warned:

“The UK could take a leading position on this but, right now, we are being overtaken right, left and centre by other countries around the globe, which are doing more than we are doing. Particularly in Europe, Germany and France are at the forefront of these things. Even the European Commission is.”361

226.We welcome the completion of the Competition and Markets Authority’s market study on online platforms and digital advertising. This Committee called for the market study in April 2018. It was launched in July 2019, after the Furman review, the Cairncross Review and Which? supported our recommendation.

227.The Government should set up the proposed Digital Markets Unit as a matter of urgency and ensure that it has the powers and resources it needs. The possibility that the establishment of the Digital Markets Unit could be delayed until 2022 or later is unacceptable. The news industry cannot afford to wait that long. There are strong arguments in favour of undertaking a market investigation into the online advertising market in parallel to this work. However, the CMA is justified in leaving the issue for the Digital Markets Unit provided that the Government acts swiftly.

Platforms’ use of news

228.Google has a greater than 90 per cent share of the search engine market in the UK. Facebook’s platforms (including Instagram and WhatsApp) have a 73 per cent share of the social media market.362 Publishers rely on both for traffic.

229.Table 3 shows that 38 per cent of all visits to major news publishers’ websites in 2019 came from links on Facebook or Google. The CMA concluded:

“Although publishers are entering into a commercial relationship with the platforms and benefit from the user traffic that is generated through sharing their content on Google and Facebook’s platform, we nevertheless agree with the publishers that they have very little choice but to accept the terms offered by these platforms, given their market power.”363

Table 3: Sources of website traffic for online publishers

	All traffic			Desktop/Laptop			Mobile
Year	G	F	D	G	F	D	G	F	D
2019	25%	13%	43%	26%	4%	55%	25%	17%	38%
2018	26%	10%	44%	29%	4%	52%	25%	14%	40%

Key: G=Google, F= Facebook, D=Direct

Source: CMA analysis of publisher data (The Independent, The Sun, The Times, The Daily Mail, The Telegraph, Reach PLC websites, Sky websites and Vice websites).

230.Google interpreted the data differently, telling the CMA that receiving less than a third of traffic from Google does not constitute dependence. The CMA disagreed.364

231.Similarly, Edward Bowles, Director of Public Policy for Northern, Central and Eastern Europe at Facebook, denied that publishers were at an unfair disadvantage when dealing with Facebook: “we have no sense in which there is an imbalance of power.”365

232.Facebook told the Australian Competition and Consumer Commission that “news does not drive significant long-term commercial value for our business” and Google told us that it makes “very, very small amounts of money [from] news-related queries”.366 It is not clear how the platforms’ claims that publishers’ content is not significant for their business model are consistent with the platforms’ contention that there is no imbalance of power between them and publishers. Rather, this would suggest that publishers, which rely on Facebook and Google for more than a third of traffic, need the platforms more than the platforms need them. There is also reason to question the idea that the platforms do not derive substantial value from news. The Reuters Institute’s Digital News Report 2020 found that 37 per cent of Facebook users visit the site specifically—though not necessarily exclusively—for news.367 This suggests that news plays a significant role in Facebook’s traffic and therefore its revenue.

233.Professor Geradin argued that news encouraged people to use Facebook more because it started conversations. He added that news is fundamental for Google too: “People go to search for news so, if they could not respond to user queries for news, their platform would lose a lot of value.”368 Professor Geradin noted that a study which was sponsored by Google and submitted to the Australian Consumer and Competition Commission found: “ the viability of the platforms depends on the viability of the suppliers of content, including both news content and user-generated content”.369

234.A European Commission report in 2016 found that 47 per cent of UK individuals surveyed said that when they access the news via news aggregators, social media or search engines, they most often browse the main news of the day without clicking on links to access whole articles.370 Platforms often re-publish short ‘snippet’ extracts which can be read without clicking through to the news organisation’s website. That said, News UK told us that when it made use of a new right in France to prevent Google from republishing snippets of its articles without compensation its search traffic from France to The Sun decreased by 43 per cent, in a period in which traffic rose by 5 per cent in the UK.371

235.There is evidence that users are less likely to remember which news brand had published an article if they accessed it through social media or a search engine (remembered by 37 per cent and 47 per cent of users respectively). This compares with an attribution rate of 81 per cent for users who arrived directly from another page on a destination website. By contrast, between half and two-thirds could remember the path through which they found the news story (67 per cent for social media, 57 per cent for search engines).372

236.Dr Seth Lewis of the University of Oregon School of Journalism and Communication explained:

“a link from the Telegraph, The New York Times or another news outlet functionally looks roughly the same as a link from almost any news site. So there is a flattening effect that then not only disintermediates the news media in their relationship as publishers reaching audiences but creates all kinds of interesting questions with regard to trust in authority and credibility.”373

237.Google and Facebook profit from various uses of news, including by curating it for users and by providing consumers with the facility to ‘like’ and share news content. They monetise the advertising space they run alongside news organisations’ content and the data they collect on users’ interests.374 Furthermore, as Professor Geradin explained, “when Internet users rely on a platform as a source of news, they are encouraged to use the platform as its default gateway for other uses, unrelated to news consumption”.375

238.Neither platform pays news publishers for the right to carry their content, although both have announced plans to do so for new services they are launching.376 Negotiations will reflect the balance of power between publishers and platforms. Publishers may, as they and the CMA have argued, have little choice but to accept the terms they are offered.377

239.The Australian Competition and Consumer Commission was instructed by the federal government of Australia in April 2020 to develop a code of conduct that would require online platforms to pay for publishers’ news content. Under the draft code, publishers will be able to negotiate collectively with platforms. If publishers and platforms cannot reach an agreement through a formal three-month negotiation and mediation process, an independent arbitrator will choose which of the two parties’ final offer is the most reasonable.378

240.Peter Wright told us that the proposals could be “transformational” for publishers. David Dinsmore, Chief Operating Officer of News UK, agreed.379 Professor Geradin argued that it is important that the code is mandatory because otherwise Google and Facebook would refused to participate.

241.Facebook has announced that if the draft code is implemented it will ban Australian publishers and users from sharing news on Facebook and Instagram. Despite the fact that an independent arbitrator would make the final decision, it said: “we are left with a choice of either removing news entirely or accepting a system that lets publishers charge us for as much content as they want at a price with no clear limits. Unfortunately, no business can operate that way.”380

242.Google has criticised the code as unworkable and described it as “extremely one-sided and unfair”. The company warned: “It simply isn’t viable for us, or any digital platform, to pay unreasonable and exorbitant amounts to one group in one country”.381

243.After Spain passed a law requiring news aggregators such as Google (under its ‘News’ tab) to pay publishers for the right to use their content, Google responded by shutting down its Google News service in Spain at the end of 2014 and suggesting that users to go to the Mexican service instead.382 It said that it was “incredibly sad” to do so.383 Google has acknowledged that it would not be able to do the same in Australia because of the scope of the proposed law.384

244.The News Media Association asked that the Government emulate the Australian approach as soon as possible, suggesting that this could provide some relief to publishers while they wait for reform of the online advertising market. It said: “there is a perfect logic in adding payment for content to the online harms bill, so it would not just eradicate harmful information from the internet, but actively support and sustain the dissemination of reliable, trusted information from responsible news publishers.”385

245.Publishers have argued that platforms hinder their efforts to monetise content in other ways, in addition to not paying for content themselves. One concern relates to accelerated mobile page (AMP) articles on Google. AMP is a fast-loading publication format for mobile webpages, hosted on Google servers. Publishers told the CMA that their ability to monetise AMP content is significantly reduced compared with their standard mobile webpages due to technical issues regarding advertising. However, publishers feel compelled to make their articles available in the AMP format because it gives them greater prominence in mobile search results; only AMP pages will appear in the ‘Top Stories’ carousel shown in the results of searches with ‘news intent’ on mobile devices. As readers of AMP articles remain within the Google ecosystem, Google collects data on consumers’ use of them. Publishers argue that this hampers their ability to build unique datasets for targeting purposes and thus to compete with Google.386

246.Further concerns relate to platforms’ use of algorithms. The CMA found: “Publishers broadly are of the view that they do not get sufficient warning of algorithm changes or sufficient explanation of their impact or of what they might do to mitigate any loss of traffic.”387

247.Some publishers questioned how algorithms arrived at search rankings. DMG Media noted:

“Google consistently cut MailOnline’s search visibility, so that it now stands at one tenth of the Guardian’s. This is despite the fact that research by the Reuters Institute showed that during the 2019 election campaign the public spent three times as much time on the MailOnline website (21 per cent of total) as on the Guardian’s (7 per cent).”388

248.News UK was also concerned about why its news brands were consistently less prominent on Google than the BBC and The Guardian. It explained:

“the platforms are responsible for curating through algorithms which they have designed, which are entirely within their control, and through which they operate a set of terms which determine what content is surfaced and in what order. In this regard they have editorial control. These algorithms operate without any consultation or external oversight.”389

249.The Guardian Media Group also said that platforms’ use of algorithms should be considered by competition regulators. However, it believed that there were good reasons for The Guardian’s high visibility. It stated: “we believe objective analysis shows that ranking in search engine results pages is overwhelmingly determined by specific, technical factors relating to websites—their speed, quality of links and other related factors”.390

250.Tom Morrison-Bell, UK Government Affairs and Public Policy Manager at Google, told us: “we do not make any editorial decisions”.391 He added: “a study by the Economist evaluated claims of bias in Google News results and took into account issues such as the credibility of the outlets and frequency with which publications wrote about certain topics. It found no evidence of ideological bias.”392 He explained that the algorithm is designed to rank pages on relevance, prominence, authoritativeness, freshness, location and usability, adding that Google works with external search quality raters.393

251.These factors on which the algorithm ranks pages are ultimately a product of human design. In a letter, we asked Google: “How do you ensure that there is diversity of thought among those designing the algorithm?”394 We did not receive a response on this point.395 Google faces limited market pressure to ensure that its rankings are fair to all news organisations because of its dominant position. As Mr Gordon of the CMA explained: “That prospect of competitive entry, of looking to your heels for another alternative coming round the corner, is no longer there.”396

252.The CMA envisages that platforms’ use of algorithms and other concerns addressed by publishers will be considered by the DMU when it draws up codes of conduct.397

253.More broadly, social media platforms increasingly resemble publishers in the way in which they control news content on their websites. In October 2020, Facebook limited the visibility of a New York Post story on users’ news feeds and Twitter prevented users from tweeting it.398 Twitter locked the newspaper out of its account for two weeks after it refused to delete tweets linking to the story.399 Irrespective of whether this action should be considered justified, it is highly significant for one of America’s most read newspapers to have been censored in this way. In Regulating in a Digital World, we concluded that the changing role of platforms may require their degree of legal liability for content to be reconsidered.400

254.There is a fundamental imbalance of power between news publishers and platforms. Due to their dominant market position, Facebook and Google can stipulate the terms on which they use publishers’ content. This includes whether and how much they pay for news appearing on their platform, which news sources their algorithms rank most highly and how much notice they give publishers of changes to these algorithms. Algorithms are a product of the human value judgments of their designers, but there is a lack of transparency about them and designers’ possible biases. We will examine this issue further in our next inquiry, on freedom of expression online.

255.The Government should use the Online Harms Bill to legislate for a mandatory news bargaining code modelled on the Australian Competition and Consumer Commission’s proposal. Once it is set up, the Digital Markets Unit should take on responsibility for this and keep under review publishers’ concerns about the ways in which platforms use their content. The Government and regulators should work closely with international partners on this issue.

Encouraging pluralism

Innovation funding

256.Nic Newman, Senior Research Associate at the Reuters Institute, told us that it has never been easier for individuals to get together and start a news organisation, but this happens relatively little in the UK compared with some other countries.401

257.The Future News Pilot Fund, administered by Nesta, was created in response to the Cairncross Review. It has distributed £2 million from the Department for Digital, Culture, Media and Sport to help build financially sustainable business models and engage communities in the news process. The fund received 178 applications, of which 20 were successful. They include charitable organisations as well as businesses. The period of funding ran from February to June 2020.402

258.Similarly, the European Journalism Centre (EJC) ran an ‘Engaged Journalism Accelerator’ which focused on journalism which creates positive relationships with different communities. Twelve grantees across two cohorts received funding and were awarded between €45,800 and €50,800 each, including three grantees in the UK. The programme was funded by philanthropic donations from the News Integrity Initiative and Civil Foundation in the US.403

259.Anna Hamilos of Nesta explained: “a lot of start-ups, particularly in the UK, struggle with funding initially, and that is equally true for commercial start-ups and socially oriented start-ups.” David Dinsmore added that even established local newspapers may be unable to invest in digital innovation because of revenue pressures.404

260.Nesta’s decision not to award grants to established local newspapers was criticised by the News Media Association.405 Ms Hamilos responded:

“We would love to have funded more. We were desperate to have a longer-term project, but it was a pilot set up and administered via DCMS and we had parameters. We functioned within that and we had a really high-quality selection. If we had had more money, we would have funded more organisations.”406

261.Nesta grantees included The Manchester Meteor, a co-operative providing local public interest news; Our Economy, a charity helping local media organisations to develop ways of reporting economic issues which reflect the concerns of members of the public; Tortoise Media, a membership news organisation providing ‘slow news’; and Axate, an organisation developing a casual payment system for online articles as an alternative to subscriptions.407

262.Ms Hamilos told us: “For 40 years, the sector has been very reliant on advertising revenue, and as an ecosystem it needs to be supported so that it can look to the future and address the issues, and the innovation we have seen in the pilot showed the potential for sustainable models.”408 Mr Whittingdale agreed that it was important to find new models as digital subscriptions were not replacing revenue lost from declining print sales.409

263.Peter Wright was sceptical that Nesta’s strategy of awarding grants of between £25,000 and £70,000 could bring about transformation. He suggested:

“if a Nesta-style project really wanted to do some good, it would be in helping the smaller publishers find ways of developing their websites, content management systems and search engine optimisation and getting more equal access to the platforms. It would have been much better if it had been focused in that way”.410

264.The question of how funding for journalism should be allocated has been further discussed in relation to the Government’s response to the COVID-19 pandemic. ‘All in, all together’, a £35 million advertising campaign to communicate important public health information, had the secondary effect of supporting 600 newspapers. Mr Whittingdale said that he would have liked more newspapers to benefit and understood why some smaller publications felt left-out. However, he noted that OmniGov—the Government’s media buying agency—had to set up the scheme quickly and that it was easier to deal with larger companies.411

265.Facebook and Google have also made several interventions to support the news industry. These include Facebook’s Community News project, a £4.5 million fund to support local journalism across the UK run in partnership with the NCTJ, and the Google News Initiative, which has provided £10.5 million in funding for 66 British publisher projects and almost £3 million worth of free training to 20,000 journalists.412

266.However, Mr Whittingdale noted: “while it is all very well trying to encourage newspapers to provide their content online or to help them to recruit new journalists, if those newspapers themselves do not survive, those initiatives will not be worth much.”413 Similarly, Ms Warren told us that the platforms’ initiatives are “not really enough to resolve the serious damage that they have caused.”414

Box 6: Journalism funding schemes

BBC Local Democracy Reporting Service—a public service news agency funded by the BBC at a cost of £8 million a year, provided by the local news sector and used by qualifying partners. Its primary function is to fund 150 reporters. European Journalism Centre (EJC)—the EJC runs various schemes, including for development, health and investigative journalism. Its Engaged Journalism Accelerator, funded by philanthropy, is a €2 million fund to support grantees across Europe. Facebook Journalism Project—a global initiative to work with journalists and news organisations, such as by providing funding and coaching. This includes a £4.5 million scheme in the UK to fund trainee community journalists. Google News Initiative—a €300 million global scheme to support journalism, including through grants for news organisations and training for journalists. Nesta Future News Pilot Fund—a £2 million scheme, funded by the Government, which awarded grants of between £25,000 and £70,000 to 20 news organisations to help them to innovate. Public Interest News Foundation—a charity launched in November 2019 to support UK news organisations. Its COVID-19 emergency fund awarded £3,000 grants to 20 publishers.

267.Universities can play a role in supporting innovation in journalism. Professor Beckett advocated:

“more public support for things such as universities or institutes when they are trying to provide the infrastructure for journalism to exploit those technologies. It should not be seen just as a subsidy for a particular news organisation. It should be seen as a subsidy for public information”.415

268.Mr Cantwell-Corn of The Bristol Cable argued that universities could:

“provide incubator-style hubs and accelerator programmes for organisations that push the boundaries of innovation in the sector, whether it is the production of journalism, distribution, new models, use of tech, skill development or industry-wide sharing.”416

269.Mr Cantwell-Corn acknowledged that there would be a “debate on what counts as the public interest, who benefits and who is eligible for that. That is a really difficult debate.”417

270.In an article in 2017, Mr Dickinson of Manchester Metropolitan University suggested that universities could set up local news organisations, or buy existing news organisations, and staff them with their students. This would give the students real-world experience and provide high-quality journalism for local communities.418

Local Democracy Reporting Service

271.The Local Democracy Reporting Service (LDRS) is a public service news agency funded by the BBC at a cost of £8 million a year, provided by the local news sector and used by qualifying partners. The purpose of the LDRS is to provide impartial coverage of the regular business and workings of local authorities in the UK, and other relevant democratic institutions such as mayoralties, combined authority areas, police and crime commissioners, and quangos. Reporters may provide other stories which are focused on local democracy and which are in the public interest, including on the work of MPs, so long as that does not detract from the core purpose of the service.

272.There are 150 local democracy reporters on the scheme and more than 900 local news outlets involved across the four nations of the UK. Reporters have filed more than 100,000 stories, including a record of 3,500 in one week. There is a data unit where reporters are given training by the BBC to help produce data-led stories. The unit has generated nearly 800 stories for partner newsrooms.419

273.In November 2019 the BBC announced that it hoped to expand the scheme if additional sources of funding could be secured. The scheme would be run by a new non-profit body, funded by the BBC and partners.420

274.Mr Whittingdale acknowledged that financial pressures would make it difficult for the BBC to contribute more than the £8 million it has pledged to provide each year until 2027. He said: “we will be looking in every possible quarter to see if we can find people who might be willing to contribute to it.”421 Jamie Angus, Director of the BBC World Service, suggested the platforms as a funding source: “in many cases the tech platforms are taking enormous amounts of advertising revenue out of the local journalism system, so at this stage they should be the ones looking at putting in an additional contribution.”422

275.Some have been critical of the scheme. Mr Cantwell-Corn told us:

“it is ultimately a bung in a ship with a hole, or it is a prop, and it is a subsidy. … I would like to see BBC money drive towards innovation in journalism. The underlying principle of any public financial support, direct or indirect, is taking the long-term view”.423

276.Professor Steven Barnett from the University of Westminster agreed that the scheme was not functioning optimally:

“While, in theory, competition for these contracts was open to all publishers, the actual distribution tells a very different story: according to the latest BBC figures, a staggering 140 of 150 contracts awarded went to the three regional conglomerates (and core News Media Association members) Reach PLC, JPI Media and Newsquest—the very publishers which have been consolidating operations and closing papers while protecting their profit base over the last 20 years.”424

277.The largest of these, Reach Plc, which owns 127 print and 97 digital newsbrands, reported revenue of more than £700 million in 2019.425 It received 64 LDRS reporters.426 Analysis by the Press Gazette in July 2020 found that Reach had made more than 1,000 staff redundant over the last 10 years.427

278.Newsquest and JPI Media, which received 38 and 36 reporters respectively, are also large companies. Newsquest owns more than 165 news brands and is a subsidiary of Gannett, the largest news publisher in the US.428 JPI Media owns 172 news brands.429

279.In its review of the scheme, the BBC acknowledged concerns about the dominance of these three companies. It set out several reasons why smaller organisations may have been less inclined to bid, including:

“the regulated EU Open Procedure procurement process applied (OJEU), which may have been unfamiliar and complex. While this would likely have been a daunting task for almost all organisations, the bureaucracy may have been off-putting for smaller organisations with lower capacity in particular.”430

280.Nevertheless, only 8 per cent of bids for reporters were awarded to small organisations, despite those organisations submitting 18 per cent of all bids. The success rate was even lower for medium-sized organisations, which were awarded 7 per cent of bids despite submitting 32 per cent of bids.431

281.In its review, the BBC set out possible reforms to the scheme, including offering more training on the EU procurement process, providing examples of high-quality submissions from the previous bidding round, requiring decision-makers to take unconscious bias training and reducing the number of reporters awarded in a single ‘lot’, which had been as high as six.432

282.The BBC noted that local democracy reporters’ work is not exclusively available to their host news organisation. Jamie Angus, Director of the BBC World Service, explained:

“everything that Local Democracy reporters produce is effectively free to air, if you like; it is not paywall-restricted to one organisation. Other small independent publishers and the BBC itself are able to access the content that is produced in that way. While some smaller publishers may not want to take on the responsibility of having a dedicated LDR within their organisation, they are able to access the content that they produce.”433

283.A third of stories produced by local democracy reporters were republished on the BBC website.434 This access was the subject of further criticism. Peter Wright warned: “the BBC is now competing with local newspapers’ websites using the same content but it will never charge for it, which will make it very difficult for local newspapers ever to introduce a successful paywall.”435

284.There are a range of initiatives to support news organisations, including the Nesta Future News Pilot Fund, the BBC Local Democracy Reporting Service, the Facebook Journalism Project and the Google News Initiative. The independence of these schemes is crucial. However, we call on the Government to take the lead on developing a more strategic approach to funding journalism. The Government should use its convening power to provide a forum for organisations to co-ordinate their schemes and share successes. Encouraging greater coherence will help funds more effectively support established news media organisations to adapt to rapid digital change. The Government should encourage those with the deepest pockets to come together, step-up and support journalism—both now and as new challenges emerge in future.

The BBC’s effect on pluralism

285.The BBC is the most watched, most listened to and most read news source in the UK. Table 4 shows the percentage of people who use different news sources.

Table 4: Use of news sources, 2020

Source	Use more than 3 days a week (%)	Use at least once a week (%)
BBC News (TV & radio)	46	56
BBC News (online)	35	45
ITV (TV)	16	27
The Guardian (online)	10	18
MailOnline (online)	10	15
Sky News (TV)	9	16
Daily Mail/Mail on Sunday (print)	6	11
Sky News (online)	6	10

Source: Reuters Institute for the Study of Journalism, Digital News Report 2020 (June 2020), p 61: https://reutersinstitute.politics.ox.ac.uk/sites/default/files/2020–06/DNR_2020_FINAL.pdf [accessed 19 November 2020]

286.Chris Waiting, Chief Executive of The Conversation, told us that the BBC’s presence in the market has benefits and costs for others: “Its clear public mission sets the bar for all journalism in the UK, and inhibits the quality degeneration seen in other markets. However, the BBC’s stable presence (despite current financial pressure) means there can sometimes be limited space for others to innovate.”436

287.Jason Cowley, Editor of the New Statesman, explained that the size and power of the BBC puts pressure on other news websites.437 Fraser Nelson, Editor of The Spectator, added: “The digital world has allowed the BBC, the hegemon of the industry, to occupy space it never occupied before. That makes it tougher for local newspapers.”438

288.Although she was asked not to discuss the BBC in her review of local and investigative journalism, Dame Frances Cairncross recommended that Ofcom should review the market impact of BBC News online after hearing that the BBC did too little to link to external websites and that its ‘soft’ magazine-style content was undermining commercial rivals.439

289.In October 2019, Ofcom found that 85 per cent of links in articles on the BBC News website were to other BBC articles. Only 3.5 per cent of links—or 23 per cent of links to external websites—were to external news websites. The rest were to social media, academic journals and organisations’ websites. By contrast, 80 per cent of external links on the Daily Mirror website and the MailOnline were to other news organisations. Ofcom reported: “our work indicates that the BBC could provide more links to external, third-party content” and noted that including third-party links benefits audiences as well as news organisations.440 Ofcom stated: “the BBC needs to be much more open to engagement with third parties to deliver its duty to have regard to the impact of its activities on competition.”441

290.David Dinsmore suggested that the BBC could be “a phenomenal marketing portal” with “a huge impact” on the local news industry if it published a headline and linked to a story on a local newspaper’s website rather than writing up its own version.442

291.The proposal that the BBC News website should promote journalism from local news organisations was supported by Mr Iliffe and Mr Cantwell-Corn. Mr Cantwell-Corn told us that when large news organisation link to The Bristol Cable’s articles it has “a big impact”.443

292.We have heard concerns from across the industry that smaller news organisations can be a victim of the BBC’s online success.

293.To support pluralism in the industry, we recommend that the BBC should include an aggregator section on the BBC News website and app linking to stories on smaller and local news organisations’ websites.

Charitable status

294.In 2012, in The Future of Investigative Journalism, the Committee called on the Charity Commission “to provide greater clarity and guidelines on which activities related to the media, and in particular investigative journalism, are charitable in the current state of the law”. The report urged the Government to reform charity law to make it easier for investigative journalism organisations to achieve charitable status.444 While further guidance has been produced, the Charities Act 2011 has not been amended explicitly to allow for investigative or public interest journalism.445

295.Registration as a charity brings a range of benefits. Charities are eligible for various forms of tax relief, including on legacies and on business rates for their premises, as well as through Gift Aid. They do not pay corporation tax on profits and they are able to compete for grants from funding organisations that support only registered charities.446 Many witnesses in our current inquiry suggested that the Charity Commission should take a more expansive approach to charitable status for public interest news organisations, which they argued is achievable under existing charity law.447

296.The Cairncross Review (see Box 1) noted that few news organisations in the UK have succeeded in registering as charities, while many think tanks enjoy charitable status by qualifying as educational institutions.448 Guidance issued by the Charity Commission to think tank trustees in December 2018 argued that “Education does not have to be entirely neutral; it can start from a generally accepted position that something is beneficial. A charity can therefore promote uncontroversial views and perspectives.”449 The Cairncross Review pointed out that this guidance means that charitable organisations are allowed to advocate any policy in line with their charitable objectives, although they cannot endorse a political party.450 The Cairncross Review recommended that “the government gives priority to exploring the development of a form of tax relief, ideally under the Charities Act but if necessary along the lines of the Creative Sector reliefs, to support public interest journalism.”451 In evidence to the Committee Dame Frances told us “it might be useful (and helpful to the Commission) for Parliament to give some indication of whether it welcomes such an extension of the principle of citizenship as a charitable object.”452

297.The Government, in its response to the Cairncross Review, argued that the “current Charities Act system accommodates appropriate options for public interest news,” but acknowledged that “further work was required to help organisations understand their options regarding charitable status”.453 As a result, the Charity Commission published advice on what qualifies as charitable work in connection with enterprises that undertake or fund public interest journalism.454 In this advice, the Charity Commission stated that as the advancement of journalism is not listed in the Charities Act as a charitable purpose, news organisations would need to show that their journalism is a means to achieving a charitable purpose; examples include the advancement of education, citizenship or community development, the arts, culture, heritage or science, or human rights. “What matters is that you can draw a clear link between the journalism your organisation funds or carries out and the charitable purposes it is set up to advance”, the Charity Commission advised.455

Box 7: Charitable status criteria

To meet the legal test for registration, applicants for charitable status must show that their organisation is set up for charitable purposes only. A charitable purpose is one that: Falls within one or more of 13 ‘descriptions of purposes’ listed in the Charities Act 2011456 Is for the public benefit.457 The advancement of journalism is not listed as a charitable purpose. A charitable organisation would therefore have to advance one or more of the ‘descriptions of purposes’ through its journalism, which may be difficult to prove. The Charity Commission can recognise new charitable purposes providing the new purpose is “analogous to, or within the spirit of, any other charitable purpose” or recognised as a charitable purpose under the old law, among other reasons.458 Registration as a charity comes with restrictions. For instance, charities cannot: Be established or operated for private profit459 Support or oppose political parties or carry out certain kinds of political activity460 Use their resources to commission, publish or fund journalism that does not further a recognised charitable purpose461 Pay their trustees anything other than out-of-pocket expenses, unless they have express power to do so.462

298.We heard that the difficulty of applying for charitable status means the UK lacks the culture of philanthropic support for journalism that nations such as the US enjoy. In the US, journalistic organisations are able to register under the Internal Revenue Service’s tax code in order to gain charitable status.463 But “the American success story has not been replicated in the UK,”464 as the Public Interest News Foundation (PINF) put it. Debates over the best criteria for establishing charitable status for journalistic organisations are ongoing in France, Germany and Canada.465

299.Ms Hamilos of Nesta echoed these concerns. She described the lack of charitable status for journalism in the UK as a barrier to attracting philanthropic investment, which “has been an ongoing conversation and needs rapidly to be addressed.”466 The Transparency Project similarly wrote that a change in approach by the Charity Commission would benefit the media ‘ecosystem’.467

300.We heard that a more flexible approach to granting charity status by the Charity Commission would be particularly advantageous to local and community news outlets, which tend to have lower profit margins than national news organisations as well as to be non-partisan. “Too many small community start-ups struggle to achieve charitable status which would potentially help them become sustainable”, wrote Professor Sambrook.468 We heard from Dame Frances that “Aside from its obvious benefits to local citizens, as recipients of public interest news, charitable status would help the finances of some news organisations that are struggling to survive.”469

301.Baylis Media Ltd,470 which is owned by a charitable trust but is not itself a charity, has struggled to remain profitable because of the economic climate, despite innovations such as a strong digital presence and use of Axate micro-payments,471 said company CEO Jeremy Spooner.472 He argued that organisations such as Baylis Media, which provide a service to their local community, should be treated more flexibly by the Charity Commission: “Such a move would provide a lifeline for local news publishers”.473 Professor Barnett agreed that the Charity Commission should recognise the democratic value of local journalism. He highlighted a need to support the “growing culture of entrepreneurial journalism using digital media outlets, which are clearly capable of fulfilling some of the key informational, watchdog and investigative functions that local communities require”.474

302.Despite wide agreement on the benefits that charitable status would provide among news organisations, there is a debate around whether the Charity Commission is fair in the way it grants charity status and applies the criteria in the Charities Act 2011.

303.George Brock, Chairman of the Public Benefit Journalism Research Centre, wrote that “the path to becoming a charity was time consuming, expensive and unnecessarily restrictive.”475 For instance, Full Fact was rejected twice; it was subsequently accepted only after revising its objectives from the advancement of citizenship and civic responsibility and the advancement of education to just the advancement of education for the public benefit. Likewise, the Bureau of Investigative Journalism (TBIJ) was rejected twice; in its successful third application, it established a charitable trust, separate from the TBIJ’s objective of delivering high-quality investigative journalism, although this does not provide the full benefits of charitable status. Mr Brock argued that the Charity Commission should consider “the obvious educational, community, citizenship and other benefits” of public interest journalism and use its power to recognise such journalism as a charitable purpose.476 He drew analogies with charities such as the Consumers’ Association and Wikipedia, which both disseminate reliable and useful information comparable to public interest journalism.477

304.According to Stone King LLP and Lawrence Simanowitz, Partner in Bates Wells, a change in law is not required as the Charity Commission has the power to make any necessary modifications in a way which is compatible with the Charities Act 2011.478 In a policy document on recognising new charitable purposes, the Charity Commission stated it:

“will take a constructive approach to adapting the concept of charity to meet constantly evolving social needs and new ideas through which those needs can be met. Acting within the legal framework which governs the recognition of new charitable purposes, we would aim to act constructively and imaginatively.”479

305.In September 2020 the Charity Commission accepted that PINF is established for exclusively charitable purposes and therefore granted PINF charitable status.480 This represents a development in the interpretation of charity law, signalling a change to the more flexible approach recommended in evidence we received and towards the recognition of public interest journalism as a charitable purpose.481 The Commission judged that PINF meets the charitable purpose of advancement of citizenship and accepted that PINF’s objective of promoting high standards of journalism was within charitable purposes under the old law (see Box 5). In their decision the Commission “noted that public benefit of public interest journalism is evidenced by the House of Lords Select Committee on Communications and Digital (in its inquiry into the future of journalism) and the Cairncross Review”.482

306.We heard from Dame Frances that as PINF is not itself a publisher, “the question whether a publisher could be held to provide public benefit journalism and thus qualify for charitable status has yet to be successfully tested.”483 According to Dame Frances, organisations most likely to meet the test are those which deliver impartial news and record the activities “of the main pillars of local democracy: such as local councils, magistrates’ courts, inquests. Being able to receive such news via local and regional media is, one might reasonably argue, essential to good citizenship.”484 However, Dame Frances noted that the Charity Commission are likely to be cautious about this development as charitable status would not be appropriate for all local publishers: “the Commission will wish to establish practical and clear parameters for what could–and could not–be charitable.” Dame Frances suggested test cases would be required.485

307.Advocates of a more flexible approach by the Charity Commission recognised that charity status would come with new responsibilities and editorial requirements (see Box 5). Mr Spooner of Baylis Media acknowledged that journalistic charitable organisations would have to practice a “defined and restricted” form of journalism, “which demonstrably serve their local communities by providing high-quality, objective and fact-checked local news”.486 Mr Brock made it clear that “many forms of journalism (sensationalist or politically coloured journalism, for example) would not—and should not—be covered”.487

308.Charitable status can be beneficial for some news organisations; however, this model is relatively uncommon in the UK. Charitable news organisations must comply with charity law restrictions on campaigning and may not use their resources for non-charitable purposes. This means that while charitable status may not be advantageous for more traditional business models, it could provide a new not-for-profit model for the future. It could be beneficial for some community news outlets, as well as other innovative start-ups and niche publications that provide a valuable civic function but can struggle to achieve commercial success.

309.We welcome the Charity Commission’s recognition that our inquiry has evidenced the public benefit of public interest journalism and encourage the Charity Commission to continue to recognise public interest journalism as a charitable purpose.

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