Winter 2018

Who Controls Your Future?

Big tech is permeating our culture, and even our private lives, giving rise to the dangers of a monopolistic grip on society


Illustrated by Greg Mably

It might not dominate the plotline of the latest superhero movie, but the idea of antitrust legislation is really hot right now. In fact, antitrust—the sometimes nebulous legal term describing the attempt to regulate all-too-powerful corporations—is so popular at the moment that it is uniting political communities of profoundly different persuasions. While Steve Bannon and Bernie Sanders represent opposite ends of the ideological spectrum, they nonetheless agree on one thing: winner-take-all Big Tech multinationals like Google, Facebook and Apple have gotten way too big and need to be reined in by antitrust regulators.

Bannon and Sanders are far from alone in their condemnation of Silicon Valley. The past year saw the publication of bestselling books from notable liberals like the music and movie producer Jonathan Taplin and former New Republic editor Franklyn Foer about the need to enforce antitrust against Big Tech; meanwhile, Fox News host Tucker Carlson complained that Google has grown into "the most powerful company in the history of the world" and described this power as "terrifying."

The concerns of Taplin—the producer of 12 feature films, including Mean Streets, The Last Waltz and To Die For—is especially relevant for Hollywood. In his critically acclaimed 2017 book Move Fast and Break Things, Taplin argues that there has been a "massive reallocation" of wealth between "the creators of talent" and "the owners of monopoly platforms" like YouTube or Facebook. Between 2014 and 2015, for example, Taplin calculates that around $50 billion in wealth flowed from traditional creative industries such as movies, publishing or music to these new owners of monopoly platforms.

Taplin is, of course, correct. The five most valuable companies in the world today, collectively worth a staggering $3 trillion, are Amazon, Google, Facebook, Microsoft and Apple. New York Times tech columnist Farhad Manjoo calls these winner-take-all companies "the frightful five." Today, this Big Tech concentration of power dwarfs Big Banks, Big Oil or Big Pharma in its size and significance. It is the central reality of our increasingly digitalized, global, winner-take-all economy.

For Hollywood, the problem is more than just a shift in wealth into Big Tech. In contrast with traditional entertainment businesses like movie studios, dominant online networks such as the Google-owned YouTube barely invest in talent or curate content. Instead, these new digital platforms are simply places people go on the internet to watch mostly free content. In video, for example, YouTube makes its money by selling advertising rather than investing in or nurturing creativity. These platforms are classic rentiers, and their goal is to become so ubiquitous online that they extract economic value by monopolizing every nook and cranny of the digital entertainment ecosystem.

The "frightful five" are what Columbia Law School professor Tim Wu, in his 2016 book, calls "attention merchants." The more attention they can garner, the more economic value they accrue. Thus companies like Google, Amazon and Facebook are all seeking to control every aspect of the online entertainment ecosystem—from its creation and distribution to disruptive new technologies, like virtual reality, which change the very nature of consuming movies. In a sense, Big Tech's "frightful five" bring to mind the all-consuming movie studios of the mid-20th century—with their seemingly uncontrollable desire to control not only the production of movies, but also own their own theaters, and even seek to hold exclusive rights on the distribution of their product.

So it's hardly surprising that antitrust is so hot right now. Support for antitrust has even infiltrated anti-regulatory Silicon Valley, where many smaller internet companies are confronted on a daily basis by the existential threat of Big Tech leviathans. In this digital Darwinian environment, antitrust regulation might, indeed, be the key to their very survival. Thus, as Luther Lowe, the policy chief of Yelp—the online aggregator of user-generated reviews— gleefully told Ben Smith, the editor-in-chief of BuzzFeed, last September: "Antitrust is back, baby."

The truth, however, is that antitrust never really went away. The origins of antitrust legislation lie in the emergence of a winner-take-all, turn-of-the-20th century industrial "trusts" like Standard Oil, the Carnegie Steel Company, Southern Pacific Railroad and the American Tobacco Company. And it is born out of then-revolutionary legislation like the 1890 Sherman Antitrust Act, the 1914 Clayton Act and the 1914 Federal Trade Commission Act—all designed to rein in industrial behemoths like Standard Oil, which controlled 90% of the refined oil business in the U.S.

"There used to be a certain glamour about big things. Anything big, simply because it was big, seemed to be good and great. We are now coming to see that big things may be very bad and mean," future Supreme Court Justice Louis Brandeis argued in 1911 about the radical concentration of economic power in the hands of a few industrial titans.

"We must make our choice," Brandeis added. "We may have democracy, or we may have wealth concentrated in the hands of a few, but we can't have both."

Brandeis was far from alone in his critique of these big things. In a much celebrated 1905 Collier magazine cartoon, Edward Windsor Kemble represented these trusts as a nest of vultures atop the Senate building, with individual birds labeled "coal," "sugar" and "steel," and with Standard Oil at their head. Other contemporary cartoonists presented railway and oil monopolists as octopuses or gigantic pigs.

This populist sentiment against the industrial trusts manifested itself in new legislation like the Sherman Antitrust Act. "Society is now disturbed by forces never felt before," Sen. John Sherman explained about the motivation behind his anti-monopolization measure—which, for example, determined the 1948 Hollywood antitrust action that pitted the U.S. government against Paramount Studios in a historic case about vertical integration.

The truth, however, about the Sherman Act is that it didn't make excessive wealth or even the economic monopolies of companies like Paramount illegal. Instead, the whole point of trust-busting was to level the playing field for large and small entrepreneurs alike. It thus resulted in laws broadly designed to protect consumers against the excessive power of these new corporations.

These laws that underlaid the U.S. case against Microsoft in the late 1990s. Just as Standard Oil controlled 90% of their market in 1900, Microsoft possessed a 97% share of operating systems on all computers in 2000. The winner-take-all dynamics of the late-19th century industrial economy were being replicated in the late-20th century digital economy. And the network effects of this digital economy, with its seemingly inevitable tendency to create single winners like Microsoft in trillion-dollar new markets, were even more pronounced than in the industrial economy.

Gary Reback is an influential Silicon Valley lawyer who championed the government case against Microsoft. "Back then, Microsoft was so powerful that the government was quaking," Reback told DGA Quarterly about the late '90s. And his intent, in challenging Microsoft on antitrust grounds, was to protect innovation against a monopolist that sought to crush every kind of entrepreneurial competitor.

"Start-ups," Reback says, "have a right to present their innovative technology to consumers." And innovation, Reback insists, is what drives both economic growth and social progress.

No, antitrust never went away. Though not quite as abusive as John D. Rockefeller's Standard Oil, Bill Gates' Microsoft was a classic transgressor of antitrust law, intent on conspiring to use its Windows operating system monopoly to crush competitors like the Netscape Web browser and Sun Microsystems' Java technologies. No wonder, then, that the feds' action against Microsoft was the largest antitrust case since the 1911 Standard Oil Co. of New Jersey v. United States, a case so drawn out that it filled 21 printed volumes of court records and resulted in an eight-to-one Supreme Court decision in favor of splitting up Standard Oil into 34 smaller companies.

The Microsoft case didn't result in splitting up Bill Gates' so-called Beast of Redmond. And yet the three-year United States v. Microsoft trial, initiated in 1998, so weakened Microsoft that it enabled the rise of highly innovative and dynamic Web 2.0 companies like Google—the start-up founded in 1998 by two Stanford computer science grads.

Today, Google—the world's second most valuable company after Apple—is the new Microsoft. Google maintains an astonishing stranglehold on the world's internet information economy. In Europe, for example, the Google search engine enjoys 95% of the Spanish and Italian markets, 94% of the French market and 93% of the German market. Of all the world's smartphones, 85% run on Google's Android mobile operating system, while 85% of all online advertising revenue goes to either Google or Facebook. (In the U.S., its share is more than 90%.)

We've seen this before, of course. With the "frightful five," we are back to the future—back to Justice Brandeis' "very bad and mean" big things. Back even to imagining these ubiquitous corporations as octopuses or pigs.

So is history repeating itself?

The challenge today, Reback insists, is building an antitrust case against Google similar to the one against Microsoft 20 years ago. But two things have changed, Reback says. First, Google's information technology is today "far more powerful" than Microsoft's desktop software. And second, the company's technology is dramatically more "intrusive" because its big data business model "is to build profiles of everyone."

Beyond the exploitation of consumers' personal interests, habits and spending patterns, though, is the power of social media to both connect and isolate people simultaneously. Posting, texting and the like, argues New York Times columnist David Brooks, "give you more control over your social interactions" but also lead to "less real engagement with the world." As Brooks points out about critics of Big Tech, Silicon Valley titans are "causing this addiction on purpose, to make money."

But the real problem, Reback asserts, is that American politics have changed. Big Tech companies like Google have learned from the Microsoft case and are now investing massive amounts of money—more than $15 million in 2016 alone—in lobbying efforts in Washington, D.C. And given the loosening of lobbying finance laws, it's been really difficult for Big Tech critics to get the government's attention.

In spite, then, of all the contemporary antitrust noise being made by Steve Bannon and Bernie Sanders, Reback believes that today's political realities conspire against a major antitrust assault on Silicon Valley. The real antitrust action, he says, is taking place in Europe with the EU's multipronged investigation of Google, Amazon and Apple.

If Reback was the driver of the U.S. government's case against Microsoft, then his European equivalent is Margrethe Vestager, the former Danish deputy prime minister who is now the EU commissioner for competition. Vestager's approach isn't dissimilar to that embodied in the Sherman Act and the other early 20th century American antitrust legislation designed to protect both consumers and start-up entrepreneurs from the "conspiracies" and "combinations" of large companies.

"If a company is dominant, that's fine," Vestager told this reporter. "But if that dominance is abused, then we have an issue. The good society allows each citizen to pursue his or her own dream."

Vestager's investigation of Silicon Valley companies in Europe is thus based on their alleged abuses of their dominant market positions. For example, her investigation of Google focuses on its dominance of the online search and mobile operating system to try to control the entire online ecosystem. It's the essence of antitrust philosophy.

Google is killing the dream of smaller entrepreneurs by using its monopolistic position in one market to control other markets.

The EU investigation of Google is three-pronged:

The first probe focuses on Google's alleged abuse of its search engine dominance by giving preferential treatment to its own Google Shopping price comparison engine. In June 2017, after a seven-year investigation, Vestager's office fined Google a recordbreaking 2.42 billion euros for its abuse of Google Shopping.

The second probe examines the way Google is using its Android mobile-phone software—the operating system used by 86% of smartphone users—to strong-arm device manufacturers and telecommunications firms to install mobile Google as the default search engine on all smartphones.

And the third investigates Google's supposed abuse of its dominant AdWords service in order to impose restrictions on how third-party websites display the search ads of Google rivals like Yelp.

One hopes that Vestager—who is also investigating Facebook and Amazon—will rethink antitrust law for the digital age. As The Economist magazine argues, antitrust authorities like Vestager's office "need to move from the industrial era into the 21st century" in order to reboot antitrust law for the information age.

Rather than just size, The Economist suggests, regulators should now take into account "the extent of firms' data assets when assessing the impact of deals." In this context, Facebook's $19 billion acquisition of WhatsApp in 2014 would, according to The Economist, raise regulatory "red flags" because of the massive amount of data involved in the deal.

One hopes that a tech-savvy regulator like Margrethe Vestager will also begin to think differently about Amazon in the context of 21st century antitrust law. As Amazon—with its rapidly growing e-commerce and Web Services businesses—increasingly becomes a utility providing tools that enable digital business, so it will come under the scrutiny of antitrust regulators. "If Amazon does become a utility for commerce," the Economist predicts, "the calls will grow for it to be a regulated one." And, as Amazon's sales and profits grow, regulators will, no doubt, become increasingly concerned with its unprecedented economic power.

So what about Hollywood? We know that the "frightful five," in their relentless appetite to control our attention, represent an existential threat to studios dependent on a level digital playing field. But how specifically could antitrust regulators protect today's movie business so that creatives can compete against YouTube or Facebook? How can they ensure that Taplin's annual $50 billion flowing from the entertainment industries to tech does not rise to $100 billion or $200 billion?

How can antitrust law be leveraged to staunch Taplin's "massive reallocation" of wealth?

As, for example, with November's announcement by the Justice Department Antitrust Division that it planned to block the AT&T acquisition of Time Warner, antitrust continues to matter for the entertainment industry. Rather than telecommunications firms like AT&T or traditional media companies like Time Warner, however, U.S. regulators should be examining Big Tech's attempt to stifle competition in the entertainment industry. The "frightful five" are the real danger to Hollywood. Not technologically archaic companies like AT&T or Verizon.

As the Financial Times warns in reference to both Facebook's acquisition of Instagram and Amazon's of Whole Foods, Big Tech companies are "using acquisitions to head off competition and leverage their dominance in new markets." Acquisition is indeed replacing the IPO in what the Financial Times describes as the "primary endgame for startups." Given that this is bad for both consumers and innovators, the Financial Times concludes, "It is time for antitrust regulators to start blocking deals."

All acquisitions by Silicon Valley behemoths in the entertainment space should therefore, be critically evaluated. Given Google's increasing hegemony of the information economy, for example, it is extremely unlikely that its $1.65 billion acquisition of YouTube in 2006 would now be accepted by regulators. As revolutionary new technologies—like virtual reality, augmented reality and artificial intelligence—threaten to disrupt the traditional entertainment industry, even acquisitions of seemingly innocuous tech startups could have huge ramifications for Hollywood.

That said, however, Hollywood should also be cautious about jumping too enthusiastically on the Bannon-Sanders anti-Big Tech bandwagon.

Antitrust might, indeed, be back as an issue in our increasingly divisive and dysfunctional political conversation. But let's make sure that it remains a tool of responsible regulators like Margrethe Vestager rather than rabble-rousing populist politicians. Justice Brandeis was wrong to imply that big things are somehow essentially "very bad and mean." They can be, of course. But, in the context of antitrust regulation, big things become truly bad only when they illegally take advantage of their bigness to crush the innovation of small things.

The Industry / Technology

Articles on creative issues and new technology in features, television and new media.

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