The Albanese government is now hesitantly contemplating the possibility Facebook will pull its entire platform from Australia, with huge implications for business and all kinds of transactions.

The decision is the unintended consequence of the country’s News Media Bargaining Code, which was never enforced but was designed to push tech companies into subsidising local journalism.

Facebook’s parent company, Meta, and Google both signed deals with Australian publishers worth about $250 million as a way to avoid being captured by the code, which became law in 2021 and would have mandated payments for journalism linked to or posted on their platforms.

They feared if the code was enforced it would be replicated globally – and so they paid publishers to avoid the government enforcing it. What were considered early successes under that model, however, have begun to unravel.

The media companies that pushed for the code are now facing huge revenue gaps. Meta is staring down the Australian government over threats to have it officially “designated” and forced to pay for news content. Restructures and job losses have been announced or are being considered by publishers that will no longer receive payments from Facebook from this year.

“The government has picked a fight with the supermarkets. You know, this government is happy to do that. Why not do it with the ones that are completely taking the piss, which is the tech platforms?” a senior publishing source involved in behind-the-scenes discussions with the federal government tells The Saturday Paper.

“The political downside is if Meta pull Facebook from Australia altogether. I know for a fact they are worried about Meta doing that here, or worried about what it would look like if it did.”

Rupert Murdoch’s News Corp has long led the charge in pressuring government to compel tech companies to subsidise journalism. His argument has been the platforms steal content and should be charged a carriage fee to host it.

When News Corp announced it had signed a $100 million off-code deal with Google in 2021, its chief executive, Robert Thomson, thanked Rupert and Lachlan Murdoch for their “fervent, unstinting support” without which it “would not have been possible”.

“For many years, we were accused of tilting at tech windmills,” he said in a release to market, “but what was a solitary campaign, a quixotic quest, has become a movement, and both journalism and society will be enhanced.”

Facebook followed, and for a time, everything was happy in the land of news media.

“It worked as a stick but it doesn’t work if it is actually put into practice, that’s the irony,” a source says of the code.

“The flaw at the heart of it is that Facebook can walk if it doesn’t have news. There is no conversation about fair value exchange if the amount of news on Facebook is zero.”

Facebook decommissioned its “news” tab in Australia and the United States this month. It has not yet taken the next available step, which is blocking all links to news sources, including those posted by its users. It did this briefly when Australia began implementing its bargaining code – and has done it permanently in Canada.

The threat of such a move has always been there. On January 22, 2021, Google Australia and New Zealand managing director Mel Silva appeared before a Senate committee about the proposed media bargaining code and threatened to pull the world’s biggest search engine from the Australian market.

“The principle of unrestricted linking between websites is fundamental to search,” she warned, “and coupled with the unmanageable financial and operational risk, if this version of the code were to become law, it would give us no real choice but to stop making Google Search available in Australia.”

Assembled online and in the various rooms of Parliament House that day were representatives from some of the most powerful tech and media corporations on the planet, including Facebook, Google, News Corp Australia, Nine Entertainment, Guardian Australia and the ABC, alongside Australia’s parliamentary lawmakers.

News Corp had long since picked a fight with Google, dispatching a delegation from New York to Canberra, led by its executive vice-president and global head of government affairs, Antoinette Bush, two years earlier to kneecap the search giant.

Bush was there to lobby and she had a sharpened pitch about Google’s practice of diverting subscribers and their data away from stories behind the News Corp paywall.

The Murdoch papers hammered these lines across their front pages, in the hope of influencing politicians. The Australian Competition and Consumer Commission (ACCC) found similarly and Silva, now faced with that government regulation, threatened to pull out of the market.

To the extent that this strategy was successful, it lasted for a few good years. Google and Facebook stumped up hundreds of millions of dollars for local news in Australia. Both did payment deals with Schwartz Media, publisher of The Saturday Paper.

Some media companies, such as Guardian Australia, used the platform revenue to expand their operations enormously. Others, such as News Corp Australia, sent the Google money overseas.

Within weeks of deals being struck under threat of the Australian News Media Bargaining Code, the likes of which existed nowhere else in the world, News Corp Australia journalists were told by their editors they wouldn’t see a cent: it was all going to New York.

The Facebook money was quarantined locally and helped prop up a structural hole in the Murdoch business. Now it has all gone to pieces.

News Corp Australia is in a bind as revenues plummet. The Australian Financial Review, a Nine newspaper, reported earlier this month that News Corp was considering its biggest head office restructure since 2012, when Boston Consulting Group was brought in to save the business.

Since then News Corp – now chaired globally by Lachlan Murdoch – has hired McKinsey & Company to advise on restructuring the commercial business and has now reportedly engaged PwC to split the local business into three separate balance sheets, cut senior management positions and plug what is reportedly a $15 million revenue hole on the back of a plunging advertising market.

PwC was previously involved in advising the media giant on its decision to shutter 112 community newspapers, moving just 76 to a digital-only model.

Despite much of its woes being structural, News Corp Australia makes no secret of its disdain for Meta.

Just this week the company’s national broadsheet, The Australian, featured front-page stories about how Meta’s new AI search tool was biased because it listed Australia’s best prime ministers as Gough Whitlam, Malcolm Turnbull and Julia Gillard, but “named Peter Dutton as the least humane politician for his role in implementing ‘stop the boats’ and his comments on African gangs”.

Another article noted: “AI experts also warned there is a ‘real risk’ of news soon being ‘homogenised’ by whatever ‘editorial bent’ a very small number of powerful tech giants decide to take.”

Google looks likely to announce a renewed deal with News Corp Australia soon but it does not have quite the same leverage as Meta. Google Search relies heavily on the ability to find news. Facebook doesn’t have to play the same game.

“They were stroppy [in 2021] and they see Australia as the source, sort of ground zero, of all their problems in this area,” a publishing figure says of Meta’s response to Australia’s world-first media bargaining code.

“And one of the few things they said to the media companies when they were telling everyone ‘We’re not going to renew your deals’ is that this was a global decision.

“Now that’s kind of a statement of the obvious in one way, but in another way it’s a clear signal that Facebook doesn’t want to make the same, in its view, mistake twice. And the contagion started in Australia as far as Facebook is concerned.

“They’ve done a good job in most other jurisdictions killing off these kinds of deals. So France, Germany, the US, even the UK – and they don’t want to open it up again. And that’s why they went as far as they did in Canada.”

Albanese’s government took ownership of the News Media Bargaining Code when it was elected. To the extent it was successful in the short term is largely due to the relentlessness of then treasurer Josh Frydenberg, who spent a lot of time on the phone in early 2021, including to Mel Silva and Facebook co-founder Mark Zuckerberg.

Now Zuckerberg won’t even speak to the prime minister, sources say.

At the time, Frydenberg made the crucial observation that the one thing Google and Meta really didn’t want was a global precedent. The treasurer made them an offer: they wouldn’t be designated if they entered their own private deals with media companies.

Google negotiated but Facebook was erratic. It sent two executives to the Senate hearing but not its Australian boss, Will Easton. Less than a month later, it blocked all local and international news links from its platform in a game of brinkmanship over the mandatory code.

The move ambushed everyone, including Frydenberg, but in doing so the social media platform overplayed its hand and suffered significant backlash in Australia and around the world. Frydenberg got on the phone again.

“The thing with a negotiation is you’ve got to work out what matters to people,” says Rod Sims, a former chair of the ACCC, who helped design the code.

“And clearly what the treasurer worked out was what mattered is they did not want to get designated. So, fine. They could go around the world and say this law doesn’t apply to them, that’s what they’re aiming for, and they all rushed out and did deals, much more quickly than if they had been designated, and within six months we had deals worth well over $200 million a year.”

Google kept talking to people, Sims says. Facebook, now a subsidiary of parent company Meta, went quiet. They stopped striking agreements with companies – for example, they never settled anything with SBS or The Conversation – once it became clear the Coalition government was likely not going to have them “designated”.

Now, for Meta at least, the calculus has changed and it has shut off news. If it were to block it entirely, there could be no code that applied.

The Albanese government is facing pressure from publishers to force Meta back to the table. Many argue the government should make good on the threat of designation but the logistics are not quite so simple.

“Everyone is preparing for a Canada scenario,” a media executive says.

“I will buy you many beers, and there is no other side to this bet, if Meta doesn’t walk away. Everything they are doing and saying suggests that is their intention. And why would they walk away in a place like Canada from news – which is a very similar country, similar audience, similar size economy – and then not walk away in Australia? It makes no sense.”

By all accounts, the federal government is willing to have some kind of fight with Meta. Privately, it has referred media executives to the legal fight it is having with X over extremist videos as proof.

Treasurer Jim Chalmers has absented himself from any decision – his wife is a journalist with News Corp Australia – which puts Assistant Treasurer Stephen Jones in the hot seat.

“The government has publicly and privately made our position to Meta very clear: Australian news media businesses should be fairly remunerated for news content used on digital platforms,” a spokesperson for Jones told The Saturday Paper.

“The Australian Competition and Consumer Commission is leading direct information gathering with news media businesses as it develops its advice to government.”

An ACCC spokesperson said it was “concerning” that news information “will no longer be available” through Facebook’s news tab. It has written to publishers to ask for “voluntary information” to advise the assistant treasurer.

On that score, it is asking myriad technical questions about publisher profits, the value of any deals struck with Facebook, the value of traffic referred to news sites via Meta platforms, and what would happen if it left the market entirely. That is, if it didn’t just block news but also removed everyone’s access to its platforms such as Facebook, Instagram and encrypted messaging app WhatsApp.

If one asks Meta’s own AI service whether it should pay for news in Australia, the answer is that it’s a “complex” question but offers three arguments in favour: supporting quality journalism, fair compensation and “levelling the playing field between tech giants and news publishers”.

Against, it argues what it has argued behind closed doors: “The law could set a precedent for other countries to follow, potentially leading to a fragmented internet and increased costs for tech companies.”

A media executive involved in the negotiations puts it like this: “There will be a bit of a staring contest. Everyone is trying to work out what the plan B is.”