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19 December 2019

CMA: Tech Giants’ Dominance of Digital Marketplace Is Harming Journalism   

Consumers could be suffering because the tech giants’ dominance of the digital advertising marketplace is harming the ability of news media publishers to invest in journalism which is “essential for an effective democracy,” the Competition and Markets Authority has said.

In the interim report of its examination of online platforms and digital advertising, the CMA repeatedly cited the issue of newspapers being unable to effectively monetise their content in the digital marketplace as an example of one of the harms caused by the tech giants.  

The CMA said: “Quality and range of creative content, including journalism – for content providers such as online newspapers, digital advertising is a vital source of revenue.

“If problems in the digital advertising market mean that such providers receive a lower share of advertising revenues than they should, this is likely to reduce their incentives and ability to invest in news and other online content, to the detriment of those who use and value such content.

“At a broader social level, a thriving and competitive market for independent news and journalism is essential for an effective democracy.”

The News Media Association and member publishers responded to the CMA’s statement of scope earlier this year highlighting the damage the tech giants are causing to news media publishers by siphoning off revenue which would otherwise be invested into journalism.

The NMA called for a series of measures to address these issues including a new Digital Markets Unit established by statute and given effective monitoring and enforcement powers to oversee the new remedies, including drawing up and overseeing a binding code of conduct for online platforms of “strategic market status.”

In the interim report published yesterday, the regulator said that making a “comprehensive suite” of recommendations to Government was currently the “best way forward” rather than making a market intervention reference.

The regulator is now consulting on its interim report and welcomes views by 12 February. The final report will be published by 2 July.

One of the key interventions under consideration was a code of conduct enforced by an “expert body” with legal powers assigned through primary legislation to enforce both the provisions of the code and any specific remedies to address sources of market power

“An enforceable code of conduct would be a valuable regulatory tool in helping to address some of the concerns we have identified in the consumer facing and digital advertising markets,” the regulator said.

“As envisaged by the Furman Review, the code would apply to online platforms with strategic market status; our initial view is that this would include Google and Facebook. Overarching principles within a code could relate to: ‘fair trading’; ‘open choices’; and ‘trust and transparency,’”

The regulator said it was also considering “a range of options” to tackle the conflicts of interest and lack of transparency in the display advertising marketplace ranging from requiring greater transparency to various forms of separation of Google’s intermediation activities in the open display market.

In the report, the regulator said that the profitability of both Google and Facebook was “well above any reasonable estimate of what we would expect in a competitive market for many years.” “This evidence is consistent with the exploitation of market power,” the CMA added.

The CMA cited a range of concerns around Google and Facebook’s activities including the lack of transparency around decisions to adjust news algorithms which caused “unexplained dramatic changes” in traffic to news media websites.

“While we recognise that these algorithms have to be updated frequently and that too much transparency may lead to gaming behaviour, we acknowledge publishers’ concerns that sudden, unexplained and significant algorithm changes can have harmful financial consequences for them which they are unable to predict or manage,” the CMA said.

A lack of understanding among consumers around how their data was being used by the platforms was also highlighted as an area for concern as well as the lack of transparency in the real time bidding process.

The regulator said that initial estimates suggest that the weighted average demand side platform fee is around 18 per cent of advertising spend and that the overall weighted average of supply side platform/ad network fees is around 22 per cent.

Last year, Google accounted for more than 90 per cent of all revenues earned from search advertising in the UK, with revenues of around £6 billion, while Facebook accounted for almost half of all display advertising revenues in the UK, reaching more than £2 billion.