Anyone concerned with the anticompetitive state of digital advertising, and how to fix it, should focus like a laser on the circumstances surrounding the 2014 FTC’s pass on formally investigating if the Facebook-WhatsApp acquisition would “substantially lessen competition” under the Clayton Antitrust Act.
That obvious FTC mistake in hindsight, triggered a winner-take-all domino effect that not only tipped Facebook to a social advertising monopoly, but also tipped the overall digital advertising market to the anticompetitive digital advertising cartel that evidently predominates today.
[Editor Charlie sez: Now we know why they need so many lobbyists...]
As Facebook sought to become the world’s dominant social media service, it struck agreements allowing phone and other device makers access to vast amounts of its users’ personal information.
Facebook has reached data-sharing partnerships with at least 60 device makers — including Apple, Amazon, BlackBerry, Microsoft and Samsung — over the last decade, starting before Facebook apps were widely available on smartphones, company officials said. The deals allowed Facebook to expand its reach and let device makers offer customers popular features of the social network, such as messaging, “like” buttons and address books.
But the partnerships, whose scope has not previously been reported, raise concerns about the company’s privacy protections and compliance with a 2011 consent decree with the Federal Trade Commission.
Max Schrems, the thorn in Facebook’s side, has returned to launch the first challenges under the EU’s new data protection laws.
The complaints, filed on the day Europe’s General Data Protection Regulation (GDPR) comes into force, take aim at what he describes as Google and Facebook’s “forced consent”.
Under the GDPR, when users are asked to consent, they should be given a free choice – and it should not be a condition of using a service.
But Schrems’ complaints argue that the consent boxes popping up on the screens of users of Google, Facebook and their affiliates does not meet this standard.
They dangle the 4 per cent of annual turnover fines as a maximum possible penalty – €3.7bn, €1.3bn, €1.3bn, and €1.3bn, respectively – though regulators have stressed they won’t be handing out the top level fines willy-nilly.
Facebook pays no royalties for the music that gives significant value to the platform. That’s often a surprising proposition for artists and songwriters, much less the general public.
Yet it is true—hitmakers and new artists, pros and amateurs alike do not get a penny from Facebook and the company doesn’t even attempt to license their work. Why should a multibillion dollar multinational corporation that anchors a large piece of the Internet economy and whose founder is planning on running for President of the United States get to pay music makers in exposure bucks?
The answer is that Facebook, like YouTube and many other user-generated content platforms hide behind the legacy DMCA “safe harbor” and its nonnegotiable, unconscionable, adhesion contract that controls the use of its platform.
Rumor has it that Facebook is evidently coming to the table and is in at least semi-active negotiations with at least some labels and publishers.
One may well ask what took so long—but if it were not for Universal Music Group’s pursuit of Facebook’s infringements through DMCA notices, it’s likely that Facebook would be blithely rolling on its monopolist juggernaut.
On the other hand, this is actually a good time to be negotiating these deals give the Congressional scrutiny of Facebook’s involvement in the 2016 Presidential election campaigns. We have the benefit of public statements by Facebook representatives under oath regarding what they can do and what they so far refuse to do which may come in handy in licensing negotiations.
These negotiations with rights owners may result in what will seem like a very big pop of up-front cash—but is it? And whatever the number, how will that money be distributed to the artists and songwriters that make it happen?
GARCIN: …So this is hell. I’d never have believed it. You remember all we were told about the torture-chambers, the fire and brimstone, the “burning marl.” Old wives’ tales! There’s no need for red-hot pokers. Hell is—other people!
In 1961, President Dwight D. Eisenhower’s prophetic farewell address famously warned of the growing “military industrial complex”:
In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.
We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.
Given Eisenhower’s history as a military officer of the highest rank, Ike knew of what he spoke only too well.
In 2017, President Barack Obama may well have given his own prophetic warning of a different unholy alliance between government and industry, but this time there won’t be a song written about it called “Masters of War,” except maybe “Masters of the Internet” (by Ceramic Dog/Marc Ribot) or “March of the Billionaires” by Cracker (written by Faragher-Hickman- Lowery-Urbano).
The President warned in his farewell address (“the great sorting”):
For too many of us, it has become safer to retreat into our own bubbles, whether in our neighborhoods, or on college campuses, or places of worship, or especially our social media feeds. Surrounded by people who look like us and share the same political outlook and never challenge our assumptions. The rise of naked partisanship and increasing economic and regional stratification, the splitting of our media into a channel for every taste. All this makes this great sorting seem natural, even inevitable. Increasingly, we become so secure in our bubbles that we start only accepting information, whether its true or not, that fits our opinions, instead of basing our opinions on the information that is out there.
As Maya Kosoff reflects on President Obama’s warning in Vanity Fair:
Today, 62 percent of U.S. adults say they get their news from social media, often relying on news stories shared within their own self-selected digital bubbles. Facebook, which has finally accepted some culpability for its role in disseminating unchecked misinformation, is still experiencing growing pains as it evolves, whether willingly or not, from a social network into a media company. But the problem runs deeper. Studies in recent years suggest media fragmentation has increased partisanship—that is, paradoxically, the vast array of news outlets at our disposal today have given way to more explicitly ideological ones and have helped contribute to an increase in partisanship and polarized political opinion. [Emphasis mine]
Facebook’s own internal studies developed in Facebook’s “Core Data Science Team” as well as medical research into Internet addiction confirms what Sean Parker revealed this week–Facebook intentionally profits from addiction. And as Professor Adam Alter teaches us about behavioral addictions, the addiction that Sean Parker tells the world was perfected by Facebook is every bit as addictive as substance addiction:
People have been addicted to substances for thousands of years, but for the past two decades, we’ve also been hooked on technologies, like Instagram, Netflix, Facebook, Fitbit, Twitter, and email—platforms we’ve adopted because we assume they’ll make our lives better. These inventions have profound upsides, but their appeal isn’t an accident. Technology companies and marketers have teams of engineers and researchers devoted to keeping us engaged. They know how to push our buttons, and how to coax us into using their products for hours, days, and weeks on end.
Mark Zuckerberg would have us believe that the true purpose of Facebook is to bring the world closer together. I’m a skeptic, and here’s why.
The good thing about Facebook is that it brings people together in new communities. The bad thing about Facebook is that some of those people previously only met on Death Row. And as Sartre said, hell is other people.
[According to Spotify board member and Facebook president Sean Parker] All the sharing and liking [on Facebook] Iwere used like a drug to get people hooked on checking Facebook non-stop. “How do we consume as much of your time and conscious attention as possible,” said Parker, referring to Facebook’s earliest mission.
“God only knows what it’s doing to our children’s brains,” Parker said.
The candid interview wasn’t the first time a Silicon Valley insider had sounded the alarm on the digital dangers of social media and the internet. However, in light of the mass disinformation dump on Facebook, Instagram, Twitter, YouTube and everywhere online during the election, the real-world consequences have become more clear and frightening.
The “Paradise Papers” reveal that Facebook took approximately $200 million of cash investment from the Kremlin. This huge chunk of cash came from the Kremlin’s VTD Bank was “funneled through DST Global”, an investment vehicle owned by oligarch Yuri Millner (known as “космонавт” loosely translated as “the spaceman”). The papers also show that Gazprom (the controversial Kremin-owned energy company) heavily funded an offshore company that partnered with DST Global in a large investment in Facebook.
A story in the Guardian from 2009 about the transactions provides insight into how the deal was structured for Facebook:
[Digital Sky Technology], run by Russian entrepreneur Yuri Milner [“the Spaceman”), has also indicated that it is willing to spend at least another $100m buying out existing Facebook shareholders as part of a plan that would allow current and former staff to sell some of their shares.
Wonder who those “current and former staff” were who got the juicy opportunity of some Gazprom funded liquidity? We do, too.
And then there’s this:
The deal represents something of a comedown for the Harvard drop-out: when Zuckerberg raised a slightly larger amount from Microsoft in late 2007, Facebook was valued at $15bn.
So this transaction was so important that Facebook’s investors approved a down round?
Zuckerberg stressed that his company did not need DST’s cash to meet his plans of reaching a cashflow positive position sometime next year. Instead, the $200m was a “buffer” against further fluctuations in the market. The deal would also give Facebook access to DST’s experience across its five social networking sites in 13 European countries.
These sites – such as Russia’s Vkontakte.ru – make money from the traditional model of online advertising but have also experimented successfully with micro-payments, allowing users to buy and sell items with the site taking a slice of the revenue, and other subscriber payment mechanisms.
“One of the things that was most interesting to me about DST’s portfolio is they have a large number of social networks and each of them monetises in different ways and all of them effectively,” said Zuckerberg. “The bottom line is each of those (sites) is doing well with a different model.”
In the case of Vkontakte.ru, one of those business models was piracy. As recently as December 2016, Vkontakte still on the U.S. Trade Representative’s Notorious Pirate Market List:
VK.com – Russia. VKontakte, or VK.com, is the leading social networking site in Russia and Russian speaking territories and a hotbed of illegal distribution of movie, television and music files. The site’s content is popular, searching for content and then downloading it is easy, and the site supports streaming playback through embedded video players. The site is available worldwide in multiple languages, including English, and is easily one of the most visited sites in the world, with a global Alexa ranking of 23 and a local ranking of 2 in Russia. Internet service providers (ISPs) in Italy were ordered by the court of Rome to block VK.com in November 2013. VK.com had 92,640,125 unique visitors in August 2014, which was an 8% increase compared to August 2013, according to comScore World Wide data. The site operates on corporate-owned servers in Russia.
And to this day Facebook has no music licenses. It’s unclear at this point whether any of these transactions involved the Foreign Corrupt Practices Act.
So what was in it for the Russians? Reports show that these transactions may all have started in 2012 when Zuckerberg visited Russia at the invitation of then Russian Prime Minister Dmitry Medvedev.
Russian Prime Minister Dmitry Medvedev hosted an historic meeting Monday with Facebook founder Mark Zuckerberg in an effort to entice the tech-savvy entrepreneur to invest in the country’s IT industry, and perhaps lend an endorsement that would resonate with the world community. “You probably know that here in Russia we have not only oil, gas, gold, and diamonds – there is also an IT industry,” a beaming Medvedev told Zuckerberg as photographers gathered in front of the Gorki residence outside Moscow where the meeting took place. [aka Russian hackers]
“Unlike the United States and much of Europe, Russia takes pride in learning about our citizens to maintain order,” Medvedev noted. “And the government makes no pretense in saying we need Facebook to help us ‘improve’ our own social networks for the good of the people….But with the fall of critical communication services such as Pravda and Tass, and with the demolition of the People’s Ministry of Information, our ability to provide for our citizens has nearly been destroyed,” Medvedev lamented.
“We have no idea what they’re up to or how they might be struggling. During the Soviet period, everybody had jobs, homes and food on the tables. We were a culture of love; we were all comrades, brothers, sisters — because the People’s Government knew what all the people were doing and thinking and wanting. We could prevent social problems before they happened. Now, our tranquility has been replaced by an isolated, selfish free-for-all.”
Yep–Dmitry and his friend Vlad knew a good thing when they saw it.