At an antagonistic hearing yesterday, the internet giant laid out the ‘worst case scenario’. And Facebook is also considering an ‘amputation’. Hal Crawford was watching.

Google is poised to hit self-destruct in Australia according to a fractious Senate hearing into an unprecedented law that will force digital giants to pay money for news. The impact for New Zealanders could be big, with Facebook also contemplating an “amputation” that would see no news on the social network locally.

The hearing into the Mandatory Bargaining Code saw executives from Google and Facebook dialling in to Canberra to receive a grilling from generally hostile senators. Representatives from the big media companies, who mostly appeared in person, were given a more sympathetic hearing.

At issue is a code which mandates deals between every news publisher and Google and Facebook, in order to set a value on the news content that appears as links and snippets in search results and social feeds. The code has a method of forcing a deal – called final offer arbitration – and also mandates that news businesses be given notice of significant algorithm changes.

The legislation, and the trouble, has been brewing for more than a year. News Corporation, with substantial media holdings in Australia, has been a prime agitator for the law, but has been backed up by the equally influential Nine and other media. It was clear from the news executives’ testimony yesterday that they contemplate big dollars coming their way.

Google and Facebook have resisted, threatening pullouts, and saying it is not their responsibility to subsidise news and that the legislation leaves them exposed to unquantified costs.

The Senate hearing represents the final thorough examination of the law before it is returned to parliament to be enacted, and as such the stakes are high.

Google goes hard

Mel Silva, managing director for Google in New Zealand and Australia, did the talking on behalf of the search giant. Out of the gate Silva went hard, saying paying for links and snippets “would set an untenable precedent” and calling the current legislation “unworkable”, she said. “If this version of the code were to become law, it would give us no real choice but to stop making Google search available in Australia. That would be a bad outcome for us, but also for the Australian people.”

Silva had three suggestions to make the code work:

• Remove the need to pay for links
• Change the final offer arbitration model
• Further restrict the algorithm change requirements

She also cut news down to size in a quote certain to provoke media hostility. “In the context of search, the ability to show results from a diverse range of news sources is equally important as an ability to show results from a diverse range of child care centres.”

Silva said Google wanted to make the code work, but to someone who has been observing the struggle for a long time, it seems possible that a bridge has already been crossed in Googleland. Silva answered a question about the experience of an Australian user post-pullout very specifically.

“The preparations that have gone into … that worst-case scenario would result in users landing on a Google search page but being presented with a screen that tells them we are unable to offer the service in Australia.”

Several senators leapt on Silva’s “worst-case” statements.

“If you care about Australia and the Australian market why would you make this threat?” said Senator Susan MacDonald

There was a lot more in Google’s testimony that was fascinating, and at times Silva seemed ready to lose her temper, particularly when quizzed on tax payments. Her performance was not always smooth but appeared to be genuinely felt.

One of the biggest problems in Google’s position has been inconsistency in terms of changes demanded in the various drafts of the code. While the senators and the ACCC construed this as bad faith on Google’s part, it seems more likely that the US-based giant has taken a long time to work out exactly where its red lines are in relation to the law. As is clear from the final three demands, those red lines are pretty much where the code begins. The guys at Bing search (Microsoft) must be rubbing their hands together right about now.

The Facebook blokes

Facebook’s representatives took a very different approach to the hearing, and you have to wonder how annoyed the two digital platforms are with each other. Throughout the hearing the senators conflated the responses from both companies, and often referred to one when they meant the other. All in all, Facebook’s arguments received less attention than Google’s because they were less extreme.

Zuckerberg’s people – policy pair Simon Milner and Josh Machin – were far more conciliatory in tone, but one of their basic demands was the same: that final offer arbitration had to change because it exposed the business to “uncapped, unknown and unknowable” costs.

“We have supported making a balanced code, this draft is a long way from that,” said Milner. “There is no other law like it in Australia.”

Milner and Michin could afford to be calmer, because all they were proposing was banning news links, which coming after the Google bomb seemed moderate. It isn’t. Milner was at pains to say banning news links wasn’t a threat, but an explanation of likely impacts. This insistence shows how reality changes inside big companies.

News point of view

News Corporation, The Guardian, AAP and Nine presented from within the Senate Committee room, and the change in atmosphere was palpable. Gone were the searching questions about “columns of smoke” and accusations of “threat and blackmail”. These guys were not only passionate and fluent, they were welcome. Pointed questions about why digital advertising companies should meet news costs, or what exactly was being paid for, were not asked.

Chris Janz, Digital and Publishing Chief at Nine, was eloquent in his initial takedown. “Just last week, Google decided to remove local news from the search results it presented to some Australians. It did so without giving any notice and the impact was instant. It was disturbing … Google’s ability to execute this … demonstrates a truth at the core of the digital ecosystem. You either play by their rules or not at all.”

News Corp’s Campbell Reid and The Guardian’s Dan Stinton were all superficially convincing, and close to united in their position: the digital giants were using their market power to avoid paying for news content.

The day’s play

I have argued for close to a year that the code is fundamentally flawed, because of a basic error at its heart: the idea that businesses that make money from advertising are somehow responsible for funding news. Despite knowing all that, I was impressed by the news position and the fluency of argument presented in defence of the code. This doesn’t bode well for the digital platforms, which in turn doesn’t bode well for search and social networks in this part of the world. Neither Facebook nor Google landed a killer hit on legislation that will now have to be either tested in a court, or shelved for want of actors to take on the role of the “giant international villain”.