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Will ASX media stocks get a $1.4 bn Google boost?

Alphabet Google
Image source: Alphabet.

ASX media stocks are falling today even as Google’s parent Alphabet Inc Class C (NASDAQ: GOOG) is planning on paying news makers US$1 billion ($1.4 billion) over the next three years.

But this couldn’t reverse the 2.7% plunge in the Seven West Media Ltd (ASX: SWM) share price or the 1.4% fall by the Nine Entertainment Co Holdings Ltd (ASX: NEC) share price and the 0.6% drop in the News Corporation Class B Voting CDI (ASX: NWS) share price.

In contrast, the S&P/ASX 200 Index (Index:^AXJO) lost around 1% of its value in the last hour of trade on Friday.

Australia excluded from Google’s $1 billion pay-off

The lack of excitement in our media stocks is understandable. Australia is excluded from the payment while our government is looking to introduce a code of conduct on the internet giant.

This code will provide a framework where Alphabet will pay Australian news content producers a part of the revenue it makes from selling ads on its search engine.

The US$1 billion payment is only meant for the rest of the world, reported the Australian Financial Review.

Awaiting new code of conduct

Alphabet said it will wait for the outcome of the review before offering the program to Australian organisations, some of whom have already signed commercial contracts with the NASDAQ-listed giant.

Alphabet will pay news publishers to put content on its newly launched News Showcase offering.

“I’m proud to announce Google is building on our long-term support with an initial $US1 billion investment in partnerships with news publishers and the future of news,” wrotethe chief executive of Alphabet, Sundar Pichar, in a blog.

“This financial commitment – our biggest to date – will pay publishers to create and curate high-quality content for a different kind of online news experience.”

ACCC not impressed

However, Alphabet’s news was greeted with some scepticism. The chairman of the Australian Competition and Consumer Commission (ACCC), Rod Sims, noted that the timing coincides with “increased Government scrutiny both in Australia and overseas”.

He went on to say that “the code is designed to encourage good faith, commercial negotiations between news media businesses and platforms. The objective is commercial, not one-sided, outcomes”, reported the AFR.

The federal government has tasked the ACCC to draft and enforce the code of conduct.

How Google can trigger a sector re-rating

Few would be rich enough to thumb their nose at US$1 billion that Alphabet is putting on the table over three years. But it’s worth noting that the amount falls short of what Australian news organisations are asking for.

Nine Entertainment believes Google and Facebook, Inc. Common Stock (NASDAQ: FB) should be paying 10% of their annual Australian ad revenue, or roughly $600 million, to content makers.

News Corp believes the figure about be closer to $1 billion a year.

Of course, these figures are for the entire Australian news industry. But no matter how you divide the numbers, the potential Google payout will likely trigger a significant re-rating in the share prices of ASX media stocks.

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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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