The Digital Platforms Inquiry: Melbourne Press Club speech

Speakers: 
Mr Rod Sims, Chair
Conference: 
Melbourne Press Club
13 August 2019

ACCC Chair Rod Sims delivers an address to the Melbourne Press Club about the Digital Platforms Inquiry.

Transcript: 

Check against delivery.

I should first declare some interests.

I read the AFR and the Australian every day, and also other Nine and News Ltd papers daily but mainly the Age and the Herald Sun. Despite being a Sydneysider I, of course, need their combined coverage of the footy.

You can take the boy out of Lorne, indeed to Sydney, but you cannot take Lorne, or the footy, out of the boy.

I also get a daily news feed from the ABC, and I have the Guardian app which I use. And recently I have been reading stories in the rebooted Canberra Times.

And I listen to both the ABC and Macquarie radio to get a wide range of news views.

I, of course, watch a range of TV stations but these days there is only time for news and sport.

I use Google many times a day, from Google maps to get here today to learning more about Hawthorn’s new debutant which many prefer to call CJ.

I am not on Facebook, as there are only so many hours in the day, but nearly all of the ACCC’s Digital Platforms team are Facebook users. I am on Twitter, to receive not send, and Whatsapp, and the ACCC team members are, of course on multiple platforms.

I also read think pieces from The Conversation, The Monthly, and Crikey; and my media team has self-set KPIs to get me written up in Buzzfeed, Pedestrian TV and Junkee.com, which I am told they meet.

All that said, thank you to the Melbourne Press Club for the invitation to speak here today and to all of you for attending.

Digital platforms have fundamentally changed the way we interact with each other, as we all know.

There is no doubt that platforms, like Google and Facebook, provide enormous social and economic benefits to consumers and businesses alike.

Along with the benefits, however, come a number of concerns, which have attracted the attention of people and governments the world over. This led the Australian Government to direct the ACCC to conduct an inquiry into digital platforms in December 2017, and I know that you have all read closely the over 600 page final report.

Our Digital Platform Inquiry found that Google and Facebook have substantial market power in a number of markets: with this, as in other sectors, comes responsibility and so greater scrutiny.

As Google and Facebook grow and expand into adjacent markets, they increasingly have the incentive and ability to favour their own businesses; so there are clearly competition issues that need to be addressed.

There are also consumer issues surrounding digital platforms that concern us; about what Australians know, how well informed they are, whether they are being misled about the use of their data, or whether it is being misused.

Then, of course, you’ve got the impact of Google and Facebook on news and journalism, which the Government directed we make a particular focus of our inquiry.

The Digital Platforms Inquiry has enabled the ACCC, I think uniquely, to consider the linkages between these critical issues of substantial market power and competitive harm, consumer protection, the media and advertising, and privacy.

I welcome the opportunity to share with you some of what we learned in our 19 month Inquiry. Today I will focus on three particular issues.

  1. The nature of the problems the ACCC identified;
  2. Why the disruption in media markets should concern us all; and
  3. Our recommendations relating to media and related markets.

1. Identifying some of the problems

The amount of time Australians spend on Google and Facebook platforms dwarfs the time spent on rival applications and websites. This gives them unparalleled access to Australian audiences. Each month, approximately:

  • 19.2 million Australians use Google Search
  • 17.3 million Australians access Facebook
  • 17.6 million Australians watch YouTube (owned by Google)
  • 11.2 million Australians access Instagram (owned by Facebook).

These are not community based, not for profit, companies, no matter how much they seek to portray themselves as benevolent enablers of human interaction and knowledge sharing. While they might provide a wide array of services to their customers, at zero monetary cost, like any other successful public company, their success is measured in shareholder returns.

Digital platforms reliant on anticipated revenue growth from monetising consumer attention and data cannot be satisfied with anything other than a continued increase in user engagement and expansion into new markets.

The United States stock exchange does not indicate there is any sign that Google and Facebook’s market power is likely to erode in the short to medium term.

Our broad calculations, at the time of submitting the final report, indicate that approximately:

  • 65–80 per cent of Facebook’s current share price can be attributed to expected future growth in returns
  • in Google’s case, 40–60 per cent of their parent company Alphabet’s current share price can be attributed to such future growth.

If their profits were simply expected to stay at current levels their share prices would plummet. Understandably they do not want such an outcome.

There’s nothing wrong with this. In a market economy we want all firms to seek to grow by providing more profitable services to users.

To be clear, Australian law does not prohibit a firm from possessing a substantial degree of market power. Nor does it prohibit a firm with a substantial degree of market power from ‘out-competing’ its rivals by using superior strategy and efficiency to win customers at the expense of firms that are less strategic or less efficient.

Our law does not, however, allow companies to use their dominant position to handicap their rivals.

The dominance of Google and Facebook as a means of distribution has meant many businesses rely on their services to reach customers. Such businesses are potentially exposed, given the ability and incentive of digital platforms to favour either their own related businesses, or businesses with which they have a commercial relationship.

The lack of transparency in Google’s and Facebook’s operations compounds this risk.

So while they might position themselves as ‘dumb pipes’, simply the messengers not the message, this portrayal is contradicted by their need to capture and monetise increasing amounts of user attention and data to continue to grow.

The behaviour of these tech giants has already provided us with evidence of those practices.

In March this year the European Commission (EC) hit Google with a €1.5 billion fine for abusing their dominant position by forcing customers of its AdSense business to sign contracts stating that they would not accept advertising from rival search engines.

The EU’s competition commissioner stated when announcing the decision that their ‘conduct lasted over 10 years and denied other companies the possibility to compete on their merits and to innovate.’

This fine was the third levied against Google in as many years.

The cumulative amount of fines levied by the EC against Google now stands at EUR 8.2 billion. Or AUD $13.6 billion (given the recent fall in the Australian dollar).

And last month, the Federal Trade Commission announced a record US $5 billion penalty for consumer privacy violations by Facebook that surfaced with the revelations of Cambridge Analytica’s use of Facebook user data in the US elections.

The ACCC has also found that the current regulatory frameworks, governing media, communications and advertising, result in significant regulatory imbalance and distortion between digital platforms and some media businesses.

While the ACCC doesn’t consider the functions of digital platforms and news media businesses to be comparable in all cases, where digital platforms do perform comparable functions to media businesses, they should be regulated similarly, and yet they are not, by a long way.

The collection of user data is central to the business model of Google and Facebook’s advertiser funded platforms as it allows them to offer highly targeted and personalised opportunities to advertisers.

The breadth and scale of the user data collected by Google and Facebook is relevant to both the assessment of their market power and user concerns.

Australians benefit from the many ‘free’ services offered by digital platforms, and most users now have at least some understanding that certain types of user data and personal information are collected in return for their use of a service.

However, the ACCC found that few consumers are fully informed of, nor can effectively control, how their data is collected, used and shared by digital platforms when they sign up for or use their services.

Vague, long and complex privacy policies contribute to this substantial disconnect between how consumers think their data should be treated and how it is actually treated.

Research from the ACCC inquiry showed that around 80 per cent of digital platform users considered that using their online behaviour to create profiles of them, and sharing their personal information with an unknown third party, to be a misuse of their personal information.

Digital platforms collect vast troves of data about consumers from ever-expanding sources, including countless third party apps and websites. And they have significant discretion over how this user data is used and disclosed to other businesses and organisations, both now and in the future.

Consumers relinquish considerable control over how their uploaded content is used by digital platforms, usually without realising it.

For example, an ACCC review of several large digital platforms’ terms of service found that each of the terms of service reviewed required a user to grant the digital platform a broad licence to store, display, or use any content uploaded by the user. Bundled agreements and take-it-or-leave-it terms remove consumer choice and control.

2. Why disruption and dislocation in media markets should concern us all

The Government’s terms of reference for our Inquiry directed the ACCC to give particular attention to the impact of digital platforms on ‘news and journalistic content’.

Society clearly benefits from having citizens who are able to make well-informed economic, social and political decisions.

I am a strong believer in news and journalism playing a key role in being a journal of the public record as well as keeping society informed through the production and dissemination of news.

Most importantly, via a plurality of voices, there is great civic value in stories that expose corruption and hold governments, institutions and other decision makers to account.

Journalism is a classic public good. People benefit from it without paying or even reading or seeing it. This means that, left to market forces alone, it would be under provided.  

Successive governments both here and overseas clearly recognise this. For example, many countries, including Australia, have publicly funded broadcasters that produce journalism to supplement the content provided by private businesses, and they provide other forms of direct money or indirect tax relief support.

Certainly digital platforms provide benefits for media businesses and you would all know how they can be extremely effective tools for journalists, aiding the process of news gathering and reporting. 

The lower cost of producing and distributing online content has also assisted the entry of smaller scale ‘digital native’ news producers, which previously would not have been able to afford the costs of traditional print production and distribution methods.

Of course, it is clear how closely interlinked the media and advertising are. They are two sides of the same coin; advertising has traditionally funded journalism. Commercial media — newspapers, commercial radio and television — are an example of a classic two-sided market. 

The reduction in the advertising revenue flowing to media businesses over the past 20 years, in part due to the rise of the digital platforms’ success in attracting advertising expenditure, has reduced the ability of media businesses to invest in journalism, particularly at the local level.

Print media, now print/online media, has been the medium most significantly impacted by the reduction in advertising revenue.

There has been a decline from AU$2 billion in classified advertising revenue in 2001 to AU$200 million in 2016. These are nominal figures; If these figures are adjusted for inflation, the decline over the same period is from AU$3.7 billion to AU$225 million.

Importantly, the fall in the print advertising revenue of commercial Australian media publishers continued to decline even after the vast majority of classified advertising revenue had shifted online. Digital platforms and, in particular, Google and Facebook have been taking an increasing portion of the increase in online advertising revenue in recent years.

Our final report paints a stark picture of the reduction in particular types of news and journalism in recent years. This included local government and local court reporting, which I think are important for the healthy functioning of the democratic process.

Strikingly, this includes the closure of 106 local and regional newspapers across Australia between 2008 and 2018. This leaves 21 local government areas who were previously covered now without coverage from a single local newspaper, in either print or online formats.

This type of reporting is more typically funded by advertising in Australia. There is not yet any indication of a business model that can effectively replace the advertiser model, which in turn affects the production of this kind of content.

It has also reached the point where many media businesses are now reliant on digital platforms, particularly Google, for referrals to their websites.

It is because of their role as the gateways to Australian consumers that media businesses have legitimate concerns with their practices.

During the course of our Inquiry, we have heard complaints about:

  • digital platforms’ failure to act quickly to address copyright infringement complaints;
  • a lack of transparency in the ranking of news content;
  • ranking algorithms that do not appropriately recognise original news content or unfairly treats content which sits behind a paywall;
  • restrictions on the types of advertising available in certain formats; as well as
  • the impact of policies such as first click free, and
  • the potential impacts of so-called ‘Google snippets’ on traffic to media websites.

In addition, the automisation of news delivered via digital platforms has made the platforms a ‘one stop shop’ online, with consumers not needing to directly visit the websites run by online publishers.

That makes it difficult for publishers to maintain brand awareness and product differentiation.

In addition, stories which are only of interest to small audience and are unlikely to engender much user engagement, are less likely to be produced. However, such news stories, including local and regional news reporting, can be critical to our democratic process.

Not surprisingly, the decline of the more recognised media brands, in particular their editorial and advertising processes, has paralleled the rise of more disinformation or fake news. It is little wonder the consumer trust in media is at record low levels over the last decade, and is sliding.

Our research showed that around 92 per cent of the respondents to the ACCC news survey had some concern about the quality of news and journalism they were consuming.

Further, the 2019 Digital News Report from the University of Canberra found that 62 per cent of Australian news consumers showed a high level of concern about the veracity of online information, above the global average of 55 per cent.

It is important to recognise that the digital platforms have not replaced media businesses as creators or producers of news and journalism. If they had, we may simply treat this as an example of creative destruction: innovation and technological change creating a more effective or efficient product.

But Google and Facebook are not creating news stories in Australia. Rather they select, curate, evaluate, rank and arrange news stories produced by third parties, disseminating and greatly benefiting from other parties’ content.   

This is a critical role especially when 50 per cent of traffic to Australian news media websites comes via Google or Facebook. These platforms, therefore, have a crucial influence over what news and journalism Australians do and don’t see.

3. We have made some vital recommendations concerning media and related markets

To address the issues and concerns identified in the Final Report, the ACCC put forward 23 recommendations.

Today I will touch briefly on the recommendations which I think are particularly relevant to media businesses.

First, it is important that the Government addresses the bargaining imbalance that exists between digital platforms and media companies, which represents a classic market failure.

This is a vital reform to ensure continued quality journalism in Australia.

Facebook and Google are unavoidable trading partners for a significant number of media businesses, which creates the imbalance.

I have seen media stories that a number of Australian television broadcasters last week signed a deal to provide content to Facebook. Is that a sign of greater co-operation, or an early response to our recommendations?

Our recommended bargaining code will cover sharing of data, understanding elements of algorithm outcomes, not inappropriately impeding monetisation and overall value sharing.

The digital platforms would be required to submit an acceptable Code to the regulator, the ACMA, within 9 months. If they fail to do so, the ACMA could impose a mandatory standard, which would be enforceable, and there would be large penalties for non-compliance.

Second, we recommended the development of a harmonised media regulatory framework.

This is an important step to ensure a level playing field for all entities involved in the production or delivery of content in Australia.

Third, we suggested the creation of a permanent, specialist digital platforms branch within the ACCC to proactively monitor, report on and investigate instances of anti-competitive conduct and consumer harm arising out of the conduct of digital platforms.

The treasurer has already endorsed the establishment of this branch which will see the deep skills and knowledge we have gained put to full effect.

To ensure the branch is even more effective we are recommending that unfair contract terms be made illegal, and that a new unfair practices provision be inserted into consumer law. Such provisions will allow us to deal with behaviour that often goes to the heart of the business models of the digital platforms, including behaviour that allows the platforms to compete unfairly against other businesses.

Never doubt the competition implications of effective consumer laws.

Crucially, this branch would continue to monitor matters covered in this inquiry and make information available through regular public reports and, where appropriate, recommendations to Government to address evolving consumer harm and market failure.

It would give the Government and policy makers an evidence base to make informed policy decisions in the future as circumstances inevitably change. It is vital that government and society get and remain ahead of these issues.

Fourth, we have recommended targeted funding for local journalism, including local news in regional areas. While the ABC and SBS serve these areas it is vital that we have a plurality of views.

Fifth, we have recommended that tax settings be amended to establish new categories of charitable purposes and deductible gift recipient, or DGR, status for not-for-profit organisations that create, promote or assist the production of public interest journalism.

Sixth, we have recommended enforceable codes to deal with copyright enforcement and concerns with how disinformation is handled by digital platforms, and also the creation of an ombudsman scheme to resolve business and consumer complaints. All of which will impose greater and necessary responsibility on the platforms, which they continually resist.

Finally, we have also proposed some specific changes to the Privacy Act 1988, administered by the Office of the Australian Information Commissioner, as well as broader reform of Australian privacy law, including a statutory tort for serious invasions of privacy. The updates to privacy law strengthen privacy safeguards and empower consumers to make more informed choices in relation to the collection and use of their data.

Trust is at the heart of the digital economy. It is important that there is transparency over the collection and use of data so consumers can exercise real choices and have meaningful control over their data.

Consumer trust is crucial for sustaining continued innovation and growth in Australian digital markets.

Final remarks

While I have spoken today mostly about our Inquiry’s focus on news and journalism, I have also touched on the range of other issues the digital platforms bring with them.

We should all be very concerned that the existing regulatory frameworks for the collection and use of data have not held up well to the challenges of digitalisation; nor have they appropriately responded to the incentives created by the supply of targeted advertising that relies on the monetisation of consumer data and attention. 

Data issues can affect the growth in scams and identity theft, as well as targeting individuals to buy goods at times of perceived weakness or at inflated prices they know we will pay, or to provide sellers with information that can allow discrimination between buyers or the basis of income or health issues.

The Cambridge Analytica revelations have shown how data, in combination with access to large numbers of citizens, can wield political influence and affect the electoral process.

Citizens will, and should, demand that governments stay ahead of these issues.

The breadth of our Inquiry afforded the ACCC the opportunity to look at these issues in a holistic way; highlighting the intersection between privacy, competition, and consumer protection issues.

We welcome the discussion our report has provoked. To date the dominant criticisms have either that we have not gone far enough, or that Australia can do nothing on its own.

We remain convinced that our recommendations have got it right.

Let’s address the problems we can identify now, but also let us put in place mechanisms to provide a continuing flow of information to deal with other problems as they inevitably arise.

Not only is there no single silver bullet, but we are now starting a journey that has a long way to go.

But also do not underestimate the power of what we have recommended to be put in place now.

First, taking the digital platforms to court here or overseas lays down rules within which they must work. These are more important than the level of penalties. Once found to breach a law, it will be very difficult for a digital platform to continue with that behaviour in any effective way.

The ACCC has five investigations that are well advanced.

Second, I understand some codes of conduct have a bad name. Think of the Food and Grocery Code which has no penalties for breaching it as a prime example; regulations and laws without consequences for breaching them erodes peoples trust in government. 

The codes we have recommended are, and must be, binding, legally enforceable and with meaningful penalties for breaching them. Otherwise I agree they will be of little use.

Finally, Australia can, if necessary, act alone. Facebook and Google are clearly subject to our laws. They either comply or do not do business in Australia.

In the past these companies have threatened to withdraw services from a country in response to local laws.

I do not think this will happen here. Not only are our measures carefully calibrated, but we are closely in touch with our overseas counterparts who are sympathetic to both the issues we have raised, and our solutions.

On the other hand, some argue that increasing regulation in digital markets will stifle innovation. But this fails to recognise that while digital innovations have the potential to transform societies for the better, there are also forms of innovation that can be harmful or corrosive; as fake news and the promotion of extremist content online illustrates.

Thoughtful regulatory frameworks can help us harness the benefits of innovation while protecting society from its potential harms.

I would now be delighted to take your questions.

Thank you for your attention.

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