The Australian Competition Consumer Commission inquiry into the impact of the new digital environment on the media promises to be a fascinating and watershed battle between ‘big tech’ and traditional media. And while each will come with all guns loaded, the more fundamental issue will be how the ACCC considers the elusive issue of competition in the digital era.
It is an issue of huge interest to the world’s economic regulators at a time when the politics for big tech has gone nasty.
This is the inquiry that should have preceded the much derided media ownership changes the Australian Parliament is expected to rubber stamp, when it returns for the final session of the year.
Media regulation in Australia has always been a true blood sport. No one should be surprised that, yet again, all we got was a set of political deals to buy off the various industry players (including the Mandarin’s publishing company). Consumers (AKA the taxpayer) got not a look in, nor anyone much else as Rupert Murdoch’s News Corporation dominated the political landscape, skilfully and clinically, controlling the deal making like a five ring circus. Ministers, mandarins, media, all dutifully played along. No one should forget News Corporation is an Australian company that has been battling the global media establishment its entire life. It may not be pretty, but that is Holt Street’s DNA.
The timing for Channel Ten may have not worked out, but News with its international portfolio of publishing, broadcasting, subscription and content assets, will sooner or later find a broadcast TV partner and get a seat on the powerful local Free TV platform.
And despite a decade of journalistic decimation there was precious little offered by my profession, our industrial representatives, or academic camp followers about how to best respond to the root cause of the demise of traditional advertising supported publishing and broadcasting — the dramatic shift in marketing budgets to the internet.
Welcome to the piranha pit
The ACCC enquiry — forced on the government by the minority parties to secure the media ownership changes — comes as the big tech industry confronts a very different political, media and government environment.
In this country and around the world, deep political and policy anxieties are merging about the power and influence wielded by the five giant tech ‘platforms’ — Facebook, Amazon, Microsoft, Google and the biggest of them all Apple.
Known as FAMGA, these five companies are now the biggest companies in America, over a decade rapidly knocking out corporate giants, Exxon, GE, BP and Citigroup. At that time only Microsoft was in the top five. Possibly the greatest creation of economic value in world history. In just 20 years.
With the largely unregulated internet so massively successful as a business development platform, the big techs have long been wary about being drawn into the regulatory games of the political class, worried this is a slippery slope to endless red tape and worse still, structural regulation.
For nearly two decades the west coast techs were content to play a low key lobbying game, directing their public policy efforts and funding through third party advocacy, research papers and sympathetic think tanks. This was bolstered by quiet face-to-face legislative lobbying and some sharp K Street lawyering.
The top 40 per cent have done very nicely from the tech boom thank you. But not the rest. Blame Donald Trump, but somewhere in the zeitgeist the tide has turned and the tech lobby is being dragged front and centre into the political and media mainstream, and with it the swamp that is top tier global regulatory politics.
Influential Buzzfeed editor-in-chief Ben Smith recently led the media call, claiming there is “Blood in the Water in Silicon Valley”. The rising chorus against the Silicon Valley titans has also included News Corporation’s flagship outlet, Fox News.
In Washington this tirade against the techs has become strangely bipartisan, with even former Trump adviser, Stephen Bannon, cheering the push to have the big techs declared utilities — and regulated as such.
In academic and elite opinion circles the power of FAMGA has generated some deeply visceral attacks on the motives of the big techs with former New Republic editor, Franklin Foer, leading the charge with a book titled: World Without Mind: The Existential Threat of Big Tech.
Having disrupted the world, the big techs themselves are being disrupted and around the globe, country after country are demanding sovereignty and compliance from the tech platforms, across a vast sweep of issues.
These are as diverse as cyber security, online bullying, data ownership, cookie management, IP ownership, tax collection, identity theft, child sexual abuse, fake news, media diversity, local content, sex trafficking, pornography, connectivity, terrorism and criminal support, encryption security, election manipulation, currency fraud, not to mention privacy and cyber espionage.
Ironically, the protest has been led from by the US itself, where the FAMGA have become targets of voracious administration, congressional and state legislative attention.
Facebook and Google were at the centre of how the Trump presidency came to be, and Facebook is now part of the the special prosecutor’s current investigation into claimed Russian meddling in the presidential election. The Washington Post recently asked: “Would Donald Trump be president today if Facebook didn’t exist?
In Australia the same trendlines are evident big time, but it is the avoidance of local taxes that deeply infuriates the ruling elite. There is complete consensus it is wrong. It remains a show stopper for any meaningful relationship by the big techs with Canberra.
The new (marketing) gatekeepers
Google and Facebook have now found themselves in the political sweatbox in the run-up to the deliberation of the media ownership bill. The Australian media plays politics with its elbows up and it was Murdoch’s The Australian — aided and abetted by various Fairfax titles — that was typically most shrill about the evils of faceless tech profiting off news media they have not paid for.
The political heat paid off earlier this year when the Opposition and Senate minority parties combined to force a shotgun Senate inquiry into the future of Australian journalism. News Corp reported at the time:
“Senator Xenophon warned that a failure to address the challenges facing media organisations would result in more journalists and camera operators losing their jobs. He pointed the finger of blame at Facebook and Google, saying that, between them, they raked in $3.2bn worth of advertising revenue at the same time as they were ‘cannibalising the content of Australian journalists. As a consequence we have a situation where Australian journalism is in crisis.'”
Xenophon was always the key to the bill succeeding. He stuck to his guns and persuaded the government to cop the ACCC inquiry.
Across the world the breaking point between media and tech has been the catastrophic collapse in advertising revenue for the mainstream print and broadcast media. After more than a decade of costs cuts, there is no end in sight as the media proprietors report never ending revenue write downs.
In Australia, for the first time, digital media spend is expected to pip traditional media spend this year, with around 54% of the annual $16 billion Australian marketing pie predicted to go on line. This is expected to climb to 61 % by 2021, with most of that growth expected to go to Google and Facebook.
In just over a decade traditional advertising revenues in Australia for print products has fallen to a quarter, and for television it is now half. This is consistent with US and global trends.
Most of the traditional media players have developed formidable digital products, but unlike the glory days where the media moguls could bottleneck distribution and production, the internet lets anyone be a media player. Revenues have fragmented as marketing spreads its dollars widely, chasing niche digital communities.
The economic power in this era of content proliferation belongs to what Stratechery’s Ben Thompson calls the aggregators. In particular, Google through its control of search, and Facebook through its vice like grip on the social graph of its two billion strong community.
Google’s powerful search algorithm, smart data analytics and intelligent ad buying software is simply a better way to let marketers link buyers and sellers. Similarly Facebook, more recently, worked out how to feed its users content marketing and advertising based on users digital profiles, networks and activities.
The phenomenon of disintermediation is a familiar tune in the digital world — Uber owns no cars, Airbnb no homes – but this has not stopped them finding a better way for consumers to purchase transport and accommodation. Google and Facebook simply found a better way to identify would-be buyers for prospective sellers by using the insights from their users digital behaviours. And with far better ROI, control and reporting than media.
In essence Google and Facebook have created superior mouse traps for marketers to convince buyers of their brands and products. Thompson posits this has switched the power from the publishers to advertisers — and to the two dominant marketing platforms, Google and Facebook.
Consumers are not complaining
Enter the ACCC. The terms of reference will determine the scope of the inquiry but at heart the ACCC will be the first major review by a top tier regulator of how best to consider the big techs and the profound role they now play across so many facets of the Australian economy and society.
This will be challenging and will require deep thinking what the exact competition problem is, and then what, if any, remedies can be applied.
A key issue will be exactly what the consumer detriment is. Facebook and Google offer broadly free platforms which billions of users flock to, day after day. The key to their success has been to attract users into their respective eco systems and to serve them marketing collateral based on insights from the data they collect from users digital behaviours. Some may find digital stalking spooky, but consumers are voting big time to accept the trade off between the utility Google and Facebook offer, and the advertising that pays for the service.
This is not to suggest the techs do no evil. The Europeans recently fined Google $3.6 billion for artificially promoting its own price comparison service in searches. Google is appealing this decision. An appeal the global tech lawyer world will be focussed on.
This is not dissimilar to when Microsoft was pinged by US anti-trust authorities in the 1990’s for trying to thwart Netscape’s innovative browser. The Microsoft lesson is a salutary one for the ACCC. At the time the browser was considered a critical bottleneck. It proved not to be the case, so all that anti-trust activity was arguably for nought, and indeed Microsoft went onto dominate the browser market in any case.
Regulators strong legalistic culture means they are fixated with current laws and typically struggle to take a forward looking approach. This problem is heightened at the Commonwealth level, where regulators are given little discretion to work up practical fit- for-purpose solutions. Regulations are typically hardwired to out-of-date tightly drafted statutes, not to be modernised any time soon.
This is exacerbated in fast moving technology sectors, with regulators often hopelessly unaware how the market is actually applying the technology, till there is some reported atrocity. In the case of both Facebook and Google the number of public policy issues these diverse platforms are raising is clearly beyond the competence of even the most tech savvy regulator to get across.
Which the ACCC is not. Indeed the ACCC’s record around technology has not been a brilliant one, with its acquiescence in the flawed NBN decision perhaps being the best example where it was simply out of its depth. Ditto telco access pricing, which on one argument is what got us into the NBN mess in the first place.
The ACCC will need to bolster its skill set with some temporary secondments of technically savvy advisers who have a strong understanding of the interplay between digital technologies and economics.
As with any anti-trust issue market definition is critical. The ACCC ( and its predecessor the Trade Practices Commission ) has a history of defining ad markets narrowly. There remains plenty of fight in the traditional advertising markets, so the question could be if Google and Facebook are impeding competition in the digital advertising market. The more realistic view is it is one giant marketing cess pit and a tussle by all the brands, platforms, medias, technologies and devices for the share of booze, gambling, FMCG, e-commerce, political etc dollars that are on the campaign planning table.
In any case this will require a sharp understanding of the new marketing world, including programmatic advertising, cookie pooling, remarketing, as well as an acute feel for digital analytics and the underlying algorithms that drive the platforms. Understanding conversion is key.
Digital technology is a stack of functional hardware and software layers and governments have real choices which part they want to focus on. This requires a horizontal view of the world, at a time when most regulators — ACCC included — are set up for vertical end-to-end sectoral regulation.
Media and marketing a moving feast
Another challenge for the ACCC is how to consider the rapidly changing media and ad tech environment. Any observations and remedies around the impact of Google and Facebook will need to be tempered by the expectation there are likely to be new disruptors around the corner.
Last week’s Emmy Awards was the first time content specifically developed for the new streaming platforms dominated awards. This is a good example of media players focussing on rebuilding their product for the new era. The rapid rise of streaming promises to rock broadcast TV and is a reminder of how dynamic the media market, as the world shifts to near ubiquitous fast broadband.
Plug a late generation smart TV into the NBN and you open a treasure trove of program options and payment plans ranging from pay as you go, to full subscription. All from the Samsung remote.
And while Google and Facebook have built a superior marketing platform for now, history, instinct and common sense suggests these may well be taken over by better solutions. Search for a local plumber that you can trust to turn up on time and you know Google has a long way to go, if you want any thing that is specialised or local.
Facebook works if you don’t care being spammed by mindless pap (or fake news). For B2C marketers, Facebook’s massive reach is impressive. But with average click through rates of around one per cent, that is not great for the large B2B marketing marketplace where there are many other better marketing channels to work with (eg email).
Google’s little search ads are fine if you are targeting specific buyers, but try running a major brand or issues campaign and see how effective that is .
And in certain (lucrative) verticals there are already well established portals, such as Seek for recruitment, Domain and Realestate.com.au for property and carsales.com.au for auto. Throw in Gumtree, Ebay and the raft of specialised travel booking sites and this suggests many other competitive alternatives. And if you don’t like Facebook there is always Twitter or Snapchat. Or whatever is being cooked up in a Delhi garage for Gen I — those pesky post millennials born with a #smartfone in their hand.
And has any one noticed Amazon.com.au and how much better Woolies online has suddenly got?
Recall also that before Facebook came along, News Corporation’s Myspace was a dominant social play. Before that AOL had a stranglehold on mid-America. The “next Facebook” could be one of the very aggressive Chinese platforms such as WeChat and Weibo.
Which will excite the Australian Signals Directorate, no end.
Data, privacy and competition
If marketing is about connecting buyers and sellers then data, and more precisely data analytics, is the critical currency for any serious platform. Facebook collects nearly 100 different data points which enables it to offer a sophisticated segmentation to prospective marketers. Google similarly gathers enormous amounts of data about web behaviours which it uses to tailor its ad servers.
At the same time powerful back office marketing platforms are being used by ecommerce outlets, banks, telcos and many other to track web users, creating personalised profiles that score users, enabling sophisticated segmentation and highly tuned marketing campaigns.
Regulators in Australia have largely ignored the privacy issues associated with digital stalking by brands, and with some limited exceptions have little understanding of how invasive these systems are.
Unlike Europe, Australia has no formal regulations around cookies — the little piece of code that is key to Facebook and Google’s success. And an existential threat to their business, if any regulator got too smart. For economic libertarians there are sensible self-reg models for cookies as we all learn about the digital world.
This week federal Digital Transformation Minister Angus Taylor revealed the government is going to enable end users to “own” their data, confirming the government had accepted in principle the recommendation of the Productivity Commission of a universal data right. Declaring to a Washington DC conference he is an “economic liberal”, Taylor said the government wanted to enable consumers to move easily from provider to provider to promote competition, especially in notoriously sticky sectors like banking, energy, health insurance and telecommunications.
The decision to embrace a universal data right is seminal and opens a whole new front in competition policy. How this plays out in the broader economy is to be seen, but in Taylors world data sets will be standardised so users can use their own data profiles to negotiate better deals. The concept works well if, the data that shows I have been a reliable payer of my loan, enables me to negotiate a better rate with a competitor. (Query what happens when the data shows I have major health problems.)
Data is at the heart of Taylor’s government digital transformation play. Witness this quote from his Menzies Research Centre’s essay on the Promise of Digital Government when he was a backbencher:
“Most discussions of benefits from digitisation start and finish with customer service improvements and direct efficiencies in reduced customer service costs. Often forgotten are the bigger opportunities for compliance, risk management, payment integrity and program targeting, with savings far beyond direct efficiencies.”
Taylor has the re-emerging Digital Transformation Agency to drive this ambitious agenda. DTA’s strategic control over the $6.5 billion annual federal ICT spend means Taylor can exert a lot of leverage into the system.
It is a small world. Taylor is a former director of Sydney boutique strategy advisory firm, Port Jackson Partners. So is Rod Sims, chair of the ACCC and former prime ministerial economic adviser. Another Port Jackson alum is Fred Hilmer, the author of the previous national competition reforms that led to the establishment of the ACCC. Hilmer was also CEO of Fairfax when the internet began to dismantle its rivers of classified gold. History tells how that story ended.
Sims and the ACCC have a lot on their plate. Not the least sorting out some of the nonsense all sides are talking about the energy market. Sim’s recent energy affordability speech to the National Press Club was an exemplar of clear thinking. How Taylor’s emerging theory of economic data analytics is applied by Sims will be closely watched.
So too will be the FAMGA lobbying. According to its 2014-15 electoral disclosures, Google Australia funded both the ALP’s Chifley Research Centre and the Liberal Parties Menzies Research Centre to conduct public policy research and funded that research to the value of $66,000 each. This helped support Taylor’s essay.