Why a lack of Australian media licensing deals frazzled the Facebook share price

The Facebook [FB] share price has gained 29.4% in the year so far to close at $353.58 on 27 September – a 38.7% climb over the 12-month period. However, the Facebook share price fell 4% between 21 and 22 September, following backlash against the company’s dealings with Australian media outlets.

Several Australian content providers alongside TV broadcaster SBS have been denied access to the social network giant’s network, after a media law that forces tech platforms to pay to link their content on news feeds was passed in February.

On 22 September, Facebook announced that it had stopped negotiating new licensing deals. Nick Shelton, founder of Broadsheet Media, was quoted by Reuters as calling the move a clear “attempt from Facebook to cap their exposure to independent publishers”.

SBS, however, were among broadcasters that blamed government heavy-handedness for the standoff. “This outcome is at odds with the government’s intention of supporting public interest journalism,” a spokesperson stated. 

Facebook share price falls on lack of licensing deals

Earlier this year, Josh Frydenberg, deputy leader of Australia’s liberal party, hailed the law as “a significant milestone”. “This legislation will help level the playing field and see Australian news media businesses paid for generating original content,” he tweeted on 24 February.

However, soon after the law was proposed, Facebook announced its intention to restrict Australian publishers from viewing and sharing news articles. William Easton, managing director for Facebook Australia and New Zealand, said in a statement that the law forced Facebook to choose between compliance.

He explained that the company felt the media law misunderstood the relationship between Facebook and content providers. And that it forced the tech giant to choose between compliance or stopping news content on Australian services.

“With a heavy heart,” he continued, “we are choosing the latter.”

Other countries follow suit

Australia’s law had been seen as a benchmark by other countries pushing for tech giants like Facebook and Google [GOOGL] to pay news outlets and other content creators for material. France forced Google to negotiate with publishers in 2020 under a 2019 EU copyright directive, and other nations within the Eurozone are reportedly considering applying the same rules. 

The Australian government is set to review the legislation in 2022. Until then, publishers without a deal with Facebook have no choice but to wait and hope that the government relaxes the legislation.

As Facebook limits the amount of news content on its site, some publishers are already positioning themselves to rely less heavily on the tech giant. Douglas Burns, who co-owns the Iowa newspaper chain Herald Publishing, has said his publications have used Twitter [TWTR] rather than Facebook to amplify political coverage for the last six months because “Facebook has not been a healthy place for political debate, ever”.

“Facebook has not been a healthy place for political debate, ever” - Douglas Burns

Both companies are under increasing public and political pressure to prevent the spread of disinformation and abuse on their platforms. Wikipedia founder Jimmy Wales has suggested the companies should follow the online encyclopaedia’s model of volunteer moderators to mitigate the problems.

Bad news for the Facebook share price?

Faced with increasing regulatory scrutiny, market sentiment around Facebook shares is becoming increasingly bearish. The sharp fall in the Facebook share price means that it is trading well below its 20- and 50-day moving averages, creating a strong sell signal. Other technical indicators, such as its relative strength index of 40.3, are also negative. 

The number of hedge funds holding Facebook shares climbed to 3,111 in the second quarter, but with third quarter 13F filings just days away it is possible that number may have fallen in recent weeks.

So far in 2021, the Facebook share price has outperformed the S&P 500’s gains of 18.6%, as well as the Communication Services Select Sector SPDR Fund [XLC], which gained 22.8% in the same period. Gains in the Facebook share price have driven the fund’s performance – the stock was its top holding as of 28 September with a 21.9% weighting (although the fund’s Alphabet Class A and Class C shares combined would give Google’s parent company top spot).

Analysts are positive on Facebook, with 32 out of 49 polled by CNN money giving the stock a buy rating. Four recommended that it will outperform and 12 gave it a hold rating, with only one giving the stock a sell rating. Jefferies recently increased its Facebook share price target from $425 to $440 in a research note, which pointed out that the move was a valuation call.