Online news aggregation and neighbouring rights for news publishers – evidence

New draft paper takes an economic perspective on the neighbouring rights debate and tries to find an explanation for this market outcome. First of all, it examines the economic impact of news aggregation platforms on news publishers. The available empirical evidence shows that news aggregators have a positive impact on news publishers’ advertising revenue. That explains why publishers are eager to distribute their content through aggregators.

The origins of the debate on copyright-based solutions for newspaper publishers can be found in the contrast between struggling news content publishers and financially thriving online platforms that base their business models on the content provided by news publishers. Publishers want a share of news platform revenue as a remuneration for the news content that they produce. News publishers also face a legal obstacle because, contrary to other media, the right to remuneration for re-use of news content was not formally recognized in law.

Some EU MS have taken action to remedy this situation. Germany introduced a neighbouring right to copyright in 2013 that allowed publisher to claim a right to remuneration from websites for using their news content, unless that text is reduced to very small snippets. The main benefit of the law is that it creates legal clarity and puts news publishers on an equal footing with other media publishers who already had this right. News content publishers now need to explicitly agree that an online aggregator or search engine can post snippets of their news content on a website.

In Spain, the government introduced legislation in 2014 that goes a step further and provides for mandatory payment of compensation by online news aggregators through a collection society. Publishers are not free to choose or allow aggregation of their content. As a result, Google withdrew its News service from Spain, though it keeps displaying news article snippets in its search pages. In other countries courts intervened. After a court decision in a dispute between Google Search and the Francophone Belgian newspapers, the case was settled in 2012 with an agreement for enhanced collaboration between Google and the newspapers to attract more traffic to newspaper sites and to increase advertising revenue. A similar settlement was reached in France between Google and newspaper publishers.

The debate is rapidly expanding beyond ad revenue. It is gradually shifting away from rights to content to rights to access to data, which is key for news aggregators to get indirect revenue for the use of press publishers’ content. Publishers begin to see that user data may be equally valuable as content, especially when they are seeking to protect their news brand names. An important question in this debate is whether re-routing content through online news aggregator platforms increases or diminishes ad revenue for news publishers on their own website. That is an empirical question that cannot be settled by economic theory or legal reasoning; only data can answer that question.

The impact of online news aggregators on the revenue of original news publishers is the result of the net effect of two opposing forces: a quantity and a substitution effect. The substitution effect measures to what extent aggregators displace online traffic and reduce the revenue generated by the publishers’ own website. The quantity effect measures to what extent aggregators increase revenue by re-directing traffic towards the publisher’s own website. If the substitution effect dominates, the original news publishers lose revenue; if the quantity effect dominates they gain revenue. The main finding is that the quantity effect dominates the substitution effect. Aggregators are complementary rather than competing services to newspapers’ original websites. On balance, they generate additional traffic to news publishers’ websites and thereby may increase rather than reduce their online revenue.

News aggregators offer snippets or small extracts of the original news article only. This may stimulate the interest of readers to click through to the full article on the original publisher’s website. That increases traffic and ad revenue on the original newspaper site (the quantity effect). Aggregators may also provide a re-worked and edited version of one or several original articles, for instance in user-aggregated and blog aggregator sites. That shifts more consumer value to the aggregator site and may reduce users’ interest to look for the original article.

The substitution effect depends on the difference in quality between the aggregator service and the original service offered by the publisher. The wider the quality gap between the two services the more likely that the quantity effect prevails. Aggregators often deliberately provide incomplete services because they cater to the long tail of news readers with less interest in full articles and a low willingness to pay for the full content. Tapping into that long tail may give original news publishers new audiences that they would otherwise not reach. Aggregators and original content producers play in slightly different markets characterised by quantity and quality discrimination between different types of news readers.

Chiou & Tucker (2017) conclude that the “fair use” exemption relied on by aggregator sites in the US is potentially less damaging to the original copyright holder than often thought. The decision to opt-into (or out of) an aggregation platform should depend on whether the content provider is considered high-quality or highly unusual. Both these characteristics appear to encourage users to use the aggregator to explore content more deeply instead of scanning content.

The studies published so far contain no empirical evidence in support of the substitution hypothesis and thus no evidence that online aggregators have a negative impact on original newspaper publishers’ revenue. On the contrary, the evidence shows that aggregators may actually be complements to newspaper websites and may help consumer discover more news and boost the number of visits. News publishers may of course want to reach further and claim a share of indirect ad revenue related to snippets of news text that appear in general search engines – as Belgian and French newspaper publishers tried to do. The German competition authority (BKarA, 2015) pointed out that indirect ad revenue via search is hard to verify.

It is difficult for news publishers to find a good balance between free and paid online content. Many are experimenting with the positioning of paywalls on their online news sites. Chiou and Tucker (2017) find that the introduction of a pay wall leads to a 51% decrease in online visits and thus advertising revenue. It is not clear how much of that loss would be compensated by an increase in subscription revenue.

Moreover, moving online has resulted in unbundling of newspapers: while articles were sold as a package in print editions, consumers have more choice in making their own selection of articles online as they can freely move between different newspapers. Subscription fees limit that unbundling and reduce competition between newspaper sites. Still, the volume of freely available content is huge. Inevitably, the price of online content goes down as the volume of free supply increases.