The decision comes as the tech giants fend off calls around the world for greater regulation, and a day after Google and Facebook took a battering for alleged abuse of market power from US lawmakers in a congressional hearing.
The Australian government has said it plans to give Google and Facebook three months to negotiate with Australian media businesses fair pay for news content.
In releasing a draft of a mandatory code of conduct on Friday, the government aims to succeed where other countries have failed in making the global digital giants pay for news siphoned from commercial media companies.
Google said Australia's draft code was a heavy-handed step that could impede the digital economy.
Treasurer Josh Frydenberg said Google and Facebook would be the first digital platforms targeted by the proposed legislation but others could follow.
Australian media landscape at stake
“It’s about a fair go for Australian news media businesses, it’s about ensuring that we have increased competition, increased consumer protection and a sustainable media landscape,” Frydenberg said.
“Nothing less than the future of the Australian media landscape is at stake with these changes,” he added.
If the US-based platforms could not agree with the Australian media businesses on pricing after three months, arbitrators would be appointed to make a binding decision, the draft said.
The draft will be open to consultation until August 28, with the legislation to be introduced to Parliament soon after, Frydenberg said.
As well as payment, the code covers issues including access to user data and transparency of algorithms used to rank and present media content.
Breaches of the code could attract penalties of up to 10 percent of the platform’s annual turnover or a $7.2 milllion (10 million Australian dollar) fine.
Threatens to impede digital economy – Google
Google Australia and New Zealand managing director Mel Silva said the code discounts the significant value Google provided in free clicks on publishers' content.
“Our hope was that the code would be forward-thinking and the process would create incentives for both publishers and digital platforms to negotiate and innovate for a better future, so we are deeply disappointed and concerned the draft code does not achieve this," Silva said in a statement.
“Instead, the government’s heavy-handed intervention threatens to impede Australia’s digital economy and impacts the services we can deliver to Australians,” Silva added.
Facebook issued a terse one-line response that hinted it could reconsider its activities in Australia if the proposals were implemented.
"We are reviewing the government's proposal to understand the impact it will have on the industry, our services and our investment in the news ecosystem in Australia," said Will Easton, Facebook's local manager.
Frydenberg said the motive was not to protect Australian businesses from competition or disruption but to ensure they are paid fairly for original content.
Decline in advertising revenue
Media companies including News Corp Australia, a unit of Rupert Murdoch's News Corp, lobbied hard for the government to force the US companies to the negotiating table amid a long decline in advertising revenue.
"While other countries are talking about the tech giants' unfair and damaging behaviour, the Australian government ... (is) taking world-first action," News Corp Australia Executive Chairman Michael Miller said in a statement.
A 2019 study estimated about 3,000 journalism jobs have been lost in Australia in the past 10 years, as traditional media companies bled advertising revenue to Google and Facebook which paid nothing for news content.
For every A$100 spent on online advertising in Australia, excluding classifieds, nearly a third goes to Google and Facebook, according to Frydenberg.
Other countries have tried and failed to force the hands of the tech giants.
Publishers in Germany, France and Spain have pushed to pass national copyright laws that force Google to pay licensing fees when it publishes snippets of their news articles.
In 2019, Google stopped showing news snippets from European publishers on search results for its French users, while Germany’s biggest news publisher, Axel Springer, allowed the search engine to run snippets of its articles after traffic to its sites plunged.
Alphabet profits slump
Google parent Alphabet reported a rare drop in revenue and profit in a quarterly update that nonetheless topped market expectations.
Profit slumped some 30 percent to $6.96 billion from a year for the online giant that relies on digital advertising for most of its income.
Revenues dipped two percent to $38 billion, as chief financial officer Ruth Porat said; "We continue to navigate through a difficult global economic environment."