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The Corner Newsletter, September 6, 2018: Trump Is Actually Helping Google — Research Paper Overlooks Music Industry Consolidation

Welcome to The Corner. In this issue, we look at how the Trump Administration is helping Big Tech, and highlight how Spotify and other music platforms hurt musicians – and listeners.

September 7, 2018  |  by Open Markets

As Trump Assails Big Tech, White House Hands Out Big Favors

Recent comments by President Donald Trump could create the impression that he wants to take action against technology giants such as Google and Facebook.

Trump complained last Tuesday that Google’s search results shut out conservative voices, promising that the alleged problem “will be addressed.” The next day, Trump criticized Google again, along with Facebook and Twitter, for “trying to silence a very large part of this country.” Then on Thursday Trump described the power of the platform monopolists as “a very antitrust situation.” Finally, this Wednesday Attorney General Jeff Sessions said that he planned to meet with state attorneys general to discuss how platform monopolies “may be hurting competition and intentionally stifling the free exchange of ideas.”

But the administration’s actions tell a different story. Here are three areas where the White House has handed the tech giants key policy victories:

Section 230 in NAFTA: The government’s proposed new trade agreement with Mexico includes a Digital Trade chapter that will, among other provisions, “Limit the civil liability of Internet platforms for third-party content that such platforms host or process, outside of the realm (sic) intellectual property enforcement.”

The description closely resembles a current U.S. law, Section 230 of the Communications Decency Act of 1996, that holds that online service providers will not be considered the speaker or publisher of third-party content on their sites. The law has been read to effectively give online platforms blanket immunity for most user-generated content. But lawmakers and researchers have also recently criticized Section 230 as being too broad. This includes one of its original co-sponsors, Sen. Ron Wyden, D-Ore.

Public Knowledge’s General Counsel Ryan Clough says that getting a Section 230-like provision into a revised NAFTA has been a big goal of Google and the other platform monopolists. “They’ve been looking for it for a long time and it looks like the U.S. Trade Representative gave them what they wanted.”

The problem, however, is that any such inclusion of a Section 230-like law into any new trade agreement will make it vastly harder for federal and state legislators and law enforcers to deal with the problems posed by the platform monopolists. According to the Treaty Clause of the U.S. Constitution, any treaty signed and ratified by the U.S. government becomes U.S. law, which blocks efforts by Congress or other bodies to introduce new or alternative approaches.

Cloud Computing and the DoD: A Department of Defense $10 billion request for proposal for cloud computing services revealed that the contract will be granted to only one bidder. The decision was seen as a victory for Amazon, widely considered the dominant provider of centralized data storage capacity. This came after reports that DOD was already inclined to choose Amazon to win the contract. Furthermore, Vanity Fair reports that the Pentagon drafted the request for proposal with specifications that make it appear tailor-made for Amazon, with the help of a former Amazon consultant.

Competitors for the contract, including Microsoft and IBM, argue that relying on a single provider might end up depriving the DOD of important innovations that rival corporations might introduce. Amazon, by contrast, strongly praised the proposal.

Other criticisms, including by Open Markets’ Matt Stoller, note thatconcentrating cloud services in one provider raises security risks. And, especially after securing a $600 million cloud contract with the CIA in 2013, Amazon’s winning this contract could further increase its power as the dominant supplier of government cloud services contracts.

Tax Break: The congressional tax overhaul passed last year was a boon to monopolistic technology corporations, according to Fast Company. The magazine reported that the corporate tax structure favors larger technology corporations, which earn a significant portion of their revenue overseas. The overhaul’s lower rate on repatriated overseas earnings also favors those corporations.

ANTI-MONOPOLY RISING:

  • Sen. Cory Booker, D-N.J., introduced a bill last week that would temporarily halt all agribusiness mergers and establish a commission to investigate how to revitalize antitrust enforcement in the farm and food industries.
  • The Institute for Public Policy Research, an influential UK think tank, released a new report that, among other prescriptions, called for regulating giant technology platforms such as Facebook and Google as utilities. The Guardian, Financial TimesNew York Times, and other major outlets covered the report closely.
  • Sen. Orrin Hatch, R-Utahcalled on the Federal Trade Commission to reopen an investigation into Google’s dominant position in advertising and online search. The FTC’s original investigation into Google ended with no lawsuit in early 2013, against the recommendation of the agency’s Bureau of Competition.
  • The Federal Reserve’s Jackson Hole Economic Policy Symposium in late August dealt with “Changing Market Structures and Implications for Monetary Policy.” David Dayen, writing for The New Republic, sums up some of the research presented there and finds a troubling potential consequence: monopoly and monopsony power may be hindering the ability of the Fed to affect the economy.
  • Sen. Ron Wyden, D-Ore., published an op-edfor TechCrunch arguing that Section 230 of the Communications Decency Act, which holds that internet companies shall not be considered the speaker or publisher of third-party content, is essential to protecting free speech and expression on the internet. But Wyden also wrote that popular anger at technology corporations, combined with these corporations’ failure to moderate indecent content is “making it increasingly difficult for me to protect Section 230 in Congress.”
  • Germany’s Federal Cartel Office, its antitrust enforcement agency, announced plans to take action later this year against Facebook for collecting data on both users and non-users without their consent.
  • Federal Communications Commission Chairman Ajit Pai calledfor a “serious conversation” about online transparency, privacy, and free expression on large, online platforms because “these tech giants have come to have much greater influence over our economy and society.”
  • The New York Times editorial board, in a piece pointing out some of the ways it thinks the Trump administration is weakening protections against a future financial crisis, linked stagnating worker incomes with the rise of “superstar firms” like Apple, Alphabet, and Facebook.

? WHAT WE’VE BEEN UP TO:

  • Lina Khan was named to Politico’s list of “50 Ideas Driving Politics (And the People Behind Them).” Politico described Khan as “a leader of a new school of antitrust thought—one that sees sprawling Silicon Valley giants like Amazon, Google and Facebook as market-dominating forces akin to the railroads of a century ago.”
  • Sandeep Vaheesan wrote an op-ed about Supreme Court nominee Brett Kavanaugh for The Hill examining his past decisions and ultimately finding, “At a time of growing public and political alarm about monopoly and corporate power, Supreme Court Justice Kavanaugh would be certain to help big business tighten its grip on our economy and democracy.”
  • Sandeep Vaheesan juxtaposed the FTC’s allowing increasing market concentration while going after workers organizing to counteract employer power for the “Fed Up” conference, held at the same time as the Federal Reserve’s annual symposium in Jackson Hole, Wyoming.
  • Common Dreams quoted Matt Stoller’s tweet in response to news that the Trump administration was looking into regulating Google’s search: “The idea that Google searches should be regulated to prioritize conservative views is autocratic.”
  • The Verge quoted Matt Stoller and cited Lina Khan in an article making “the monopoly-busting case” against Google, Facebook, Uber, and Amazon. “If you’re looking for a silver bullet, probably the best thing to do would be to block Google from being able to buy any companies,” says Stoller. “Suddenly, you have to compete with Google, you can’t just be bought out by Google.”
  • Matt Stoller also talked about the changing popular opinion around big technology corporations for Time and told Vox how Sen. Bernie Sanders, D-V.T., is starting to illuminate Amazon’s abuse of its power.
  • Austin Frerick spoke with the Institute for Local Self-Reliance’s “Building Local Power” podcast to talk about his recent run for Congress and the importance of anti-monopoly policies for rural America.
  • In a column on antitrust and economists, Bloomberg Opinion’s Noah Smith cited Matt Stoller as one of the people “beginning to draw attention to the problem of concentrated market power.”
  • In its coverage of Amazon’s impending HQ2 decision, the Brookings Institute cited Lina Khan’s Yale Law Journal article, “Amazon’s Antitrust Paradox.” The Week also cited the article.
  • A Fox News article reporting Facebook’s stagnating and declining user growth numbers cited the Freedom From Facebook coalition – which is coordinated by Citizens Against Monopoly – as a source of “intense scrutiny” for the technology giant.

Citigroup Plays Wrong Notes on Music Industry Consolidation

Last month, Citigroup published a report on the music industry, “Putting the Band Back Together: Remastering the World of Music.” It predicted that the industry stands to benefit from more horizontal and vertical consolidation, such as distributors like Spotify moving into recording.

The report was criticized by stakeholders across the music industry, for a wide variety of omissions and errors, as covered by Billboard. These include the authors’ failure to talk to music industry sources as well as their controversial claim that artists receive 12 percent of all music industry revenues, which critics say is both difficult to estimate to that level of precision and not helpful to understanding artists’ margins.

More broadly, vertical integration by corporations that already dominate distribution risks establishing conflicts of interest. A story today in The New York Times reports that Spotify is beginning to expand into music recording. As the distributor of music, the risk here is that it will favor its own music over that of the artists who need Spotify, but don’t record with Spotify, to reach listeners.

Traditionally, antitrust enforcers either prohibited or regulated vertical integration in other industries like railroads, communications, and film. The Mann-Elkins Act of 1910 for railroads, the 1956 AT&T consent decree for communications, and the 1944 Paramount consent decrees for movies, are all examples of ensuring that the essential facilities for commerce, information, and art were prevented from using their importance for private gain.

The Citigroup report also ignores the fact that the music business is already highly concentrated, and that the rise of Spotify and a few other platforms promises only to worsen the problem. Future of Music Coalition Director Kevin Erickson says, “It’s very difficult to find even a single example where ownership consolidation has directly benefitted artists or audiences.”

The top three music record labels, Warner Music Group, Universal Music Group, and Sony Corporation, have a 71.5 percent market share for major label music production, according to an IBISWorld report. Live Nation dominates the live music industry, and has already allegedly abused its power over competitors and artists.

? VITAL STAT:

85%

Percentage of the British public that supports new regulation for technology giants, according to a new poll by Sky Data released alongside a new report from the UK-based Institute for Public Policy Research’s “Commission on Economic Justice” calling for regulating technology giants such as Facebook and Google as utilities.

?WHAT WE’RE READING:

  • “Antitrust and Democracy,” (Florida State University Law Review, Spencer Weber Waller): A broad explanation of how competition policy fits into democracy, and how democracy should shape competition policy.
  • “Movie Madness: Why Chinese Cinemas Are Empty But Full” (BBC, Stephen McDonell): How loose constraints on vertical integration in the Chinese movie business encourages fraud and bad movies.
  • “The Monopoly-Busting Case Against Google, Amazon, Uber, and Facebook,” (The Verge, Russell Brandom): Relying on Lina Khan’s “Amazon’s Antitrust Paradox” article as well as Matt Stoller, Brandom explores what kind of antitrust remedies enforcers should take against four of the most powerful corporations in the world.

Image by wachiwit via iStock.

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In America today, wealth and political power are more concentrated than at any point in our country’s history.

The Open Markets Institute, formerly the Open Markets program at New America, was founded to protect liberty and democracy from these extreme -- and growing -- concentrations of private power.

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