As one of biggest/"smartest" technology companies in the world, they could easily have implemented this response in a way that didn't make them look such bullies.
The laws are very clearly formulated for the benefit of the major media publishers, particularly News Corp and Nine Fairfax, and it would have been trivial for Facebook to limit their ban to those platforms, and perhaps a handful of other large ones that lobbied for the law.
To be clear, I'm not normally in the faction of people hating on Facebook, and generally regard the loudest attacks on them as overblown scapegoating. But, regardless of how technically right they might be, from a PR point of view it's a losing move.
If any site of any kind publishing newsworthy content chooses to sue facebook for payment, there's nothing the Australian government can do to stop them. Also there is no way for facebook to know how he Australian government will actually choose to interpret and apply the law as regulators. They could even change the way they regulate it retroactively, that's the problem with at-will enforcement of vaguely worded laws.
My point is that Facebook's reaction is a tactical error in the PR battle. They've effectively conceded this themselves, having back-pedalled on at least some of the sites banned initially.
They could have responded in a way that won them support from the Australian populace, but instead they've made themselves seem worse than the AU government, which is quite a feat.
[1] - https://www.cnet.com/news/facebook-accidentally-blocks-own-p...
All Facebook has managed to achieve is to give the Australian government a good reason to dig in, to increase support for the new media code within Australia, and to gain the Australian government the support of various other governments internationally.
They aren't.
> It's hardly reasonable to accuse facebook of not knowing what they are doing
No, it's reasonable. This has backfired badly for Facebook. They've weakened their bargaining position.
In actuality, none of the parties concerned held the public's trust to begin with, so pardon me if I suggest that most Australians would interpret the whole charade as a pissing contest between idiots.
I'm mostly just surprised to see Facebook play the PR game so badly, but perhaps I shouldn't be.
Such content included public health and safety information (government/emergency services advice re. the pandemic and bushfires), though Facebook later claimed this was a mistake and restored it (I don't know details of exactly what was removed and what has been restored).
It also included other content platforms - i.e., several major news/comment sites, satirical news sites, weather/climate info sites, retail sites, a major independent restaurant/cafe review site, and info services for minority communities like indigenous groups. I think most of these platforms would have attained little-to-no benefit from the new laws, so they are just "collateral damage", losing traffic and revenue over a law they likely didn't support and had little to gain from.
It seems highly capricious on Facebook's part, and a terrible PR move, given that most Australians probably didn't support the laws, at least not very strongly, but in a climate where people are already uncomfortable with how much power the major internet platforms have, this "show of strength" against a country's elected government and populace is alarming.