Google’s tax tactics are the least of the networks' woes

TV networks obsessing over the Google threat are ignoring the far bigger problem of Twitter and Facebook on their horizon.

Earlier this week, amidst a tirade of exciting news from the new media world, two old media bosses struck out at what could considered as the easiest (and largest) target in this emerging industry: Google. 

Seven Media West chief Tim Worner and his Ten network equivalent, Hamish McLennan, launched a fresh attack on a long-running issue: Google's ability to use its international scale to avoid local tax. It's a sore spot for the internet giant, as its tax practices are technically legal – though not exactly ethical, nor conducive to a free competitive market. 

But, putting this tax issue aside, the agenda behind the little spill is interesting: it shows how fearful the networks are of Google's potential in the Australian ad market. Why else would they try to revive an issue that is both politically difficult and somewhat dead in the water?

Google Australia generated an estimated $1.7 billion in ad revenue in the past year. And this figure even excludes its lucrative Google AdWords business. 

Given their different business models, it’s hard to provide a direct comparison with Seven and Ten, other than to say that both networks’ ad revenue is declining. For instance, in its latest round of results Network Ten reported a slip in its revenue from $751 million to $653 million.

The networks’ efforts to paint Google as a big bad tax evader are a little short-sighted though. They miss the bigger fact that in a couple of years Google will likely be just one of many overseas foes challenging old media in the new Australian digital advertising space. 

Facebook and Twitter are on the rise. Over the past couple of years both have set up shop in Australia and are slowly but surely growing the influence and reach in the country. 

Sure, they might not be a threat at the moment. They may even be allies for the networks’ online push, considering that they currently serve as a major form of referral traffic for all online media outlets. But we’re yet to see how satisfied the newcomers will be to simply compete for the same ad dollars, and how far they’ll push onto the networks’ content turf. It’s likely we’d be looking at a very different media industry in Australia if the newspaper publishers realised that REA or SEEK would be a threat to business back when they were founded in the mid 90s. 

If history repeats itself, the networks and other publishers won't see this threat coming until it’s too late. Facebook is happy to reveal localised usage statistics but coy in telling the public just how much it’s earning from Australian ads. 

According to the social media giant, 7.3 million people already access Facebook on their mobile phones each day, placing it in a good position to capitalise on the rise of location-based pop-up advertisements. Then there are also those rumours over the past year that Facebook is looking into online video advertising on its network. 

In the last quarter, Facebook generated total revenue just over $2 billion, with mobile ads representing around 49 per cent of that figure. Just how much of that total came from Australian ads, and how much more of the local market is left for the social media company to tap into, is a big unknown.  

On the flip side you have Twitter, which again is a totally different beast to Facebook. Twitter has fewer users than Facebook. But Twitter likely argues that this is a positive, given that its users (graduates, executives, journalists and politicians to name a few) are likely to be influential members of Australian society. 

Advertisers can currently engage with Twitter through its sponsored Tweet offering – a service which features particular ad tweets in users’ Twitter feed. But it’s toying around with video ads and is keeping a close eye on the second screen phenomena, a trend which is seeing people use social media while watching TV. 

All of this testing is going on in the US, but the capital raised from its imminent IPO could see Twitter invest in the sales muscle it needs to push with this kind of service abroad. 

There's a common thread among all these companies that are either disrupting or poised to disrupt the Australian ad market – they're not media companies or publishers, they're technology companies experimenting with the media's revenue model. 

It's not like the media companies are not aware of this threat. Seven West, for instance, has recently doubled its efforts to find and capitalise new revenue streams. It's uncertain whether this campaign to revive the Google tax debate is part of this recently reported strategy. 

Meanwhile, despite earlier remarks from now communications minister Malcolm Turnbull, the new Coalition government is yet to comment on how, or even whether, it will attempt to tackle this issue. 

One point is certain however: the threat is already here. Altering tax laws won't stem the rise of new advertising businesses. At best, it will only buy old media some time. 

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