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ASX-listed media companies could soon get a big earnings uplift as online US giants are forced to pay to use their content. 

The federal government will impose millions in fines on tech titans Facebook, Inc. Common Stock (NASDAQ: FB) and Google’s parent company Alphabet Inc Class C (NASDAQ: GOOG) if they breach a mandatory code of conduct. 

The code will force the social media giants to pay to use articles generated by Australian media organisations on their platforms. 

Google and Facebook pay to play

This is good news for the likes of the NEWS CORP/IDR UNRESTR (ASX: NWS) share price, Nine Entertainment Co Holdings Ltd (ASX: NEC) share price and Seven West Media Ltd (ASX: SWM) share price. 

These commercial operators can choose to negotiate with the social media companies individually or collectively. 

If they cannot reach a deal with the US giants, they will go through three months of remediation before moving to a binding final offer arbitration. The arbitrator must choose an offer within 45 days, according to the Australian Financial Review.

The code will be enforced by the Australian Competition and Consumer Commission (ACCC).

Big multi-million dollar fines 

Google and Facebook face fines of up to 10% of local turnover, $10 million or three times the benefit gained from the breach, whichever is greater. 

The Federal Treasurer Josh Frydenberg said during the press conference this morning when announcing the new penalties that the new rules was to create a level playing field. 

He pointed out that Facebook and Google were arguably the most powerful media organisations in the world and that local content producers needed to be properly paid for their work. 

Not-for-profit also covered 

While commercial media companies can negotiate payment, public broadcasters were excluded from the monetary component of the code. 

This is because media outlets like the Australian Broadcasting Corporation (ABC) were funded by the taxpayer. 

However, the public broadcasters can strike a deal to share data or other non-financial aspects of the code. 

Can Facebook and Google afford to disengage? 

We haven’t heard anything from Google or Facebook, but they have vehemently opposed such a code in the past. 

They’ve even gone so far as to say the news content that they use generates little monetary value, prompting some to wonder if they will simply stop syndicating news stories.  

Does this mean our listed media companies will see little monetary benefit from the new code? I don’t think so as I believe the social media platforms will not want to lose eyeballs. 

They will also leave their flank undefended from smaller rivals who will be willing to share revenue to attract viewers, and the big boys simply won’t have it. 

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Returns as of 6th October 2020

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (C shares) and Facebook. The Motley Fool Australia has recommended Alphabet (C shares), Facebook, and Nine Entertainment Co. Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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