The Power Imbalance: Internet Giants Stymy News Outlets' Financial Health

One bill is called the American Innovation and Choice Online Act AICOA which would police the dominant platforms39 acts of quotselfpreferencingquot or favoring their affiliated content or merchandise over that of independent rivals Although it would regulate selfpreferencing outside antitrust law pursuant to a new standard the AICOA is often referred to in the press as antitrust reformThe second antitrustrelated bill the Journalism Competition and Preservation Act JCPA hasn39t received the same amount of press attention but Big Tech is determined to kill it as well Among other protections for news publishers the JCPA would grant an exemption to antitrust laws for news publishers so they can better coordinate their dealings with the tech giantsI had the privilege of testifying before the House Antitrust Subcommittee on the AICOA and before the Senate Antitrust Subcommittee on the JCPA both times as the Democrats39 economic expert To my pleasant surprise there was significant Republican support for the AICOA beyond the GOP cosponsor Rep Ken Buck RCOTime is running short for passage of one or both antitrust bills It must happen before Congress is reconstituted after the midterms while Democrats still have leverageBefore going any further I want to be clear antitrust exemptions are rare and that39s a good thing Powerful entities should not be immunized from antitrust scrutiny In some limited circumstances however coordination among small suppliers when dealing with a large buyer is necessary to overcome a power imbalance that is causing input prices and employment to fall below competitive levelsThis market failure is the basis for the current exemptions for farm cooperatives in particular and labor in general from the antitrust laws And it is the same basis for extending a new exemption to newspapers in their dealings with dominant internet platformsThe platforms39 massive buying power aka monopsony over news publishers is evidenced by high market shares combined with high barriers to entry Facebook and Google account for over half of US digital display advertising eMarketer puts Google including YouTube at 102 and Facebook at 425 in 2022Facebook39s bullying reaction to the prospect of having to pay for access to news evinces its buying power In February 2021 Facebook temporarily blocked news to Australians on its platform as legislators refined the quotnews codequot And in July 2022 with Congress deliberating on the JCPA Facebook announced that it will no longer pay US news organizations to have their material appear in Facebook39s News TabBy providing a timelimited period during which publishers could coordinate their dealings with the dominant online platforms for compensation the JCPA would help balance the playing field and provide a lifeline for highquality journalism in AmericaNumbers help explain why this is so critical The news industry has incurred losses in advertising revenue every year since 2006 according to the Pew Research Center The year 2006 was around the time that the platforms solidified their market power over digital advertisingThis is not to say that Facebook39s and Google39s domination of digital advertising came entirely at the expense of newspapers Rather it is to provide context as to how any underpayment to newspapers can exacerbate an environment that is already quite direThe effect of shrinking advertising revenues amp8211 in part caused by underpayment from dominant platforms amp8211 is less cash flow to support journalists a clear employment effect flowing from the exercise of monopsony power by the dominant platforms Employment among newspaper employees fell from 71000 in 2008 to 31000 in 2020 according to PewAs a result of the deteriorating news media landscape described above hundreds of local newspapers have been acquired or declared bankruptcyFacebook and Google reframe newspaper articles in rich previews containing headlines summaries and photos The platforms also curate newspaper content alongside advertisements This reframing and curation decrease the likelihood of a user clicking on the article thereby depriving news publishers of clicks while enriching the dominant tech platforms The appropriation of newspaper content also decreases newspaper subscriptions And when the clicks on newspaper content eventually come from the platforms39 websites the associated advertising revenues are taxed by the platforms at excessive take ratesA study I conducted which was commissioned by the News Media Alliance found that allowing current market forces to dictate the newspapers39 quotpay sharesquot that is the portion of platform revenues that redounds to newspaper publishers ensures that newspapers are compensated at rates significantly below competitive levelsThis underpayment results in underemployment of journalists and other news employees And it also can cause a host of social ills associated with local news deserts including less competent local governments greater spread of partisanship and misinformation removal of economic stimulus to local economies and a reduction in the diversity of viewpoints particularly among minority populationsThe best way to correct this market failure is for the government to permit the news publishers to coordinate their dealings with the digital platforms over payment terms and conditions as contemplated in the JCPA Given the massive power imbalance collective bargaining by itself might not be sufficient to achieve competitive payments in which case some structured bargaining among the parties eg mandatory arbitration with an enforcement mechanism would be needed as a backstopOpposing ArgumentsDuring the Senate hearing on the bill a wouldbe newspaper coalition was referred to as a quotcartelquot by a Republican witness Daniel Francis amp8211 a lecturer at Harvard Law School and a former Federal Trade Commission officialThis misunderstands the term A cartel is anticompetitive because it suppresses output But by driving up the price for accessing news towards competitive levels the coalition created by the JCPA would increase newspaper output the exact opposite of a cartel Calling the coalition of newspapers a cartel makes about as much sense as calling a union of unpaid college athletes a cartel Neither would restrict output And neither would lead to higher prices for consumers as neither would increase the marginal cost of the respective platformsBasic pricing theory shows that an increase in a firm39s fixed costs such as a lump sum transfer payment that doesn39t change with output will not affect a firm39s pricing Just as NCAA schools have not raised ticket prices or television license fees after having to pay college athletes for the rights to the athletes39 name image and likeness Google and Facebook would have no reason to begin charging users for search or social media respectivelyThe payments to newspapers would not rise with each click but instead would be a lumpsum fixed payment for the right to access the content Upon making the access payment the platforms would be free to monetize newspaper content however they desired subject to applicable copyright lawCuriously some traditional antimonopoly groups have stated their resistance to granting countervailing bargaining power to newspapers in their dealings with dominant platforms In a joint statement the American Antitrust Institute AAI Public Knowledge Consumer Reports and Consumer Federation of America argued that quota new antitrust exemption will only hurt consumers citizens and businesses that are not invited to the negotiations that this exemption is supposed to facilitatequot It bears noting that some of these groups depend on the dominant platforms for fundingThe slipperyslope argument advanced by the AAI in a white paper would have condemned the antitrust exemption originally extended to labor and to farm cooperatives as they were the first exemptions granted Given the extremely limited scope of the antitrust exclusion proposed amp8211 newspapers would not be allowed to coordinate in their dealings with consumers amp8211 it is unclear how collective bargaining of newspapers visamp224vis the dominant platforms over an access fee would have unintended consequences in the form of increased prices for consumers as suggested in the white paperInstead of the JCPA some detractors have called for greater enforcement of existing antitrust laws against Google or Facebook Even if successful such a lawsuit could recover only a fraction of the underpayment amp8211 the overcharges from excess take rates when traffic originates from the platforms39 websites There would be no compensation for traffic that was diverted from the publishers39 websites and no access feeMoreover a successful antitrust lawsuit against say Google would provide zero relief for publishers in their dealings with Facebook And a successful antitrust lawsuit against Google or Facebook would require several years to adjudicate and the appeals might not be resolved for nearly a decade In the interim newspapers would be left twisting in the wind Given the newspapers39 precarious financial state it is not clear how long many could survive without an intervention todayTime to ActThe opportunity to restore a level playing field is closing fast The JCPA bill has broad support among Democrats and narrower support among Republicans but enough to pass the Senate If Democrats lose their Senate or House majorities in the fall the JCPA as well as other competitionbased bills might not get another shotThe JCPA has undergone significant amendments to accommodate legitimate concerns The current version wisely introduces baseballstyle arbitration guarantees that publishers of all viewpoints are eligible to participate in negotiations and imposes a size limit to focus support on small and local outletsMore recent amendments ensure that a significant share of funds 65 collected pursuant to the JCPA would be based on the proportion of budget dollars that newspapers spend on journalists and they require transparency on what news providers receive from platforms annually and how that infusion is spent on news productionNow is the time for Senate Majority Leader Chuck Schumer to bring the JCPA to a vote and quit kowtowing to Big TechThis article was originally published in the SepOct issue of TFMHal Singer is managing director of Econ One an economic consulting firm and an adjunct professor at Georgetown39s McDonough School of Business He is also a consultant to the News Media Alliance a coalition of newspapers in support of the JCPA Singer can be reached at hsingerecononecomClick the social buttons to share this story with colleagues and friendsThe opinions expressed here are the author39s views and do not necessarily represent the views of MediaVillagecomMyersBizNet

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