House kicks off antitrust probe into tech giants

Congress on Tuesday opened an investigation into tech companies and antitrust issues with a hearing on how the industry has upended the business model of the news media and other publishers.

At the first hearing in the House Judiciary Committee’s bipartisan investigation into Silicon Valley’s market power, the panel’s subcommittee on antitrust heard from media advocates who accused internet giants such as Facebook and Google of having a stranglehold on digital advertising, and who urged lawmakers to level the playing field for publishers.

“Unfortunately in the news business, free riding by dominant online platforms, which aggregate and then reserve our content, has led to the lion’s share of online advertising dollars generated off the back of news going to the platforms,” said David Pitofsky, the general counsel for News Corp., which owns The Wall Street Journal.{mosads}

“We’re not losing business to an innovator who has found a better or more efficient way to report and investigate the news,” Pitofsky added. “We’re losing business because the dominant platforms deploy our news content to target our audiences to then turn around and sell that audience to the same advertisers we’re trying to serve.”

The hearing came amid an unprecedented level of scrutiny in Washington over tech giants’ market power and impact on competitors and consumers. But lawmakers have generally given little attention to what many see as the threat the tech industry poses to the news industry and the damage done to local news outlets.

The bipartisan leaders of the Judiciary Committee are pushing a short-term solution backed by the newspaper industry that would grant an antitrust exemption to media outlets, allowing them to collectively negotiate with companies like Facebook and Google for a larger slice of the digital advertising pie.

“It is incumbent on Congress to understand the sources of this problem and address it urgently,” said Rep. Jerrold Nadler (D-N.Y.), the chairman of the Judiciary Committee. “Congress also has a constitutional duty to ensure markets are structured in a way that is compatible with our democratic values.”

As more and more consumer attention turned to the internet, Facebook and Google were the main beneficiaries of the increase in digital advertising value. In 2018, the two companies combined received about 66 percent of all U.S. internet advertising revenue.

Meanwhile, the crucial advertising revenue stream to the news industry has dried up. According to the Pew Research Center, newspaper advertising revenue has plummeted from $49 billion in 2006 to an estimated $16.5 billion in 2017.

“These trends strongly suggest that the decline of the news industry is not the inevitable result of the arrival of the internet but is instead the direct consequence of enforcement choices that have created a market structure where a small number of platforms are capturing the value created by newspapers and publishers,” said Rep. David Cicilline (D-R.I.), who chairs the antitrust subcommittee and is leading the Judiciary investigation.

Tech companies have received relatively little antitrust scrutiny in the U.S. over their years of rapid growth. The industry and its advocates have argued that their rise has caused prices for services and products to go down and not up, making it harder for regulators to argue that their dominance has hurt consumers.

But on Tuesday, Assistant Attorney General Makan Delrahim, who leads the Department of Justice’s Antitrust Division, warned Silicon Valley that line of reasoning would no longer insulate them from scrutiny.

“The current landscape suggests there are only one or two significant players in important digital spaces, including internet search, social networks, mobile and desktop operating systems, and electronic book sales,” Delrahim told a conference in Tel Aviv, Israel. “This is true in certain input markets as well. For example, just two firms take in the lion’s share of online ad spending.”

“Price effects alone do not provide a complete picture of market dynamics, especially in digital markets in which the profit-maximizing price is zero,” he added.

The tech industry, though, is pushing back.

At Tuesday’s hearing, Matt Schruers, the vice president of the trade group Computer and Communications Industry Association, said that Congress should refrain from granting news publishers an antitrust exemption for collective bargaining, arguing that it would lead to more media consolidation and less competition.

“Because journalism is important to any democracy we share the goal in ensuring that it continues,” Schruers added. “Digital services play an important role in doing that.”

And in a statement, Richard Gringas, the vice president of news at Google, painted the company as a benevolent partner of the news industry and touted the partnerships it’s formed with publishers over the years.

“We’ve worked for many years to be a collaborative and supportive technology and advertising partner to the news industry as it works to adapt to the new economics of the internet,” Gringas said. “Every month, Google News and Google Search drive over 10 billion clicks to publishers’ websites, which drive subscriptions and significant ad revenue.”

But that is unlikely to ease the concerns of local journalists who have seen waves of layoffs and closings ravage their industry.

Kevin Riley, the editor of The Atlanta Journal-Constitution, urged Congress on Tuesday to keep in mind the smaller outlets when considering the tech companies’ effects on the media business.

“Almost always the debate about media and tech is framed in a discussion about international news brands, but the greatest peril for our nation lurks at the local level, where a regional or community newspaper must cope with fast-changing technological and financial matters,” he said.

“It is worth considering stories that would go untold,” Riley added.