20 December, 2018
On 10th December 2018, the ACCC's highly anticipated Digital Platforms Inquiry Preliminary Report was released to the public. The 374 page report weighs in on the impact of digital platforms such as Google and Facebook on competition in the media and advertising services markets.
The ACCC makes a number of recommendations to address what it considers the substantial market power of digital platforms, including reforms to merger control procedures, regulatory oversight of the ranking and display of advertisements and news, and changes to laws relating to media, privacy, copyright, and unfair contracts. The broad scope of these recommendations is surprising in light of the ACCC Chairman Rod Sims' recent comments about steering clear of the 'antitrust hipster' movement – the recommendations arguably venture into public interest considerations beyond competition law.
The report is the first of its kind globally, and is therefore likely to spur interest amongst other competition regulators considering similar issues, including the UK's Competition and Markets Authority (who in October 2018 stated that they were 'actively considering' an inquiry into digital advertising).
The genesis of the Digital Platforms Inquiry
The Digital Platforms Inquiry was announced by the Australian Government on 4 December 2017. The terms of reference of the inquiry directed the ACCC to examine the impact of online search engines, social media and digital content aggregators (collectively, digital platforms) on competition in the media and advertising markets. The ACCC has recently conducted a number of sectoral inquiries in response to government requests. These include the East Coast Gas Inquiry, the Dairy Inquiry, and the Residential Mortgage Products Price Inquiry (which remains on foot).
Key issues raised in the preliminary report
The ACCC identifies a number of concerns around the rise of digital platforms, notwithstanding the substantial benefits they create:
Underprovision of news and journalistic content: the growing popularity of digital platforms has resulted in an increase in online advertising, at the expense of advertising in traditional print media. This, alongside strong competition from international media sources and the lower cost base of online media, has resulted in an erosion of advertising revenue for traditional print media, and a decline in the number of professional journalists. The ACCC notes that this may result in the underprovision of news.
Substantial market power of digital platforms: the ACCC's analysis finds that digital platforms, particularly Google and Facebook, hold substantial market power in the markets for the provision of online search services, online search advertising, social media services, display advertising, and news media referral services. The ACCC has raised questions around the exercise of that power.
A lack of transparency over the operation of key algorithms: advertisers find it difficult to know what factors influence the display of advertising to consumers, , and whether digital platforms favour their own business interests. This is similar to the issue in the European Commission's Google Shopping Case, in which Google was fined €2.42 billion for abuse of its market dominance by favouring its own shopping services over rivals services).
Reliance of news media businesses on digital platforms for traffic: news media websites rely heavily on digital platforms to generate around half of their traffic. This reliance could result in the implementation of policies and formats by digital platforms that reduce incentives to produce original content.
Lack of informed choices by consumers on how their data is used: consumers hand over large volumes of data, without necessarily knowing the extent of data collected, how it is used, and what exactly they may be agreeing to in click wrap agreements.
The ACCC's preliminary recommendations
The ACCC has made 11 preliminary recommendations in response to the concerns raised:
Merger control reforms (recommendations 1 & 2)
The ACCC proposes the inclusion of the following additional mandatory factors for merger clearances:
- The likelihood that a merger may remove a potential competitor, and
- The amount and nature of data that an acquirer would have access to as a result of the acquisition.
This is not necessarily much different to the existing merger control regime (where these factors would likely be taken into account in a merger involving a digital platform).
Additionally, the ACCC proposes a mandatory notification regime for large digital platforms that might acquire any business with activities in Australia, but has indicated its willingness to consider 'other options' should this be unacceptable to the major digital platforms (which seems likely).
No pre-installation of browsers and search engines (recommendation 3)
This recommendation appears to be directed at the tying and abuse of dominance concerns raised in the European Commission's 2018 Google and 2007 Microsoft cases involving pre-selected internet browsers and search engines. The ACCC recommends that suppliers of operating systems (ie mobile phones, computers, tablets) and internet browsers be prevented from setting a default browser or a default search engine, or pre-selecting one.
Regulatory oversight of digital platforms' algorithms (recommendations 4 & 5)
The ACCC proposes that a regulatory authority be tasked with reviewing the algorithms of digital platforms to assess:
- whether digital platforms are engaging in discriminatory behaviour by favouring their own business interests over those of their advertisers;
- the manner in which news and journalistic content is ranked by digital platforms.
The effect of this proposal is to impose a non-discrimination obligation on digital platforms. It is not clear whether this role would be performed by an existing body, or a new regulatory body. This is one of the more interesting recommendations and is similar to the proposals of international experts such as Ariel Ezrachi.
Review of existing media regulation (recommendation 6)
The ACCC recommends a separate independent review of media regulation to ensure that it is consistent across all entities that perform comparable functions (eg selecting and curating content, evaluating content, and ranking and arranging content online). This 'platform neutral' recommendation intends to put digital platforms, publishers, broadcasters, and other media businesses on an equal footing.
Review of take-down procedures for copyright infringement (recommendation 7)
In order to address the difficulties currently experienced by media businesses in removing copyright infringing content from digital platforms (which centre around establishing 'authorisation' of a copyright infringing act), the ACCC recommends the formulation of mandatory take down standards, to be developed by ACMA.
Strengthening of privacy safeguards (recommendations 8, 9 & 11)
The ACCC has made substantial recommendations for the amendment of privacy laws, which include:
- strengthening the requirements to notify consumers of the collection of information to ensure notifications are presented in a clear, concise and accessible manner;
- the introduction of a privacy seal or mark to indicate compliance with certain privacy regulations;
- changes to consent requirements so that consumers must opt-in to data collection (rather than opt-out);
- erase the data of any consumer that has withdrawn their consent to data collection;
- increase the penalties for breaches of privacy legislation, to bring them in line with those under the Competition and Consumer Act 2010 (Cth);
- introduce direct rights of action for an individual in cases of privacy breaches;
- increase the resources of the OAIC to increase privacy enforcement activities;
- introduce an enforceable Code of Practice for digital platforms, to be formulated by the OAIC;
- in line with previous ALRC recommendations, introduce a statutory cause of action for serious invasions of privacy.
Strengthen unfair contract terms laws (recommendation 11)
Currently, unfair contract terms are only voidable. The ACCC proposes the introduction of civil penalties for unfair contract terms, which would strengthen the incentives to ensure privacy policies are not leveraged in favour of digital platforms.
Further enforcement activities and areas for further analysis
Interestingly, the ACCC's report flags a number of current investigations of digital platforms for breaches of misuse of market power provisions, and the Australian Consumer Law. These relate to restrictions on third party app developers, representations made to consumers about data collection, disclosures of changes to privacy policies, and whether any privacy terms might be unfair contract terms.
The ACCC has also flagged the possibility of introducing a digital platforms ombudsman, the monitoring of prices for intermediary services offered to advertisers or websites for digital display advertising, and the introduction of a new prohibition against unfair practices.
For further information, please contact:
Thomas Jones, Partner, Bird & Bird
thomas.jones@twobirds.com
