Monday 25 May 2015

A battle without winners, as Spain examines early results of its "Google Tax"

From Míchel Olmedo Cuevas and José Luis Caballero (both of ECIJA) comes the following guest post, on a subject that Míchel has already written about (see "Copyright in Spain: a month without Google News", here, "Exodus 2.0: pirate sites and the seven seas", here, and the finally "Spain: Did the “Google Tax” really change the market?" on the IPKat here) -- royalty rates paid in Spain by news aggregators for indexing news published in Spanish newspapers:
Spain: A battle without winners

Aside from being chosen as a location for filming part of the 5th season of the HBO series “Game of Thrones”, Spain has also hit the headlines because of other IP-related issues, like the recent modification of its Spanish Intellectual Property Act (an analysis of its implications can be found here), that includes the approval of royalty charge, to be paid by news aggregators indexing news published by Spanish newspapers (comments on the implications of this measure can be found here and here), that caused Google to cease offering their news aggregation services in Spain.

Reactions to the so-called “Google Tax” (that has nothing to do with the British legislative project to tackle tax avoidance by multinational companies) have been mostly negative, with even editors for online Spanish newspapers siding with Google on the issue, stating that they wonder how long it takes some traditional publishers — victims of their own initiative — to ask Google to reopen Google News”. The position held by the ones criticizing the reform is not baseless, considering the recent example of Germany, where all newspapers ended up asking Google to take them back into the system.

November 2014 (thousands)
In Spain, we have had to wait some time for AIMC (Asociación para la Investigación de Medios de Comunicación or Association for the Research of the Media) to release the data reports for the traffic fluctuations in the past three months, so we could observe what the real impact of the “Google Tax” has been in the online news sector.

March 2015 (thousands)
First, we must look at what the data was before and after the reform of the Intellectual Property Act came into force, on 1 January 2015, looking at the unique online visitors the top three Spanish online newspapers had on November 2014 and on March 2015.

Leaving aside the eruption of Twitter (that was not included on previous reports), there is an undeniable decrease in the number of visitors of up to a 12.4% in the worst case (the almost 360K visitors lost by sports newspaper, meaning that there has been an impact on viewership of online newspapers, but not so big, especially when we take into consideration the growth curve of the penetration index for the last years.

Since 1999, there has not been a year with a growth level lower than +2.5%, remaining over the +3% from 2006 onwards, but suddenly, from April 2014 until today, there has been a clear deceleration in the growth rate, as it has only been able to jump +1,7%, way below the expectations of the market.

Notwithstanding this, the slowdown in growth has not affected dramatically the outcomes of the major Spanish media companies. As recently featured in the Spanish media, the PRISA Group, which includes newspapers such as Elpais and AS, made an overall profit of 8,68 million Euros in the first quarter of 2015, while it closed the previous year with a high consolidated loss. Additionally, Unidad Editorial Group (Elmundo, Marca) has reduced its losses to 2.5 million, whereas in the same quarter of 2014 they exceeded 20 million Euros.

Nevertheless, the previously mentioned improvement of the results is due to multiple elements and the revenues from digital media are only a small part of them, so a possible decrease would not have had a great significance on the overall picture yet. Actually, as data for number of subscriptions or revenue by advertising will not be shared by the owners of the newspapers until the summer, we can only speculate with the shortage of profits that this situation has caused, but it is undeniable that there has been a negative impact on the market, even though not as negative as in Germany. 

In this sense, we should take into account that revenues from online advertising are getting more relevance by the day, so any decrease in the number of visitors as well as subscriptions could have a negative effect in the future. Accordingly, this reduction of visitors will probably be significant for the coming media industry results.

As we await for CEDRO and the Ministry of Culture to determine the “fees” associated with this “tax” and the process collect to them, the first obvious consequence is that all visits that came from users who accessed the websites of Spanish newspapers after searching with Google News will not generate any payable sum, inasmuch as the Google News aggregation service has been replaced with a mere search engine, that does not fall within the services subject to the “Google Tax” regime. 

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