The Corner Newsletter, June 15, 2018: Fixing the News — Why the DOJ Needs to Appeal AT&T

In this issue of The Corner, we highlight several ways to protect the Free Press from Facebook and Google, proposed by participants in OMI's "Breaking the News" conference on June 12. We also explain why the Department of Justice should appeal the recent decision allowing AT&T to complete its takeover of Time Warner.

The Government Must Protect the Free Press from Facebook and Google (and Other Lessons from OMI’s “Breaking the News” June 12 Conference)

“The rising antitrust movement gathered Tuesday at Washington, DC’s gleaming new Marriott Marquis to figure out exactly how to confront the ascendant, unapologetically powerful forces of Silicon Valley,” BuzzFeed‘s Mat Honan reported yesterday about the Open Markets Institute’s latest event, “Breaking the News.”

Co-hosted with the Columbia Journalism School’s Tow Center for Digital Journalism, the event was structured around two guiding questions: How do we ensure that America’s journalists remain fully independent from not only government but also corporate monopoly control? And how do we ensure that journalism has the resources to report the news, both nationally and locally, that is so vital to sustaining our democracy?

The event, as BuzzFeed noted, attracted many “heavy hitters.” Among those who presented their ideas for putting journalism on a stable footing were Sen. Amy Klobuchar (D-MN), Rep. David Cicilline (D-RI), Assistant Attorney General for Antitrust Makan Delrahim, New York Times Company CEO Mark Thompson, News Corp CEO Robert Thomson, and former Federal Communications Commission Chairman Tom Wheeler.

Below are a few of the ideas that found wide agreement among the day’s panelists and speakers.

Facebook Cannot Become the “Digital World’s Editor-in-Chief.” Facebook, in the words of the corporation’s head of news partnerships Jason White, plans to prioritize “broadly trusted, informative, and local” news over other outlets in its News Feed. But journalists, including representatives from The New York Times and Wall Street Journal publisher News Corp, agreed this was a bad idea.

• “Democracy depends in part on unbounded competition between different journalistic perspectives and the clash of different judgments and opinions,” noted The New York Times‘ CEO, Mark Thompson. Making Facebook the “digital world’s editor-in-chief,” he said, would replace this diverse competition with the judgment of one corporation.

• Under this system, said journalist Julia Angwin, “[Facebook] gets to rank [the news]; they get to sort it; they get to tell you what’s the most important thing.”

Algorithms Should be Transparent and Accountable. Many speakers also agreed that technology platforms should be transparent in how they handle the news.

• “We are all constantly being scored,” argued Marc Rotenberg of the Electronic Privacy Information Center, “we need a much better understanding of how this is occurring.”

• Chairman Wheeler advocated for open APIs – application programming interfaces that allow outside programmers to build off of Facebook’s software – because then you could see “how Facebook is slicing and dicing based on the information that they have.”

• News Corp’s Robert Thomson went one step further, calling for “an Algorithm Review Board to get some accountability and transparency.” The board could examine “invasions of privacy, … IP piracy, … news censorship, … commercial abuse by dominant players, … election campaigns, … [and] the socio-psychological impact [of algorithms], particularly on children.”

• While he agreed about the need for transparency, The New York Times‘ Mark Thompson was less enthused about an algorithm review board: “I suspect [Russian] President Putin and [Chinese] President Xi … already have a similar thing established.”

We Need to Talk About Section 230. Other speakers questioned the application of a law – Section 230 of the 1996 Communications Decency Act – which protects platforms like Facebook from being held liable for what their users post. Under Section 230, Facebook, for instance, is not a publisher, and thus cannot be sued for spreading false or defamatory news.

• Janet Hasson, the Regional Vice President and Publisher of The Providence Journal, said that platforms like Google and Facebook “are publishers [like her] … and as publishers, we have a responsibility for our content and what we publish,” with which Philadelphia Media Network Publisher Terrance Eggers agreed.

• Olivier Sylvain, an associate law professor at Fordham University, said, “Intermediaries [like Facebook or Google] really leverage their position in two markets: user-facing markets and advertising markets.” As a result, Sylvain thinks, “We should re-evaluate [intermediaries’] immunity under 230.”

Use Policy to Require Greater Data Privacy. Several panelists argued in favor of new rules to better protect users’ privacy, and some cited the European Union’s new General Data Protection Regulation (GDPR) as a possible model for such rules.

• Sally Hubbard, Senior Editor at The Capitol Forum pointed out: “Data protection might be one of the ways you would go about addressing the monopoly rents we’re paying of our data.”

• ACLU Staff Attorney Esha Bhandari noted that the monopoly power of big platforms makes data protection especially important: “If it becomes a condition that to use social media you have to submit to facial recognition, what option does that really give anyone looking to engage on the Internet?”

• Christian D’Cunha, the Head of the Private Office of European Data Protection Supervisor Giovanni Buttarelli, while acknowledging, “[The GDPR is] not actually enough to fix some of the problems that we’ve been talking about today,” explained that the GDPR is a “deliberate attempt to steer innovation away from harmful behavior at a time of crisis and unease.”

Enforce the Antitrust Laws. And many speakers emphasized the essential role that antitrust law should play in news, tech, and media markets.

• Top antitrust enforcer Delrahim said during his speech that “antitrust enforcement can benefit our democracy and support media markets conducive to discourse.”

• The Capitol Forum‘s Hubbard proposed using antitrust law to go after “a lot of the monopoly leveraging … when [technology platforms] use their privileged position as the controller of the arena to prioritize content that serves their needs.”

• Open Markets’ Lina Khan pointed out that Facebook and Google “have built their dominance in part through acquisition,” which could have been blocked by effective antitrust enforcement.

• Sen. Klobuchar said in her keynote address that she believed “that media consolidation is not part of the solution here … The evidence shows that competition, not consolidation, fosters small business growth, increases innovation, and reduce inequality.”

• Chairman Wheeler argued for re-orienting antitrust law away from the libertarian thinking that has structured the discipline since the 1980s: “We’ve got to start to take on some base concepts of the Chicago School … we need new tools and we need to recognize … antitrust should be used to create structural remedies, solutions, or preventions …”

• Columbia Journalism School Professor Richard John observed that antitrust law could be used to do things other than breakups, like limiting the power of big corporation’s patents.

ANTI-MONOPOLY RISING:

• The Congressional Antitrust Caucus, led by Reps. Seth Moulton (D-MA) and Jamie Raskin (D-MD), wrote a letter to Federal Trade Commission Chairman Joseph Simons asking the agency to explain how corporate consolidation affects not only consumers, but workers and small businesses too. The letter also asked the FTC for details on how it conducts retrospective reviews of mergers and consent decrees.

• Sen. Mark Warner (D-VA) requested information from Alphabet and Twitter about their involvement with Chinese technology corporations including Huawei, ZTE, Xiaomi, Tencent, and Lenovo. The request comes after reports that Facebook shared user data with some of these firms, and demonstrates the security risks that giant tech corporations like Facebook and Google present to American citizens.

• Rep. Frank Pallone, Jr. (D-NJ) responded to news of Facebook’s practice of sharing user data with outside corporations, condemning Facebook for “continu[ing] to withhold critical details about the information it has and shares with others.” Rep. Pallone called for the FTC to investigate if Facebook violated its 2011 consent decree with the agency.

• Europe’s top antitrust enforcer Margrethe Vestager gave a speechcalling for “technology [to] serve people – not the other way around” on June 1 at the Brain Bar festival in Budapest. Vestager emphasized the democratic importance of making sure that ultimate power over user data lies, in fact, with users, and that corporations cannot be allowed so much power over data so as to fetter innovation and crush competitors.

WHAT WE’VE BEEN UP TO:

• Lina Khan was profiled in The Atlantic this past week in an article discussing how today’s anti-monopoly movement challenges received ideas about the economy and American history. Lina was also quoted in the Nikkei Asian Review, discussing Google and Facebook’s acquisitions; The Ringer, discussing how to deal with the big tech platforms; and in NPR, BuzzFeed, and The West Side Story talking about Amazon.

• Open Markets‘ critical response to the recent AT&T/Time Warner merger decision was shared by David Leonhardt in The New York Times, as was Lina’s Atlantic profile.

• Sandeep Vaheesan and Lina each published articles in the Yale Law Journal in response to its May Collection: “Unlocking Antitrust Enforcement.” Lina’s article, “The Ideological Roots of America’s Market Power Problem,” argues that reinvigorating antitrust enforcement requires rejecting the theory of power at the heart of post-1980s antitrust. In his article, “The Twilight of the Technocrats’ Monopoly on Antitrust?,” Sandeep argues against the notion that the consumer welfare standard is apolitical and emphasizes the ways in which the standard fails to truly understand corporate power.

• Kevin Carty and Matt Stoller were each quoted in an article about concentration in the transportation industry for Vice’s Motherboard. Kevin pointed out the ways that a lack of competition makes price discrimination easier and compounds inequality.

• Open Markets‘ comments for the Department of Justice’s May 31st “Roundtable on Anticompetitive Regulations” was reported on by the Global Competition Review. In its comments, Open Markets pointed out the ways in which regulations can actually promote competition.

Why AT&T Should Appeal the AT&T/Time Warner Merger Decision

The morning after a federal judge shot down the Department of Justice’s attempt to block AT&T’s $85.4 billion acquisition of Time Warner, The New York Times published an editorial celebrating the decision as a defeat for “President Trump’s chilling campaign to politicize the Justice Department.” The same take dominated next-day coverage throughout the media.

There is certainly reason to be suspicious. Trump has made no secret of his opposition to the deal, vowing even before elected to block it. More recently, the President’s own lawyer, Rudolph Giuliani, seemed to brag, and then deny without really denying, that the President had been directly involved in deciding to challenge the merger. Adding to the suspicion that the whole prosecution was motivated by Trump’s hatred of Time Warner subsidiary CNN, is the fact this is the first DOJ case in many years against a vertical merger.

But it is vitally important that The New York Times and other organizations don’t make the mistake of supporting a merger that threatens to further concentrate power over news and entertainment markets in the United States merely because President Trump opposes the deal. As author Thomas Frank put it recently in The Guardian, in an article that criticized liberals for defending Amazon’s business model after President Trump said the giant online retailer had become too powerful, “the enemy of my enemy is not necessarily my friend.”

And in fact, the problems with this merger were immediately apparent to people across the political spectrum as soon as it was announced. Hillary Clinton, in October 2016, said the deal “raises questions and concerns.” Sen. Bernie Sanders (I-VT) spoke in even stronger terms, warning the deal would result in “a gross concentration of power.” They were joined by Democratic Sens. Elizabeth Warren (D-MA), Al Franken (D-MN), and Amy Klobuchar (D-MN), who all made clear their opposition to the deal.

For most of the nation’s history, antimonopoly policy generally blocked networks like AT&T from “vertically integrating” and going into competition with the people who depend on those networks to do their business. Indeed, Americans regulated banks, railroads, the telegraph, electric utilities, drug stores, movie theaters, television – and repeatedly, AT&T itself – to ensure a clear separation between the producer and the network. To reinforce this division, Americans also routinely prevented networks from discriminating among different sellers or buyers, thereby ensuring that all real decisions in any market are made not by any middleman but by the seller and buyer.

The DOJ’s case for blocking the AT&T deal is that it would have enhanced the bargaining power already enjoyed by AT&T. As Open Markets’ Matt Stoller explained in The Washington Post last November, “The business model of a combined AT&T Time Warner is rife with conflicts of interest.” Columbia Professor Tim Wu, a member of Open Market’s advisory board, in an op-ed for The New York Times last November agreed. “Mergers that marry companies that produce content with those that distribute it create new ways to keep newcomers at bay,” he wrote.

For instance, the deal would give AT&T control over much of Time Warner’s “must-have” content—including HBO shows and the “March Madness” college basketball tournament. This would, in turn, give AT&T the power to threaten to withhold such “must-have” products, and thereby dictate the terms on which rival content distributors can participate in the market. In other words, AT&T will be able to use the new Time Warner programming as a weapon to stifle existing and emerging competitive threats and to steer the general trajectory of the industry.

WHAT WE’RE READING:

• “‘You’re Stupid If You Don’t Get Scared’: When Amazon Goes From Partner to Rival,” (The Wall Street Journal, Jay Greene and Laura Stevens): How Amazon uses its dominance in web services to take advantage of their customers who depend on it.

• “The Financial Scandal No One is Talking About,” (The Guardian, Richard Brooks): How the Big Four accounting firms, which control 97 percent of all audits for public American corporations, fail to keep those corporations in check and thereby jeopardize the entire economic system.

• “Behind the Messy, Expensive Split Between Facebook and WhatsApp’s Founders,” (The Wall Street Journal, Kirsten Grind and Deepa Seetharaman): Why WhatsApp’s co-founders walked away from a combined $1.3 billion when they each left Facebook. One big reason: Sheryl Sandberg and Mark Zuckerberg’s relentless push to profit off of WhatsApp’s customers with advertisements.

VITAL STAT: 43%

The average increase in markups – or the ratio between how much a corporation charges for a product and how much the product cost to make – in advanced economies since the 1980s, according to a working paper from Frederico Díez, Daniel Leigh, and Suchanan Tambunlertchai at the International Monetary Fund.  The researchers found that “the increase in markups in advanced economies is mostly driven by ‘superstar’ firms that managed to increase their market power further, while markups in other firms have essentially been flat.”

WHAT WE’RE WATCHING:

• Empire Strikes Back: Roughly one month ago, the City of Seattle unanimously passed a $275-per-employee tax on all employees from for-profit corporations that gross more than $20 million. At the time of the vote, city council members said that the tax, whose revenues would have gone to fund housing and programs for homeless people, was a response to how “companies such as Amazon have contributed to homelessness because their highly paid employees have sent rents and home prices soaring.” But on Tuesday, the city repealed that tax after immense pressure led by Seattle business groups including Amazon and Starbucks. We’re watching to see how this affects the ways that other local governments try to govern large corporations in their own communities.

• Keeping Up With the Curve: Rep. Keith Ellison (D-MN) called on the Federal Trade Commission to investigate whether, as the European Union top antitrust enforcer Margrethe Vestager found, Google unfairly favored its own search results over those of its competitors. We’re watching this since, as Open Markets Executive Director Barry Lynn told The Washington Post, “The Democratic Party is going to end up within the next two-to-three years doing something about big tech, because the rank and file is going to force them.”

• The Last Straw?: After a June 3 report from The New York Times detailing Facebook sharing user data with approximately 60 device makers, we’re watching to see if the Federal Trade Commission finally finds Facebook guilty of violating its 2011 consent decree. One of that decree’s requirements: “Facebook is…barred from making misrepresentations about the privacy or security of consumers’ personal information.” Federal Trade Commissioner Rohit Chopra, speaking as a general matter, said, “FTC orders are not suggestions. If a company violates them, there can and should be serious consequences.”