Sara Fischer | Google threatens to pause Google News Initiative funding in U.S.

Piece by WWSG exclusive thought leader, Sara Fischer.

Google is warning nonprofit newsrooms that passage of a new California bill would jeopardize the firm’s future investments in the U.S. news industry, sources told Axios.

Why it matters: This is the second time this year Google has threatened to pull investment in news in response to a regulatory threat in California — but this time, hundreds of publishers outside of California would also feel the impact.

Flashback: Last month, Google said it would pause further investments in California newsrooms — including new partnerships through its news licensing product, Google News Showcase, and planned expansions of its $300 million global Google News Initiative (GNI) program — “until there’s clarity on California’s regulatory environment.”

• That statement was made in response to a bill, introduced by California Assembly member Buffy Wicks last year, that would essentially tax Big Tech companies for links to news content — a “link tax” — and use the revenue to fund newsrooms.
• The bill, called the California Journalism Preservation Act, has also been opposed by Google rival Meta, which has warned it would block links to news sites in California on its platforms if the bill becomes law.
• Google began testing removing news links from its search results in California in response to the bill in April.

Driving the news: Google’s new outreach to smaller news outlets is happening in response to a different bill, introduced this year by State Sen. Steve Glazer, that would tax Big Tech companies like Google and Meta for “data extraction transactions,” or digital ad transactions.

• Tax revenue would fund tax credits meant to support the hiring of more journalists in California by eligible nonprofit local news organizations.
• With the link tax bill, Google only threatened to pull news investments in California. But the company is telling partners that the ad tax proposal will threaten consideration of new grants nationwide by the Google News Initiative, which funds hundreds of smaller news outlets, sources told Axios.
• Previous commitments, however, should be secure. A spokesperson for the Institute for Nonprofit News said the organization believes that grants previously committed through GNI as described here “are secure, so INN members should continue to benefit through this particular Fundamentals Labs program.”

Zoom out: Google’s concern, sources familiar with the company’s thinking told Axios, is that the new California ad tax bill could set a troubling wider precedent for other states.

• California’s Senate tax committee approved the “ad tax” bill May 8. Days after that, Google started making calls to nonprofits about potentially pausing future Google News Initiative funding, sources told Axios.

Between the lines: Opponents argue the ad tax burden would get passed down to consumers and businesses. They also say the measure would face legal challenges, similar to a digital ad tax introduced in Maryland last year.

• Danielle Coffey, president and chief executive of the News/Media Alliance, a trade group which represents thousands of mostly local news publishers in the U.S., told Axios the industry needs “a legally founded right to payment” so that it’s not “dependent on benevolence to receive fair market value in return for the revenue the platforms generate off our content.”
• “Legally enforceable rights no matter the medium, distributor, or new emerging technology will allow us to control our own fate, independence, and report on critical issues free from influence and retaliation,” she said.

• When asked about its outreach to nonprofits, Google pointed Axios to its previous statement made about the link tax bill, and did not acknowledge the new ad tax measure.

The big picture: California has taken the most aggressive steps of any U.S. state to go after Big Tech firms to help finance the troubled news industry.

• National proposals to bolster the local news industry, like the Journalism Competition and Preservation Act (JCPA), have failed to become law.
• The JCPA is modeled on a 2021 Australian law that requires companies like Google and Meta to negotiate payments with news companies for their content.
• In Canada, Google threatened to block news links in response to a law that required tech companies to pay for news content.
• That dispute was eventually resolved, but rival Meta has continued to block links to news within its products in Canada, drawing criticism from Prime Minister Justin Trudeau.

What’s next: The ad tax bill is expected to make it to the California Senate floor as early as Tuesday afternoon. If it passes there, it would go to the California Assembly.

• The link tax bill passed through the Assembly and is waiting to be introduced to the California Senate.
• Google and California lawmakers could also reach a deal to avoid messy court battles over both bills.