Rod Sims, Australian Competition and Consumer Commission
This is an extract from the second edition of the E-Commerce Competition Enforcement Guide - published by Global Competition Review. The whole publication is available here.
We are at a critical time in the development of digital platforms and their impact on society. Digital platforms have fundamentally changed the way we interact with news, with each other, and with governments and business. It is also clear that the markets in which digital platforms and news media businesses operate will continue to evolve.
Since the publication of the first edition of the E-commerce Competition Enforcement Guide, the Australian Competition and Consumer Commission (ACCC) has completed its 19-month Digital Platforms Inquiry (Inquiry).
The Inquiry’s final report was published on 26 July 2019 and sets out the ACCC’s findings in relation to the growth of the key digital platforms and their impact on competition, media and consumers. It also identifies a number of issues for the government, businesses, the media sector and the broader community to consider and engage with, as risks and concerns increase with the rapid digitisation of Australian society.
The government directed the ACCC to focus particularly on the impact of digital platforms on the choice and quality of news and journalism. The terms of reference also included reference to:
- the extent to which platform service providers (defined as being digital search engines, social media platforms and other digital content aggregation platforms) are exercising market power in commercial arrangements with the creators of journalism and advertisers;
- the impact of platform service providers on the level of choice and quality of news and journalism for consumers;
- the impact of platform service providers on media and advertising markets;
- the impact of longer-term trends, including innovation and technological change, on competition in media and advertising markets; and
- the impact of information asymmetry between platform service providers, advertisers and consumers, and the effect on competition in media and advertising markets.
The market power of Google and Facebook
The ACCC’s Inquiry examined three categories of digital platforms identified in the terms of reference: digital search engines, social media platforms and other digital content aggregation platforms.
Google and Facebook were a key focus, reflecting their influence, size and significance in Australia. The amount of time Australian consumers spend on Google and Facebook platforms dwarfs that spent on other rival applications and websites.
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); and
Google and Facebook dominate all other major digital platforms in terms of time spent by consumers on the platform.
After a thorough analysis, the ACCC has found that Google and Facebook each have market power in a number of the areas relevant to this Inquiry, and that this power is unlikely to erode in the short to medium term. The ACCC considers that Google has substantial market power in the supply of:
- online search services in Australia;
- online search advertising services in Australia; and
- substantial bargaining power in its dealings with news media businesses in Australia.
Similarly, the ACCC considers that Facebook has substantial market power in the supply of:
- social media services in Australia;
- display advertising services in Australia; and
- substantial bargaining power in its dealings with news media businesses in Australia.
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 outcompeting its rivals by using superior skills and efficiency to win customers at the expense of firms that are less skilful or less efficient. However, a firm with substantial market power could damage this competitive process by preventing or deterring rivals, including potential rivals, from competing on their merits.
The impact of digital platforms on advertisers, news media businesses and consumers
The ACCC recognises that many services offered by digital platforms provide significant benefits to Australian consumers and businesses. Businesses looking to advertise their services and products have usually benefited from the rise of digital platforms, which present a cheaper and more targeted way of reaching consumers than traditional advertising. For news media businesses, digital platforms provide an alternative means to reach consumers, at significantly reduced production and distribution costs. Consumers also benefit from a wide range of valuable services provided by digital platforms, often for zero monetary cost.
The ubiquity of the Google and Facebook platforms has placed them in a privileged position as gateways to reaching Australian consumers. They are, in many cases, critical and unavoidable partners for many Australian businesses, including news media businesses.
However, the opaque operations of digital platforms and their presence in interrelated markets mean it is difficult to determine precisely what standard of behaviour these digital platforms are meeting.
The ACCC’s Inquiry identified a number of issues in the relationships between digital platforms and news media businesses, consumers and advertisers in Australia.
Digital platforms and news media businesses
For many news media businesses, the expanded reach and the reduced production costs offered by digital platforms have come at a significant price. For traditional print (now print and online) media businesses in particular, the rise of the digital platforms has marked a continuation of the fall in advertising revenue that began with the loss of classified advertising revenue in the early days of the internet. Without this advertising revenue, many print and online news media businesses have struggled to survive and have reduced their provision of news and journalism.
The gateway role of Google and Facebook has also placed them in a much stronger bargaining position with news media businesses. This has reduced the ability of the traditional news media to negotiate the terms on which their content is supplied on digital platforms, and has also affected their ability to monetise their content.
In addition, there are inconsistencies in the current approach to media regulation in Australia. Digital platforms increasingly perform similar functions to media businesses, such as selecting and curating content, evaluating content, and ranking and arranging content online. Despite this, virtually no media regulation applies to digital platforms.
Further, the widespread use of digital platforms to disseminate news and information, without oversight, has also likely increased consumers’ risk of being exposed to deliberately misleading or harmful news when using digital platforms.
Digital platforms and consumers
While Australian consumers benefit from the many ‘free’ services offered by digital platforms, few consumers are fully informed of, fully understand, or effectively control the scope of data collected and the bargain they are entering into with digital platforms when they sign up for or use their services. There is a substantial disconnect between how consumers think their data should be treated and how it is actually treated.
This lack of both consumer protection and effective deterrence under laws governing data collection has enabled problematic data practices. It has also resulted in a lack of transparency and control, which undermines consumers’ ability to select a product that best meets their privacy preferences. The lack of deterrence under current laws is compounded by individual consumers’ inability to bring direct actions for breaches of their privacy under the Privacy Act 1988 (Cth) or for serious invasions of their privacy that cause financial or emotional harm.
Digital platforms and advertisers
There is also a distinct lack of transparency in online advertising markets and the advertising technology (ad tech) supply chain, which makes it difficult for advertisers to understand the factors that influence the display of their advertising to consumers and, in particular, to identify whether Google or Facebook are favouring their own business interests at the expense of rival advertisers and potentially consumers.
The ACCC considers that Google and Facebook have both the ability and incentive to favour their own related businesses (self-preferencing) at the expense of other business users of the platform. They also have the ability and incentive to favour a business they have an existing relationship with (and that may generate additional revenue), such as websites that are members of their display or audience network, or that use their ad tech services.
Given the substantial market power of Google and Facebook, their presence in a significant number of related markets and the opacity of their key algorithms, there is significant potential for self-preferencing by Google and Facebook to substantially lessen competition.
The ACCC’s recommendations
To address the issues and concerns identified in the final report, the ACCC has put forward 23 recommendations. While the focus of the report has been on the behaviour and conduct of Google and Facebook, considerable attention has been paid to ensure that the recommendations are not simply specific to these two companies, and are forward-looking and flexible where appropriate.
Establishment of a specialist digital platforms branch
Existing investigation and enforcement mechanisms have proved flexible enough to address some competition and consumer issues in digital markets. However, a key finding of the ACCC’s report is that they are not adequate to deal with all issues. There is substantial international jurisprudence that digital platforms have engaged in anticompetitive conduct and conduct that harms consumers. The ACCC considers that the ability and incentive exists for digital platforms to engage in such conduct in the future in Australia. The opaque nature of the services offered makes the detection of issues difficult, and in some cases may be a cause of market failure. This creates significant risks for the Australian economy and for Australian consumers. If these risks come to pass, the impact on both would be substantial.
A key recommendation in the final report is the establishment of a specialist digital platforms branch within the ACCC to build on and develop expertise in digital markets and the use of algorithms. The Australian government has confirmed that it intends to accept this recommendation, and a new specialist digital platforms branch within the ACCC is being established.
This specialist digital platforms branch will supplement the ACCC’s existing investigative and enforcement tools with additional resources for proactive investigation, information gathering, monitoring and enforcement powers. This branch will also allow the ACCC to better gather information to monitor the effect of digital platforms on Australian markets and consumers. It will give the government and policymakers a solid evidence-based foundation to make informed policy decisions in the future.
Accordingly, the creation of the specialist digital platforms branch has three objectives:
- to increase the visibility of problems occurring in digital markets to allow existing competition and consumer law provisions to be used more effectively;
- to ensure the government and the community is well informed for future policy decisions; and
- to liaise with overseas agencies to share experiences and learnings.
One of the branch’s first activities would be to hold an inquiry into the competition for the supply of ad tech services and the supply of online advertising services by advertising and media agencies to explore further issues identified in sectors during the course of the Inquiry.
The establishment of a specialist digital platforms branch is in line with similar recommendations and actions by overseas competition agencies and independent expert panels. For example:
- In February 2019, the US Federal Trade Commission announced the creation of a task force dedicated to monitoring competition in US technology markets, investigating any potential anticompetitive conduct in those markets, and taking enforcement actions when warranted.
- In the United Kingdom, the Digital Competition Expert Panel led by Professor Jason Furman published a report into digital competition in March 2019, recommending the establishment of a body with the remit to use tools and frameworks to support greater competition and consumer choice in digital markets, and backed by new powers in legislation to ensure they are effective.
- In May 2019, the Danish Competition and Consumer Authority announced the establishment of a Centre for Digital Platforms, designed to strengthen the enforcement of its current competition rules against digital platforms.
- The Canadian Competition Bureau has announced the creation of the role of chief digital enforcement officer, and an aim to commence 10 digital economy investigations in 2018 and 2019.
The ACCC’s specialist digital platforms branch will work closely with equivalent teams at overseas competition and consumer agencies. This coordination will enable competition and consumer agencies to enhance cross-border enforcement and, where appropriate, share information and align their approaches to meet the same objectives.
Codes to govern the conduct of digital platforms
The final report also identified a number of issues spanning areas including privacy, copyright, monetisation of content, and news and disinformation. The ACCC considers that digital platforms can do more to address these issues, improve consumer outcomes, and ensure that rights holders’ interests are protected and news media businesses’ monetisation opportunities are maintained.
Accordingly, the ACCC’s final report recommends that certain digital platforms be required to implement enforceable codes of conduct, which would require relevant digital platforms to commit to specified undertakings. These include codes to:
- address the unequal bargaining power between designated digital platforms and news media businesses by providing a framework for platforms to negotiate the terms on which services are supplied to news media businesses;
- provide guidance on the take-down of copyright-infringing content from digital platforms to improve rights holders’ ability to enforce Australian copyright protections against digital platforms;
- set out procedures to handle complaints about disinformation presented as news on the digital platform’s services; and
- set out specific privacy requirements for digital platforms to comply with to meet particular issues arising from their data practices.
Not all digital platforms will be subject to each of these codes. Each of the recommendations also has thresholds that digital platforms must meet before they are required to comply with, or draft, an enforceable code.
Broader issues with consumers and data
Trust is at the core of the relationship between businesses and customers, and remains critical in the digital economy. The Inquiry has highlighted the intersection of privacy, competition and consumer protection considerations. Privacy and data protection laws to build trust in online markets and consumer confidence in an online environment are essential to the continued growth of the digital economy.
The Inquiry found significant information asymmetry between consumers and digital platforms in relation to how digital platforms collect, use and disclose user data. In Australia, the Privacy Act is the primary instrument for regulating the collection, use and disclosure of user data. Therefore, the most effective way of addressing these information asymmetries, and the consumer harm arising from them, was through this regulation.
The ACCC found that it is not just the data practices of the digital platforms that are concerning. Other businesses, including financial institutions, telecommunications service providers, airlines, news media companies and data brokers, are also engaging in practices such as using click-wrap agreements to seek bundled consent, not providing clear and fulsome disclosures, and providing little control to consumers over their personal information.
All of these data practices contribute to declining consumer trust, decreasing privacy, risks from cybercrime and data breaches, risks from discrimination or exclusion, and decreasing competition on the quality dimensions of products and services. Recent high-profile data breaches have raised consumers’ awareness of these likely harms, increasing consumer concerns regarding privacy and data security, and reducing consumer trust in the processing of their personal information by public and private institutions economy-wide.
Accordingly, the ACCC has proposed changes to the Privacy Act and broader reform of Australian privacy law (including a statutory tort for serious invasions of privacy) to strengthen privacy safeguards.
Strengthened privacy and data protection laws foster the consumer trust necessary to facilitate data accessibility and portability, and to encourage data-related innovations. They can also empower consumers to make more informed choices over how their data is processed. This, in turn, is likely to increase competition between digital platforms regarding the privacy dimension of their services.
The ACCC is the competition and consumer regulator, and consumer protection issues are as important to the ACCC as competition issues.
It is vital that governments recognise the role digital platforms perform in our individual and collective lives, and be proactive in anticipating challenges and problems.
The cost of inaction is likely to be high. Digital platforms play a significant role in the Australian economy and the everyday lives of Australian consumers. This will continue to increase as Australian commerce continues to move online. Even very small distortions in markets where digital platforms operate can result in significant damage to the Australian economy, and create substantial consumer detriment.
While the Inquiry has concluded, we have only just begun the work required to ensure that digital platforms continue to benefit consumers, businesses and the broader economy, while ensuring that the costs and consequences are minimised.
The ACCC expects that its recommendations will go a long way towards achieving this goal. We will continue working closely with relevant Australian government entities as well as overseas competition and consumer agencies to both share findings and further discuss solutions.
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