Speaking to the Australia-Israel Chamber of Commerce (WA) via a streaming video application, ACCC Chair Rod Sims addressed a number of the ACCC’s key concerns about the growing economic power and influence of the digital platforms. Mr Sims spoke of the ACCC’s recent work including the creation of the Digital Platforms branch, the ACCC’s monitoring role, and the new media bargaining code, as well as enforcement cases against Google and why digital mergers are important.
Check against delivery.
It seems appropriate to be speaking to you today about the importance of digital platforms via a streaming video application.
It is another indication of how this terrible pandemic has reinforced the importance and value of the digital world to all of us, particularly in the way we communicate with each other, whether we be at home or work, sometimes both at the same time.
We published our final report for our Digital Platforms Inquiry (DPI) in July 2019. The 18 month inquiry examined the market power and the impact of digital platforms on media, advertisers and consumers. It also investigated a range of digital issues including data collection and consumer privacy, concerns about the lack of transparency in some markets and competition issues in digital platform markets.
Since the report’s publication the size and influence of the digital platforms has continued to expand, highlighting a number of issues crossing consumer and competition laws.
We are optimistic we and our fellow regulators and enforcers around the globe can deal with these issues but it requires a multi-faceted approach that includes competition assessment, regulatory responses and consumer enforcement.
Today I want to speak about how we are moving forward to address some of the concerns and issues since our final DPI report by focusing on three topics:
- the creation of the Digital Platforms branch, our monitoring role, and the new media bargaining code
- our enforcement cases against Google
- why digital mergers matter.
1. The creation of the Digital Platforms branch, our monitoring role, and the new bargaining code
The government supported most of the 23 recommendations from our final DPI report, including the establishment of a permanent Digital Platforms Branch at the ACCC to ensure continuous and close scrutiny of this complex sector.
As part of this role, the ACCC was tasked with carrying out two further inquiries into digital platforms.
First, there is a broad ranging Government Direction to examine the workings of digital platforms through a series of 6 monthly public reports over a five year period. The length and remit of this direction is an indication of its importance.
These reports will provide the ACCC with an opportunity systematically to examine the activity of a broader range of platforms and digital services than our original inquiry. Not just the search, social media and aggregation platforms looked at during our previous inquiry, but also other platforms including those facilitating the sale of goods and services between suppliers and consumers. These include general online marketplaces like Ebay and Amazon, app stores, private messaging services platforms, data brokers.
In essence, the scope of this work mandates a focus on the digital economy. This sector is increasingly vital for Australian consumers who participate in it to communicate with family, friends and work, to consume media, to connect on social networks, to have food delivered, to find information or transport and travel advice, and increasingly to buy goods and procure services. As our focus at the ACCC is consumer and competition regulation, many issues of the growing digital economy have become an important part of our work.
Each of the ACCC’s monitoring reports under the Direction will look at an individual sector and any practices by platforms that may result in consumer harm. In the course of our work we will also be taking into consideration developments in markets outside of Australia as well as trends and innovations that may impact the market power of platforms.
The first report is examining search, social media and online private messaging, and is due to the Treasurer on 30 September 2020. For this report we have a wide range of developments to consider since our Inquiry last year, including an in-depth examination of these sectors and platforms by experts and other competition regulators from a range of jurisdictions including the US, UK and EU.  
With enhanced analytical capability due to the establishment of our new Digital Platforms Branch, we think this report to will offer important insights.
Ad Tech Inquiry
Our second Government Direction is for an 18 month inquiry into digital advertising services and advertising agencies, to investigate whether these markets are operating competitively and efficiently. This inquiry considers the complex supply chain, known as ad-tech, which involves multiple intermediaries running auctions, selecting bids and placing advertisements on websites across the internet.
Website owners seek to generate valuable revenue by using these intermediaries to facilitate the purchase of their advertising space in the milliseconds that it takes a website to load. For advertisers, these services offer the prospect of targeting interested customers and customising your advertisement to the recipient, in ways that were previously unimaginable.
Australian advertisers spent almost $3.5 billion on digital display advertising in 2019. Yet we don’t know how much of that figure flowed through to the online publishers, and how much was retained by the intermediaries.
There are multiple companies offering services in the ad-tech supply chain. However, Google is present at all levels of this supply chain and, in nearly all services, has the market leading position.
During our DPI, many submissions raised concerns about this complex and opaque supply chain involved in digital display advertising. Most of these services make decisions based on algorithms, and the final sale price of an ad is often the product of multiple sequential auctions, as I said before, occurring in milliseconds. But in taking full advantage of services that make these split-second decisions, the advertiser and publisher give up a level of control.
This raises potential issues when the services you are entrusting with your decisions may have incentives that don’t always completely align with your own. For example, the intermediaries operating these auctions may be acting on both sides of the market: providing services to help the advertiser achieve the best deal, while simultaneously providing services to publishers to help them maximise the sale price of their inventory.
In the DPI we heard concerns that this kind of situation raises the risk of self-preferencing; where the company providing services to advertisers could preference buying advertising opportunities that are offered for sale through their own services, over better deals on offer through competitor services.
The result of all of this is that it can be hard to know whether the markets for these services are working effectively, whether the largest suppliers of these services are taking too much of a cut from the supply chain, and whether both publishers and advertisers are getting value for money.
Internationally, there has been a flurry of work on the issue of how much of the advertiser’s spend publishers actually receive. A 2020 study conducted by the ISBA, the UK advertising industry association, found that, on average, large publishers were receiving 51 per cent of the amount spent by advertisers on programmatic digital advertising. The UK Competition and Market Authority’s recent online platforms and digital advertising study estimated the figure at closer to 65 per cent. Google has recently stated that where advertisers and publishers are each using Google products, on average, publishers will receive almost 70 per cent of the amount spent by programmatic advertising.
All this suggests that we need to have a close look at how these services are being supplied in Australia, and also if there is a need for regulation. Higher advertising costs may be passed onto consumers in the form of higher prices for goods and services. Lower revenues from online advertising for publishers may affect the bottom line of Australia’s most popular websites, including media businesses. A competitive and efficient ad-tech supply chain is critical to vibrant journalism in Australia.
The ACCC will continue to investigate these issues in our Ad Tech Inquiry, and our preliminary report is due to the Treasurer in late December, the final report late August next year.
Draft news media bargaining code
In April 2020 the Federal Government directed the ACCC to develop a mandatory code of conduct to address bargaining power imbalances between Australian news media businesses and digital platforms.
We recently published the draft legislation for the code.
The draft code is intended to initially apply only to Google and Facebook, however other digital platforms may be added in the future if they are shown to hold a bargaining power imbalance with Australian news media businesses.
While we recognise bargaining power imbalances exist in many areas of the economy, this imbalance should be addressed given the importance of strong independent media in a well-functioning democracy.
The draft code requires good faith bargaining between news media businesses and Facebook and Google for the inclusion of news on their platforms. It provides a negotiation, mediation and arbitration framework that allows news media businesses to bargain individually or, importantly for smaller players, collectively with a digital platform.
The code also includes a set of ‘minimum standards’ for the treatment of news on digital platform services, addressing issues such as:
- providing advance notice of changes to algorithmic ranking and presentation of news
- recognising original news content, and
- providing information about how and when the digital platforms make available user data collected through users’ interactions with news.
While it is clear the digital platforms derive a significant benefit from making Australian news available on their services, this benefit is extremely challenging for the government to quantify.
On this basis, the code presents a bargaining-focused approach that empowers news media businesses to fairly bargain for adequate payment for the value their news adds to the digital platforms.
The code also includes a ‘forcing mechanism’ if parties don’t reach agreement after three months of negotiation and mediation. They can then proceed to ‘final offer arbitration’ where an arbitrator or panel of arbitrators consider the best ‘final offers’ from each party on remuneration for news and choose one. This form of arbitration, which is not common in Australia, is well-suited to this issue, given the difficulty of quantifying benefit that news provides to digital platforms. It also provides an incentive for both parties to submit their most ‘reasonable’ offer rather than an ambit claim.
In deciding between the offers, in addition to considering the value of media content to the platforms, the arbitrator must consider the cost to the news businesses of producing the news content. This is a metric that can assist the bargaining.
The issues covered by this code are complex and it is critical to get the balance right. We consulted extensively with relevant stakeholders including Facebook and Google and the full breadth of Australian news media businesses during the development of the draft code. Following release of the draft legislation for the code, we are continuing to consult widely, and are currently accepting stakeholder submissions.
2. Our enforcement actions
The ACCC recently launched an action against Google regarding misleading representations it made to consumers to obtain their consent to expand the scope of personal information it collected and used about its’ users online activities.
Our primary allegation is that, from 28 June 2016, Google fundamentally changed the way it used sensitive data about what account holders did on non-Google websites and apps, without adequately informing consumers.
At the same time, Google published a notification to millions of Australian account holders, telling them that Google had introduced some ‘New Features’ for their Google account. The notification assured users that these unspecified 'new features' were being introduced to give users 'more control over the data Google collects and how it’s used, while allowing Google to show them more relevant ads', and had a prominent ‘I Agree’ button at the end.
It might not surprise you that millions of Australian account holders clicked ‘I Agree’ and happily went on with their day.
What those millions of Australians might not have realised was that, by clicking ‘I Agree’, they essentially allowed Google to tie the data that it collected about their activity on non-Google websites and apps that use Google technology to the personal information associated with their Google accounts.
On a practical level, this meant that Google could then serve even more targeted advertising to its account holders, based on what consumers might have looked at or done on websites and apps that were not owned by Google.
We are taking this action because we believe Google misled Australian consumers about what it planned to do with a wide array of their personal information for Google’s benefit. If consumers were given an informed choice, we believe, and survey evidence supports this, they may have refused Google permission to combine and use their personal information in this way.
In another case, which we brought against Google last year, we allege that Google misled consumers into sharing location data with Google. We contend Google did not clearly inform consumers using Android mobile devices that a particular account setting allowed Google to collect location data. We assert that many consumers may have unknowingly provided more of their personal location data to Google than they intended. Google then used consumers’ location data to enhance the value of its advertising services to prospective advertisers.
This case is currently in Court with a hearing scheduled in late November.
These enforcement actions are about holding powerful digital platform businesses accountable for their representations to consumers and ensuring consumers are fully aware of the price they pay, through their data, for the supposedly free services they receive.
There is an obvious power imbalance and information asymmetry between digital platforms and consumers, but we believe that consumers have the right to know and make an informed choices about their use of those services, particularly how their personal data is being collected and used.
3. Digital Platforms and Mergers
During our DPI we found that Google and Facebook spend significant sums acquiring companies, with Google spending at least $23 billion buying 145 companies between 2004 and 2014. Facebook spent a similar sum buying 66 companies in the past 12 years.
These acquisitions can entrench their market power, in particular by providing them with advantages of scale and reducing competition.
Currently the ACCC is considering the acquisition by Google and Facebook of Fitbit and Giphy, respectively. We are considering questions such as whether they have the ability to give themselves advantages by favouring their own products, or whether these acquisitions are raising barriers to entry for other competitors.
In mid-June we released a statement of issues outlining our preliminary competition concerns with Google’s proposed acquisition of Fitbit. This matter raises a lot of complex issues including the aggregation of Fitbit’s health and wellness data under the Google umbrella which has implications for both key online advertising services and other areas.
A key concern is that the proposed acquisition may also lead to the potential raising of barriers in emerging technology reliant health markets, which rely on large scale data sets such as those accessible to both Fitbit and Google.
We are also investigating the effect Facebook’s completed acquisition of Giphy. The combination of Facebook’s and Giphy’s huge data sets certainly increases Facebook’s reach in online advertising which is a concern in itself but we are also interested in examining how it will impact the competition in their respective markets.
Facebook did not notify the acquisition to any competition authorities before completion. This is an example of a transaction we would want to know about well in advance, given Facebook’s strong position in various markets.
One recommendation coming out of the DPI was that the large digital platforms agree to a voluntary merger notification protocol to give the ACCC advance notice of proposed transactions.
We are concerned to ensure that the major platforms do not remove possible rivals to their core products which, in the medium term, may have otherwise emerged as vigorous and effective competitors to Google and Facebook.
The leading digital platforms continue to prove to be an innovative force at the cutting edge of the digital economy. Their services and products have proven invaluable for people and businesses alike, as so many of us are experiencing during this pandemic.
They are also growing economic powerhouses capable of dominating any markets they decide to enter.
At the ACCC we are focused on competition issues and consumer protection. We are concerned that consumers are protected, and that businesses, including the Australian media businesses, can compete on their merits in this new digital age. Existing regulatory frameworks have not held up well to the challenges of digitalisation, and so this is now a core focus for us, as it needs to be.