Competition Commission faces tough task tackling Google, Meta
The issues at the hearing into the media market and digital platforms are complex, and what the watchdog decides in the end could have far-reaching consequences, especially for local news media. By
Hearings started this week on something called the Media and Digital Platforms Market Inquiry at the Competition Commission. There are several aspects to the inquiry, but the heart of the investigation is whether there are market features on digital platforms that distribute news content “which impede, distort or restrict competition”.
Ouch. Big question. And, of course, one that is close to my heart (and salary cheque). The issues are complex because, as I hope to show, there are good arguments on both sides. I say “hope to show” because naturally, as a participant in the industry, I’m biased. So, please keep that in mind.
There are two issues here: one is whether by referencing a news article, Google and Facebook get most of the traffic gain while having to bear a fraction of the costs. Let’s call that the search issue. Then there is also the cost-benefit ratio involved in advertising, especially something known in the industry as “programmatic advertising”. Let’s call that the programmatic issue.
The reason for the inquiry is, essentially, that the news industry is in crisis around the world. Broadly speaking, most estimates put the number of journalists globally down by between 20% and 40% over the past 30 years. Publishers are extremely grumpy and looking for scapegoats everywhere. Some of their arguments are legitimate; some are not.
It’s noteworthy that, in this brave new world, there have been a few winners: The New York Times, the Financial Times and The Wall Street Journal. Their common link has been that they are large international brands for which any marginal increase in globalisation was a boon. For city newspapers, magazines and television news organisations, the effect has been dire.
The counterargument is this: welcome to the digital world. Digitalisation has revolutionised the distribution of information, largely to the enormous benefit of the world. Publishing might have suffered as a result. But that is the price that we, as humanity, pay for the ability to find, say, a crankcase for a 1956 Toyota in milliseconds.
From a slightly more sophisticated point of view, it works like this: when you search Google for news about Donald Trump, it can monetise that search request in various ways, notably by charging for ranking the responses of your search and by throwing up advertising around the search. But here is the thing: the publisher of the specific article on which you click can also monetise that visit. In a sense, there is a kind of mutual back-scratching going on here.
The question is: who is getting the actual scratch? The answer is pretty obvious: Google. And Facebook and Instagram, etc, etc. Google won’t publish this figure, which is suspicious in itself, but the speculation is that, collectively, social media companies probably make a profit in the billions a year.
Distribution is king
A sub-response of the international social media houses to this is that the division is typical of distribution operations. Distribution is king: it doesn’t matter how brilliant your product is; if you can’t distribute it, it’s worthless. Distribution pipelines in, for example, natural gas, are also enormously profitable. Welcome to the world.
But anyway, on the search issue, there is reasonable ground for compromise because essentially the relationship between media owners and distributors is win-win. Not so much the programmatic advertising issue.
Take Google. It is not only a search engine, it’s also an advertising channel, and in this sense it is head-to-head in competition with all other online publishers. The focus here is particularly on Google because its owner, Alphabet, controls all sides of the advertising supply chain, from supply- and demandside platforms to ad exchanges.
What does that mean? Essentially, it means Google supplies services to the ad sales industry – like advertising agencies – and takes a cut of each transaction along the way where those ads are displayed, as well as being involved in the monitoring process, which informs the prices paid by both sides.
What that has allowed Google to do is to sell advertisers segments of demographics, like, say, Japanese men who are likely to buy a car in the next six months. The result is that Google, as an advertiser, can offer advertising that costs a fraction of what it would be to advertise directly, and it will end up being much more effective because it displays the advertising “programmatically”.
The proportions here are extreme: the CPM, or cost per thousand impressions, of programmatic advertising is perhaps 10 times better than direct advertising. This is just one of the reasons there are fewer ads in newspapers.
Google offers several arguments that, to my mind, are dubious. The first is that advertisers love this because it works so well. Second, this is not a closed market – news groups and any others in the advertising sales business can charge what they want for advertising. They can also implement data management systems so that advertisers can specify the demographic they are looking for in the same way they do for Google. There is nothing to stop organisations from tracking advertising utility.
But the problem is that when you are the biggest buyer and seller, you have such a massive scale advantage that advertisers don’t use the systems other institutions have created. Some of these are also free by Google and it’s very hard to compete against free.
Another issue here is that when Google positions an ad, it does so all over the place. And a huge quantity of the websites caught up in its net are bogus and designed only to be recipients of Google’s programmatic advertising. Google says it can’t distinguish between a legitimate site and a bogus one, but that seems far-fetched. The fact is, it has no incentive to cut out the bad actors.
Those are the issues. But there are other problems too. The Competition Commission’s job is, as always, to examine destructive market dominance. If it finds this to be the case, it could impose fines on Google and Meta and the others.
But that wouldn’t help repair the harm done to media organisations. Some of the benefits should flow to them, surely? This one in particular. Just saying.