David vs Goliath: Distilling the Australian News Bargaining Code Battle
The rumblings of discontent from the Australian media against tech titans has now become a wave of relentless legislation, power shifts and changes in customer sentiment that may reverberate beyond the island nation, with the Treasury Laws Amendment (News Media and Digital Platforms Mandatory Bargaining Code) Bill (2021) (‘Bargaining Code’) a prelude for further action to come. At stake is not just the commodification of articles, but the fundamental ability to monetise audiences, and rein-in market domination and power imbalances. Ultimately, however, the end goal beyond any stop gap payments is the future evolution of media to sustain quality journalism in an increasingly digital and competitive landscape democratising knowledge and harnessing data. The passing of this and other codes currently being debated will offer some relief, but will not avert the dire need to cater for these structural changes. These distilled lessons from the Australian experience will hopefully guide media and technology companies, and governments internationally.
How did we get here?
1.Democratisation of news and information broadcasting due to lower barriers
The internet allowed for significant change to the democratisation of mass information cheaply and at scale caused an explosion in media businesses and access to audiences. With lowering barriers to entry, news is no longer exclusively created by wealthy institutions or organisations with printing presses, radio and TV licences. Pure digital news players such HuffPost, Buzzfeed, Vice and Politico were able to grow monthly active users in the hundreds of millions and monetise these at a fraction of the cost of legacy print newsrooms who possessed smaller print and online readership.
2. Shifting media revenue streams to digital
● Newspaper print in decline:Newspaper revenue streams of print advertisements, circulation and classifieds (in print) have increasingly moved online (or disappeared) resulting in an estimated 32% decline in revenues between 2002 and 2018 according to The Australian Media and Landscape Trends report by AlphaBeta. This included an 87% drop in classification revenue between 2002 and 2018, with newspaper share of total classifieds dropping from 96% to 12% due to pure play digital businesses such as realestate.com.au (REA, part owned by News Corp) and Domain (part owned by Nine Entertainment) or competitors. Noting that metro newspapers in Australia are effectively a duopoly between News Corp and Nine Entertainment.
● Free-to-air (FTA) advertising in decline: FTA TV has also suffered from the shift in revenue with linear TV advertising estimated to have declined by 30% between 2015 and 2020 alone, with a -2.5% Compound Annual Growth Rate (CAGR) going forward according to PWC. Broadcast video on demand (BVOD) on the other hand is projected to have a CAGR of 24.9%, though this smaller segment is unlikely to offset the decline in linear, leading to an overall reduction in advertising revenue to broadcasters.
3. Changes to customer behaviour
● More online news consumption: The stunted reaction of media companies to the evolutionary shift to increasing online consumption resulted in a loss of audiences and revenue. The internet is now a primary source of news for 61% of Australians according to Roy Morgan (the highest of any medium) and a source for 76% overall in 2020, while print declined as a source of news from 38% in 2016 to 25% in 2020 according to the Reuters Institute Digital News Report 2020.
● Emergence of platforms: While sites such as YouTube and Facebook may have helped to catalyse this shift, the seed was sown as far back as the 1990s when Yahoo! already aggregated and linked to news. Its demise from a USD125b company to a USD5b sale to Verizon is a cautionary lesson that: i) there is no permanence to being a tech titan; ii) audiences are dynamic and constantly evolving; and iii) the media and government need to be prepared for even more capable upstarts in future (as Google was to Yahoo!). In the past 30 years since, audiences have sought news through portals such as Yahoo! and AOL, directly from news sites, and now increasingly via social and search, which account for upwards of 45% of referral traffic to news sites according to the ACCC.
4.Declining monetisation control for media
● Advertisers shifting to digital: It is unsurprising that the decline in print and TV advertising revenue has been more than offset by a growth in digital advertising overall. The final report for the Digital Platforms Enquiry by the Australian Competition and Consumer Commission (ACCC) estimates that online spend has increased from 25% to 53% between 2012 and 2018, with digital advertising now representing 64% of the total advertising budgets in Australia in 2020 according to IPG Mediabrands and is expected to grow. In contrast, online display advertising is estimated to account for just over 16% of total revenue and 29% of advertising spend for newspapers according to AlphaBeta analysis;
● Concentration of advertising spend: However, a significant proportion of this increasing digital ad spend is connected to Google and Facebook who account for 96% of search and 51% of display advertising respectively in 2018 according to the ACCC’s report. The two channels consist the majority of online advertising spend (excluding mediums such as online classifieds);
● Control over advertising technology: The platforms’ control over the entire ad tech supply chain, from demand to supply, causes participating publishers to relinquish control and potential financial benefits in exchange for convenience and scale. While Google allows third parties on its ad exchange, its insights into both supply and demand side contracts facilitate opportunities for it to win the bid, with publishers on the supply side having little transparency on the decision process;
● Platforms control over data: Facebook reportedly has over 17 million monthly users in Australia (over 60% of the population), and Google is likely to have similar figures with other platforms such as Snapchat and LinkedIn well below. The incredibly rich data from these platforms is highly valued as it provides advertisers with access to an unparalleled number of validated users and their demographics across sites and devices. Publishers globally have attempted to counteract this by pooling data among themselves and matching user IDs to increase advertising yield – while sensible, the benefits are still to be determined;
● Removal of tracking cookies: Working against all ad tech is the growing prevalence of ad blockers and restriction of tracking cookies. The potential of this is evident in the clash between Facebook and Apple over tracking permissions. Google has also said that it will phase out third party cookies on Chrome, even though Google research has previously indicated that the ad revenue of publishers decreases by 52% when third party cookies are disabled.
While the Bargaining Code acknowledges the impact to media companies from changes to audience behaviour and loss of control over advertising, the results from the ACCC’s Digital Advertising Services and Digital Platform Services inquiries will likely have greater impact on the tension in platform monetisation and data going forward, and thereby potentially have a far larger impact on the operations of platforms particularly in relation to anti-competitive and opaque behaviour.
5.Degradation of ownership and certainty in distribution
● Engaging audiences where they spend time: With over 39% of time spent online on Google and Facebook sites alone (versus just over 2% each for Snapchat, Apple and all news outlets combined) according to Nielsen, it would be remiss for companies to not engage customers on these platforms particularly since Google and Facebook are now ubiquitous with all things digital;
● Voluntary participation in the ecosystem: Nick Clegg’s, Facebook’s VP of Global Affairs, assertion that publishers are not forced to share content on Facebookis strictly true as they voluntarily share content and participate under Facebook’s terms. The same is also true of Facebook users who distribute the content. This voluntary participation occurs in YouTube, Apple News and elsewhere, but is not necessarily the case with Google Search, which indexes and lists pages unless sites explicitly contain code to prevent this from occurring. To date, most media organisations have been willing (though not necessarily always happy) participants in the shift as shown by the growth of social media teams, SEO experts and social analytics tools, all of which are now commonplace in any data savvy newsroom.
● Changing priorities of platforms and lack of visibility on future plans: The issue, however, is that publishers are required to comply with Google and Facebook’s terms to access digital audiences and traffic, but the rules afforded are often murky and can be rescinded at any time with little recourse or alternatives. While Facebook has the right to make algorithm changes, and should not be forced to divulge confidential business decisions, there is a duty to act reasonably in partnerships where there are significant impacts to publishers.
○ For example, in the past few years it has tweaked its algorithm to favour videos and Facebook Live, paying publishers such as Buzzfeed to produce content resulting in a mass scramble/pivot to short form video for publishers to be elevated on the platform.
○ On the opposite spectrum, unannounced algorithm changes deprioritising news in favour of friend’s updates on Newsfeed have previously resulted in a plunge in traffic to news sites from Facebook as occurred in 2016 when some publisher’s traffic dropped by up to 50%.
○ It is reasonable to say that this is the price you pay for playing on a third party; however, this neglects the reliance that companies have on stable platform traffic and their subsequent ability to monetise ad inventory and guarantee impressions for campaigns given the goal posts can move drastically and suddenly.
● Platforms centralising information and services: The incentivisation by tech companies, including Apple, to publish content on their platforms only exacerbates the problem due to the loss of ownership of data, the customer journey and in some occasions, monetisation. Facebook Instant Articles requires publishers to effectively publish/distribute articles offsite onto Facebook, and Google AMP similarly dictates a format and caches content on AMP servers resulting in access to less data than publishers would have onsite. In these instances and on Apple News, publishers lose some level of control over brand formatting, some ad formats (largely non-standard) and data, but need to comply due to algorithms preferring these sources versus traditional links/formats despite traffic advantages not always being present. While platforms benefit, customer experience improves as these formats ultimately provide much cleaner and quicker load times for articles versus often bloated websites, which contributes to prioritisation by the algorithms. Platforms are also open to allowing monetisation by publishers who are able to retain 100% of ad revenue if using their own solution. However, the same is not true where subscriptions are involved with Apple Pay taking 15% of new subscriber payments and Apple News Plus taking 50% of subscription revenue.
The key takeaway is that the concerns of publishers are driven by their loss of control over audiences, data, content and monetisation online through these platforms. These concerns are, to some degree, in conflict with the goal of platforms to become more ubiquitous and all-encompassing by capturing more of the customer journey, data and share of wallet while also being able to monetise this ownership of users and their information. This is true of Google, Facebook and Apple as it is of Amazon, Uber and most tech companies. While this focus isn’t an issue itself, it does become problematic where it is anti-competitive or ultimately diminishes customer benefits.
What do the laws actually do?
1. Purpose of the code
Per the Explanatory Memorandum, The Bill (Bargaining Code) “establishes a mandatory code of conduct to help support the sustainability of the Australian news media sector by addressing bargaining power imbalances between digital platforms and Australian news businesses.” The Bill allows for the Minister for Communications, Cyber Safety and the Arts to designate a digital platform though there is a lack of clarity on how this is determined with an initial indication this will only apply to Facebook Newsfeed and Google Search (not YouTube). News businesses are more clearly defined with requirements including publishing news content, being subject to journalistic standards, an Australian audience and having annual revenue in excess of $150k.
As outlined in the Revised ExplanatoryMemorandum, there are six main elements to the code:
1. Bargaining – parties need to intend to bargain in good faith;
2.Compulsory ‘Final Offer Arbitration’ – an arbitral panel will make a determination between the final offers of both parties where an agreement cannot be reached;
3.Advanced notification - digital platforms need to provide 14 days notice prior to any significant changes on referral traffic or distribution of advertising, particularly where that change affects how a platform distributes its content. However, algorithm changes that are made as part of routine maintenance for the purposes of ongoing effectiveness or efficiency of the algorithm are excluded;
4.Non-differentiation – digital platforms cannot differentiate in their treatment of participants and non-participants of the code;
5.Contracting out – digital platforms and news business that reach a remuneration agreement outside of the of the code do not need to comply with general requirements and arbitration under the code; and
6.Standard offers – platforms may make standard offers to news businesses to reduce time and cost of negotiations. Parties to the offers will not need to undertake bargaining and compulsory arbitration.
2. Some ramifications
● Potential bargaining power imbalance in favour of larger companies: While the intent to force platforms to negotiate agreements is clear (in a hopefully easier and cheaper manner than alternative legal remediation procedures), it will ultimately favour larger media companies who are likely to secure better upfront agreements without needing to go through the bargaining and arbitration process. Information asymmetry is likely to work against smaller news companies who may be unaware of the true value of content or the price paid to larger players.
● Impractical requirements for platforms: Requirements around the notification of algorithm changes have mixed consequences. While it does assist media businesses from a planning perspective, for the reasons mentioned earlier, the removal of the need to provide updates for procedural efficiency changes will provide a loophole. That said, changes and updates on core elements of platforms such as search results pages or home page feeds are likely to be frequent and have broad impact, and the need to provide constant updates of proprietary information on ‘business as usual work’ would be burdensome and impractical.
Why should consumers care?
1. Customers benefit from healthy media and platforms: This battle royale ultimately is over the customer. All parties are fighting for customer attention, time, data and share of wallet, which they ultimately hope to generate monetisation opportunities through more advertising spend or subscribers. Without efficient (and hopefully free) platforms, customers will lose access to information, connectivity and innovation. And without media, customers lack factual information.
2. Fees potentially cause a poorer experience or additional costs to customers elsewhere: Platforms have been providing free services to customers who were effectively subsidised by using data to sell advertiser access to them, but will now incur an additional cost for the perceived use of intellectual property. The content had been used to generate better customer experience, and therefore traffic and additional customers (much like the Amazon flywheel). The removal of news sites would impact customer experience on these platforms, though platforms argue this is actually a small part of the traffic. Furthermore, the added cost of paying publishers will invariably need to be funded, and though platforms have adequate margins to absorb this, they could easily seek new consumer revenue streams (but have so far made a commitment to never charge customers for access).
Why should governments care?
1. Copyright and internet principles: This is not the first time that governments have sought to atone the concerns of publishers. In Spain and then the EU, Google was ordered to pay for news content and snippets appearing on their sites due to copyright laws. In Australia where headlines do not constitute a copyright infraction, however, a service is considered to make content available under the terms of the Bargaining Code if, among other things, “a link is provided on the service” even if the text used is just the headline. The fact that 59% of links shared on Twitter have never been clicked, shows the staggering value audiences place on headlines alone. Nevertheless, capturing links as a requirement exposes many sites and fundamentally goes against the principles of linking on the internet as maintained by Google and Sir Tim Berners Lee (founder of the internet) in his senate submission.
2. Dispersing monopolistic behaviour: Governments globally are seeking to break concentrated market power through anti-trust legislation. The Democrat-led congressional investigation into Google, Apple, Facebook and Amazon last year has sought to catalyse this response in the US, though this is not centred around media, and nor does it have bipartisan support.
3. Obligation to promote innovation and investment: It is not simply a case of telling best practice tech companies that they should share their secrets, accede or else pack up and leave. The absence of these companies would degrade customer access to the best possible products and services. More so, however, governments need to be careful of appearing to overreach, add bureaucracy and generate overly protectionist policies that stifle inward investment in tech as noted by Atlassian co-founders in their submission to the ACCC. Australia, like any government is not in a position to be callous on investment attraction given its rank of 16th overall according to the World Economic Forum Competitiveness Index (2019) with poor ratings for ‘Burden of Government Regulation’ (80th) and ‘Legal Frameworks Adaptability to Digital Business Models’ (30thh). The code also drew criticisms from the US Government.
4. Adverse reactions by platforms: Google’s experiment of removing news from search results in January, prior to its announcement of its willingness to remove search from Australia altogether, was felt by publishers whose stories no longer became searchable. So too was Facebook’s decision to ban news for Australian users of its platform, recalling the two platforms account for upwards of 45% of traffic to news sites (ABC reported an almost 80% decrease in news links shared on Facebook at one point). The poor execution by Google and Facebook were public relations disasters, taking publishers by surprise as well as hospitals and government departments whose content were removed from Facebook. This left a dangerous information gap, allowing for misinformation and conspiracy theorists to fill the void. While News Corp reported an increase in direct traffic to its sites during this time, governments should prevent news from being removed from platforms given the potential harmful consequences of information vacuums and asymmetry. On a potentially optimistic note, however, research by the News Media Alliance found that traffic to news sites was largely unchanged following the withdrawal of Google News in Spain in 2014.
Why should businesses care?
1. Increasing prevalence of compensatory agreements: The Bargaining Code is a temporary boost for news companies. Google via its News Showcase (which has already been released in Europe) is negotiating deals with Australian media companies, including Nine Entertainment who reportedly signed a deal worth AUD30m a year. Facebook has also commenced negotiations starting with Seven West Media. The negotiation of these agreements will be factored in the Minister’s decision on the classification of digital platforms and potentially alleviate the need to be hampered by ongoing negotiations under the code, which would be beneficial for all parties concerned.
2. Continuing necessity for media companies to innovate: Payment by the platforms does not fundamentally change two critical issues arising from this debate. Firstly, the consolidation of power (monopolistic behaviour), which will hopefully be addressed by other ACCC findings to be presented this year. Secondly, and more poignantly, the fact that media companies must innovate and create sustainable business models that allow for the funding of high-quality journalism and consequently news. Any platform or government can fund journalists, but this merely serves as a financial aid for media businesses. To ingrain change, the ACCC recommended: stable funding for public broadcasters, grants for local journalism and digital literacy in schools, all of which are supported (or supported in principle) by the government. While helpful, this does little to force media companies to change in the same manner that market forces will.
What needs to happen now?
Other countries observing the execution of the codes should take heed of the following:
1.For media companies
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DThe slow reaction time of news organisations in Australia should be a cautionary tale for any organisation looking to the future. Namely to address the impacts from the rapid shift to online sites eroding market share (through online classifieds), shifting advertising revenue, and customers moving to digital platforms. Companies need to act upon the shifts of tomorrow or risk being part of history;
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Obtaining large volumes of data is fairly straightforward, but putting this to good use is the challenge and must be prioritised. Tech companies are certainly the gold standard in this regard. Potential data applications include: personalisation using machine learning/AI, targeted advertising through consolidation of verifiable data across publishers, and the use of analytics to guide content creation;
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There is no place for poor user experience on the internet. Anyone can create a beautiful functional site with little effort. Audiences need reasons for people to stay and pay on a news site or app. This also requires the removal of friction from the customer journey by removing choke points for payments, subscription sign ups or slow page load times due to bloated sites and ad units. There is a reason why people love AMP and Instant Articles, and it’s because they are simple and fast. Building direct traffic and audiences will help to remove the significant dependency on platforms;
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Receiving money from platforms is a welfare line for publishers. Media organisations need to figure out how to make their content, brand and sites work to generate revenue. Publishers continue to experiment with: e-commerce (i.e. Buzzfeed); opportunities to move across the customer value chain; licensing of software (like Arc by The Washington Post); and various iterations of paywalls (hard paywalls i.e. News Corp, metered i.e. New York Times, freemium i.e. Hulu, donations i.e. the Guardian, or memberships i.e. HuffPost). The enormous competition for subscriptions against the likes of Netflix, only serves as further reason to have a unique value proposition that draws a paying audience according to the geography given differing attitudes for paying for news; and
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At the risk of sounding trite, the ability to scale matters. This includes data partnerships as mentioned earlier, and also content creation. Scaling a newsroom is expensive, but cross-company collaboration and operating opportunities can generate quality content at a cheaper price particularly where there is a cooperative platform. Collaboration to some degree is already prevalent on stories (think Panama Papers) and content licensing, though systematic collaboration is less common and challenging to do.
2.For governments
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● To use a football term, “play the ball and not the man”. It is far too easy to target and score political points by going after large companies or personalities (a broader issue beyond media and tech), and doing so risks not creating robust enough policies or laws that focus on the outcome and are adaptable for new businesses that may come to dominate the market. The code as it stands is vague enough to allow for the addition of new platforms at a minister’s discretion, which provides flexibility. However it lacks certainty for all businesses particularly due to bargaining processes and final offer arbitration with potential for highly variable outcomes. Clearly articulating when and how businesses start encroaching on an undesired degree of market influence would also be advised. All this in the context of the ultimate goal – a thriving media landscape allowing for an informed public through fair competition, best practices and just recognition of value. Fair mediation is only a fragment of the broader issue. Furthermore, all parties should be incentivised to participate in improvements without engagement being felt as a zero-sum game;
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● Monopolies are bad. Period. Consolidated power in any industry is never the best ultimate outcome for any customer nor government, as it stifles competition, innovation and choice which is particularly true of end-to-end control of supply and demand services. It will therefore invariably lead to government intervention. However, intervention should not occur at the cost of supporting inefficient practices or businesses, or preventing further innovation, growth and investment to occur by larger businesses particularly in circumstances that negatively impact the quality of customer experience – this is not to say that anti-competitive and detrimental behaviour should be tolerated, but that there can’t be an arbitrary assertion that ‘big is bad’ as there needs to be consideration of what is, or could be, the alternative. Even if governments decide to dismantle companies or their services, there still needs to be a review of whether there are viable enough competitors to provide better services;
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There was considerable public debate, interest and input from a variety of stakeholders in the process providing robust perspectives for the Bargaining Code. Though witnesses seemed to be led in the Senate hearing. Regardless, the extensive consultation and initial reporting by the ACCC in the public domain was beneficial;
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● Large tech businesses are bearing the brunt of government moves against dominant behaviour in a number of markets, particularly in Europe, the US and Australia. Learning and collaborating will allow for more robust approaches, without hopefully stifling competition, freedom of business and innovation through the creation of unworkable and piecemeal regulations;
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Much of the discussion centred on recovering the benefits to Facebook and Google from the media, as the ultimate beneficiary from the code is expected to be journalism. While justified, further work and quantification is needed into the benefits of tech platforms to media companies. Aside from the volume of referral traffic to websites, which itself derives advertising revenue and subscriptions, the platforms have also unquestionably amplified the reach and influence of news organisations globally in a manner that nothing else has; and
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In a world of increasing polarisation and fake news, we must support more high-quality journalists in a larger diverse array of legitimate media organisations. To do so, not only requires financial incentives and training, but also the freedom to operate.
3. For tech companies
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● Having a good working relationship with media companies and allowing them to feel like equal partners is critical even though one shouldn’t be naïve to think it will always be smooth nor stakeholders always aligned. There are also, of course, limitations to the degree at which customisations can occur for each partner given the potential for a patchwork of thousands of agreements, tweaks and personalisations that will ultimately lead to inefficiencies or breakages. That said being a good partner means empathy and listening to concerns;
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While the platforms were not obligated to do so, as a good partner they should provide advance warning where media companies will be materially affected. The sudden removal of news content from Google and Facebook with no warning, though within their rights, showed ill judgement and presented poorly publicly, only serving to reinforce attitudes of one-sided behaviour. A more tactful notice prior to the changes occurring would have generated less hostility, and aided in business planning;
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While businesses may or may not have earned the right for their market dominance, it is likely that legislation will seek to reduce this power. Various antitrust actions have successfully broken up large businesses as occurred with Standard Oil, American Tobacco and AT&T in the US. This will likely occur along product and capability lines potentially removing vertically integrated businesses that, while efficient, might be seen as destructive for competition. The concern over data privacy will also factor in government consideration, potentially mirroring General Data Protection Regulation (GDPR) in Europe. This siloing of data, which was a burden felt from GDPR by all concerned (not just tech companies) will require a rethink on data collection, but has hopefully been addressed due to GDPR compliance requirements. These regulations will likely be additional to those being considered for ad tech; and
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While companies were once concentrated on profit, social responsibility now features heavily in consumer and investor decision-making. Platforms need to contend with this, but also their moral obligation to a society where they have the power to positively influence by doing the right thing even where this does not yield the best financial outcome. Facebook has had many issues to contend with such as Cambridge Analytica, shootings on Facebook Live, dubious advertisements and the propagation of fake news. Now it is in a position to reform, and positively impact society through supporting news, and must do so. Facebook’s Journalism Projects and Google’s News Initiatives are positive steps in capability building the industry, and improving partnerships with news organisations, but more needs to be done.
Conclusion
The furthering of journalism through adequate compensation for news content is justified, however there needs to be a better understanding of the benefits brought by all parties, interdependencies and ultimately the market mechanisms preventing financial sustainability for news. As companies and governments globally seek to learn from the Australian experience there will need to be an acknowledgement that media models will need to pivot to provide people with high quality news and information in an environment where customers are increasingly digital-centric, and there is greater competition for customer attention and revenue. Focusing on this outcome means that legislation on platforms and ad tech are required to ensure there is fair competition, but in doing so, there needs to be an acknowledgement of the role of these companies and the innovation they can provide furthering benefits to customers.
Note: This article was originally published in 2021