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After the Bell: Setting the scene — the Competition Commission and the media inquiry

After the Bell: Setting the scene — the Competition Commission and the media inquiry
The Google logo on the company's homepage, arranged on a desktop computer in Sydney, Australia, 22 January 2021. (Photo: David Gray / Bloomberg)

When you are the biggest buyer and seller, you have such a massive scale advantage that advertisers don’t use the systems other institutions have created.

Hearings start this week on something called the Media and Digital Platforms Market Inquiry at the Competition Commission. There are several aspects to the inquiry including, of course, artificial intelligence. But the heart of the investigation is whether there are market features on digital platforms that distribute news content “which impede, distort or restrict competition”.

Ouch. Big Question. And, of course, one that is close to my heart (and salary cheque). The issues are complex because, as I hope to show, there are good arguments on both sides. I say “hope to show” because naturally, as a participant in the industry, I’m biased; so, please keep that in mind.

There are two issues here: one is whether by referencing a news article, Google and Facebook get most of the traffic upside while having to bear a fraction of the costs. Let’s call that the search issue. Then there is also the cost-benefit ratio involved in advertising, especially something known in the industry as “programmatic advertising”. Let’s call that the programmatic issue.

Let me first sketch the background, which is essentially the reason for the inquiry. The news industry is in crisis, not just in SA but around the world. As a journalist fairly long in the tooth, I have personal experience of this. 

I worked at The Star in its heyday in the late 1980s when the newspaper was publishing 230,000 copies per day. There were two floors of journalists; to speak to the news editor, you had to stand in a queue. Now, however, The Star’s paid circulation is around 8,000. Given the wanton destruction imposed on the group by its awful management, the newspaper is not a great example. But broadly speaking, most estimates put the number of journalists around the world down by between 20% and 40% over the last 30 years. 

Publishers, therefore, are extremely grumpy and are looking for scapegoats everywhere. Some of their arguments are legitimate, some are not. It’s noteworthy that in this brave new world, there have been a few winners: The New York Times, the Financial Times and The Wall Street Journal; their common link has been that they are large international brands for whom any marginal increase in globalisation was a boon. For city newspapers, magazines and television news organisations, the effect has been dire.

The counterargument is this: welcome to the digital world. You can’t blame the mousetrap maker for making a better mousetrap. Digitalisation has revolutionised the distribution of information, largely to the enormous benefit of the world. Publishing might have suffered as a result. But that is the price we, as humanity, pay for the ability to find a crankcase for a 1956 Toyota in milliseconds and/or the latest news (if we must) about Donald Trump.

From a slightly more sophisticated point of view, it works like this: when you search Google for news about Donald Trump, Google can monetise that search request in various ways, notably by charging for ranking the responses of your search and by throwing up advertising around the search. But here is the thing: the publisher of the specific article on Donald Trump on which you decide to click can also monetise that visit. In a sense, there is a kind of mutual back-scratching going on here. 

The question is: Who is getting the actual scratch? The answer to that is pretty obvious: Google. And Facebook and Instagram, etc, etc. Google won’t publish this figure — which is suspicious in itself — but the speculation is that collectively, the social media companies probably make a profit in the billions a year. That’s profit; that’s what they send home. That is a multiple of the turnover, never mind the profit (because there practically isn’t any) of the entire media industry in SA.

Distribution is king

A sub-response of the international social media houses to this is that the division is typical of distribution operations. In ways that are much more visible to participants than to consumers, distribution is king. And the reason is obvious: it doesn’t matter how brilliant your product is, if you can’t distribute it, it’s worthless. Distribution pipelines in, for example, natural gas, are also enormously profitable. Welcome to the world. 

But anyway, on the search issue, there is reasonable ground for compromise because essentially the relationship between media owners and distributors is win-win. Not so much the programmatic advertising issue.

Take Google. It is not only a search engine, it’s also an advertising channel and in this sense, it is head-to-head in competition with all other online publishers, whether they are “legacy” publishers like news organisations or digital startups. The focus here is particularly on Google because Google’s owner, Alphabet, controls all sides of the advertising supply chain, from supply-side platforms, and demand-side platforms to ad exchanges.

What does that mean? Essentially, it means Google supplies services to the ad sales industry — like advertising agencies — and takes a cut of each transaction along the way where those ads are displayed, as well as being involved in the monitoring process, which informs the prices paid by both sides. It’s as if the JSE alone had information about the buyers and the sellers of shares and the bid prices over time. It would basically be a broker, an exchange and a financial adviser.

What that has allowed Google to do is to sell advertisers segments of demographics, like, say Japanese men who are interested in cars who are likely to buy one in the next six months. The result is that as an advertiser, Google can offer advertising that costs a fraction of what it would be to advertise directly and it will end up being much more effective because it displays the advertising “programmatically”.

The proportions here are extreme: the CPM, or cost per thousand impressions, of programmatic advertising, is perhaps 10 times better than direct advertising. This is just one of the reasons why advertising on YouTube, for example, has become absurdly intense, and why there are fewer billboards around (no bad thing), fewer ads in newspapers, and so on. 

Google offers several arguments, which are, to my mind, dubious. The first is that advertisers love this because it works so well. Second, this is not a closed market; news organisations and any others in the advertising sales business can charge what they want for advertising. They can also, as many have around the world, implement data management systems so that advertisers can specify the demographic they are looking for in the same way they do for Google. There is nothing to stop organisations from tracking advertising utility, and some have done just that.

But the problem is that when you are the biggest buyer and seller you have such a massive scale advantage that advertisers don’t use the systems other institutions have created. Some of these are also, by the way, free by Google and it’s very hard to compete against free.

Another issue here is that when Google positions an advertisement, it does so all over the place. And a huge quantity of the websites caught up in its net are bogus and are designed only to be recipients of Google’s programmatic advertising. Google says it can’t distinguish between a legitimate site and a bogus one, but that seems far-fetched. The fact is that Google has no incentive to cut out the bad actors; that general rule applies to all the social media platforms when it comes to bogus information, the targeting of children, racism, homophobia and all the rest.

Those are the issues. But there are other problems too. The commission’s job is, as always, to examine destructive market dominance. If it does in this case, it could impose fines on Google and Meta and the others. But that wouldn’t help repair the harm done to media organisations if, in fact, the commission does come to that conclusion. 

Some of the benefits should flow to media organisations, surely? This one in particular. Just saying. DM

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Comments - Please in order to comment.

  • Gareth Searle says:

    Thanks Tim. a well rounded presentation.

  • Geoff Coles says:

    A great article. I have zero sympathy for the Google Meta Facebook type axis, but if it is our Competitions Commission involvement, little there too.

  • Johan Buys says:

    without a shadow of a doubt, the internet helped rather than harm dissemination of information. Today, a writer in Knysna writing can have readers from all over the world. What was that like in 1985 even if the writer had access to a print publisher??

    There is part of the argument I don’t follow. If I go to Google to search, and I use parameters well, I will be presented with pages of results but the first page will be either (1) paid for being high – paid to Google or (2) the most relevant or call it “best” based on search engine algorithms that include how often others reference that site. The second lot earns Google nothing. The second lot, if I click through, earn that site ad revenue from its advertisers and there is a chance that I look around there and generate 20 paid views for that publisher. Publishers should be falling over themselves to produce content that rates highly.

    Let’s say Google shrugs and shuts Google Search. Atlas shrugs and says stuff it, the fines and regulations are just too much of a pain. How do people all over the world find the musings of the Knysna writer?

    Search engines are critical and we should all want ones that return results without bias.

    AI is downright dangerous. OpenAI, a paid service, presents NYT content (copyright and not licensed) as if it produced it, with no accreditation and NYT furthermore received no income from its advertisers for the fraud that Microsoft and OpenAI commits.

  • Jean Racine says:

    The same Competition Commission whose financial illiteracy saw them introducing a non-existent case of currency manipulation, wishes to tackle some of the biggest corporations on the planet? That Competition Commission?
    The same one, about a year or 2 ago, that invited those paragons of competition and free markets, China and Russia to a conference on global competition best practice?

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