Tax is the answer; media’s great extinction deb(AI)t; and the Unmade Index rebounds

April 29, 2024 11:03

Welcome to a Tuesday update from Unmade

Today, we reveal the lineup for The Great DebAIt, where the inventor of The Newspaper Extinction Timeline will take to the stage to argue that AI is not media’s extinction level event.

And below the paywall, in our members-only content, we make the case that the real question on the digital platforms isn’t whether they pay for news, it’s why they aren’t being made to pay more local tax. Plus, the Unmade Index bounces back.

Unmade’s paying members support our analytical journalism. In return you get access to our full archive which goes behind the paywall after two months.

You also get discounts on tickets to our events, including next month’s AI conference humAIn, our retail media conference, REmade and a free ticket to our annual Compass series.

AI of the Tiger: it’s the thrill of the fight

Cat McGinn, curator of HumAIn, writes:

We can today unveil our lineup going head to head for The Great DebAIt, our showcase of provocative, big-picture thinking to end our AI conference HumAIn.

The proposition for this year’s Great DebAIt is “AI is the news media’s extinction-level event.”

Each speaker has four minutes to make their case, with the audience casting a vote before and after the presentations. Can our debAIters change hearts and minds?

The affirmative team includes Karen Powell, CEO of Omnipresence; John Cucka, head of Kantar Analytics Australia, and Jessie Hughes, senior creative technologist at Leonardo.ai.

Powell advises B2B leaders on AI technology integration with a focus on revenue. A Global AI Council member, her background includes leadership roles at Bastion and McCorkell & Associates.

Cucka specializes in quantitative models for marketing decision-making. He brings over 30 years of experience in data science, AI, and statistics.

And along with her work at AI image generation startup Leonardo.ai, Hughes is an internationally recognised new media artist. Her work, exploring emerging technologies, has been showcased at Sundance, SXSW, and the Tate Modern.

And opposing the motion, arguing that AI is not media’s extinction-level event are futurist Ross Dawson, Tom Robinson, CEO of Edelman Australia, and Scott Purcell, co-founder, Man of Many.

Dawson may be best known for his Newspaper Extinction Timeline which charted the decline of traditional print newspapers. Written in 2010, Dawson predicted that newspapers in their current form would become insignificant in Australia by 2022. Dawson runs the AI + Humans Explorer community.

Robinson oversees Edelman’s Trust Barometer, research into public trust and sentiment towards businesses and institutions published annually. This year’s report, entitled Innovation in Peril, found that 53% of Australians reject AI, and believe innovation is being mismanaged.

Purcell’s publication Man of Many claims to have a nuanced approach to AI, leveraging its capabilities to augment the editorial processes while rejecting fully AI-generated content.

HumAIn takes place in Sydney on May 28. Tickets, and details of the full conference lineup are available via this link.

Last year’s Great DebAIt:

Making digital platforms pay a fair share of local tax is the real issue

Tim Burrowes writes:

It’s all coming to a head.

On multiple fronts, Australia’s lawmakers are being tested on their ability to set their own rules.

As we discussed in yesterday’s Start the Week podcast, in matters of taxation, content and rule of law, an overdue showdown is here.

The most urgent question is taxation. Advertising revenue being spent in Australia is leaking offshore, with most of it untaxed on the way out. Marketers giving business to Meta and Alphabet are involuntarily supporting (legal) tax minimisation on an industrial scale.

Over the last week, the Australian Financial Review has been examining the annual financial disclosures of the platforms. What has become clear is that the new laws designed to prevent taxable revenue from being sent offshore have failed.

Alphabet, with revenue in Australia on the way to $10bn – and the lion’s share of that pure profit – paid tax of just $132m in the 2023 financial year.

Meta, with topline revenue revenue of $1.34bn, declared local profits of just $34.7m, which is the amount it would then have paid tax on.

All those zeros and commas can get confusing. But for context, its roughly the equivalent of being on a $100,000 salary and paying $1,000 in tax.

Compare that to the big Australia-based companies paying taxes at 30% on their profits.

That’s one of the flaws of the tax system as it exists. The tax bill is calculated based on a company’s profit, not its revenue.

For a company based in one place, that works. For example, if a company that brings in $100m in revenue genuinely has to spend $80m to get there, then paying tax only on the $20m profit is fair enough.

But the problem with the global platforms is that the cost side of the ledger is too easy to manipulate, even after the introduction of the Multinational Anti-Avoidance Law in 2015

The local versions of the platforms are set up effectively as shopfronts which are merely legal entities selling their parent company’s services.

The biggest single cost on the books which drive down the local taxable profit is how much the parent company charges its local version for its products. Facebook labels it “purchase of services”.

Effectively it than becomes a calculus for how little tax the company reckons it can get away with paying while still retaining some semblance of social licence. It then charges itself accordingly.

The arrangement is perfectly legal, by the way. What’s we’ll never know though is how much damage PWC’s leaks to its global clients did when the law was being constructed in 2013. It meant that by the time the law arrived , the platforms had already had time to prepare their alternative structures. If they hadn’t had the warning, then precedents for what they should have been paying would have been set even if they restructured later.

Whenever you feel sympathy for PWC’s reputational plight, remember that it cost Australia hundreds of millions, and possibly billions, of dollars.

What’s clear is that the law as it’s written is not working.

There are several potential ways to tighten the framework.

If the pricing structure of those reseller agreements are genuine – and internal charges are always inherently artificial – then platforms using them should be forced to put them out to tender. Let any company bid to become the giants’ local representative.

Or, less radically, build a framework where the parent company can only recharge a reasonable amount (with the calculation defined in law) to its local arm for its products. That will mean the local arm making bigger profits that would need tax paid just like everybody else does.

Another option is to change the system for multi-country companies so that tax is paid on revenue rather than profit. That has flaws though. Every industry has its own profit margin. Some would potentially end up being asked to pay more in tax than they (genuinely) make in profit.

A third way is to offer a choice: Your local entity can either pay sweetheart royalties back to home base and be taxed based on overall local revenue, or it can only pay those legally defined reasonable recharges and be taxed on profit.

Much of the debate over the News Media Bargaining Code is a red herring. One justification for Google and Facebook to be strong armed into paying money to the local publishers was because they were not paying enough tax locally. So fix that. The extra revenue would be more than enough to create a grant fund to support public interest (with a wide definition) journalism.

However you look at it, the mechanism is complicated but the solution is simple. The platforms need to pay more tax.

Unmade Index up by 1.5%

The Unmade Index saw a big bounce on Monday, rising by 1.53% to 537.6 points.

The biggest winner at the top end of town was Ooh Media, which moved back above a $900m valuation. after growing by 3.04%. Nine grew by a similar 3.03%.

At the small end of town, Vinyl Group lost more than 15% after gaining 35% on Friday. And Pureprofile gained 25% after losing 24% on Friday.