What were the CMA’s key findings in its final report on online platforms and digital advertising?
What can be learned from the European Commission’s new guidelines on the Audiovisual Media Services Directive (AVMSD)?The key takeaway
The CMA outlined that key players have market powers in search, social media and digital advertising, such that rivals can no longer complete on equal terms. To tackle this, the CMA has laid out a blueprint for pro-competition in order to tackle this market power and increase competition, whilst still protecting consumers’ data.
UK expenditure on digital advertising was around £14bn in 2019, and the CMA estimates that around 80% of all expenditure on search and display advertising in the UK in 2019 went to Google or Facebook. The CMA therefore conducted a study which assessed whether problems such as market power, lack of transparency and conflicts of interest mean that competition in search, social media and digital advertising is working as well as it should.
The CMA released its final report on its Online Platforms and Digital Advertising whereby it called on the government to bring forward legislation to introduce a new regulatory regime aiming to tackle Google and Facebook’s market power in search, social media and digital advertising markets. The CMA concluded that Google and Facebook have developed “such unassailable market positions that rivals can no longer compete on equal terms”, and laid down a blueprint for a pro-competition regime to tackle market power and increase competition. The report addresses both consumer issues in the context of the use and control of consumers’ data, as well as competition issues – principally whether platforms have market power in consumer facing markets and whether competition in digital advertising is distorted by a lack of transparency, conflicts of interest and market power.The findings
Whilst digital advertising brings valuable services and content to consumers, including internet search and social media, the CMA finds that a lack of competition and limited choice in these markets can cause harm. The final report identified the following:
- Impact on prices
Consumers are paying higher prices for goods and services reflecting that whilst search and social media appear to be free to those who use them, the cost of advertising revenues is included in the cost of goods and services. The final report found that together Google and Facebook receive over 80% of the digital advertising expenditure in the UK. If the £14bn spend on digital advertising in the UK is higher than it would otherwise be in a competitive market, consumers may be paying higher prices for products in industries that rely heavily on online advertising, such as hotels, flights and insurance. The Final Report found that Google’s prices are around 30% – 40% higher than Bing’s when comparing like-for-like search terms.
- Consumers are receiving inadequate compensation
Consumers are receiving inadequate compensation for their attention and the use of their personal data and being less able to control how their personal data is used eg consumers may effectively be faced with a “take it or leave it” offer when it comes to signing up to a platform’s terms and conditions.
- Effect on the news industry
The CMA found that newspapers are reliant on Google and Facebook for almost 40% of all visits to their sites. This potentially squeezes their share of digital advertising revenues, undermining their ability to produce valuable content. This is potentially leading to wider social, political and cultural harm through the decline of authoritative and reliable news media and the potential for fake news.
- Market specific barriers to innovation and new competition
The CMA identified that Google and Facebook have access to large amounts of user data, which allow them to improve their services and target advertisements at individual users. It was concerned that they may use GDPR as justification for restricting access to valuable data for third parties whilst retaining it for use within their own ecosystems. It also found that both companies use default settings to encourage consumers to use their services and operate a ‘take-it-or-leave it’ model, where consumers are unable to control their data.The CMA is concerned that almost all social media platforms make it a pre-condition of use that consumers must accept personalised advertising. It concluded that all these factors present potential barriers to new competition.
The proposed solution
The CMA notes that its existing powers are not sufficient to address the issues identified in its report, therefore a new regulatory regime is required. The CMA has called on the government to establish a pro-competition regulatory regime for online platforms by creating a Digital Markets Unit (DMU), whereby it will have powers to deal with concerns swiftly and before irrevocable harm to competition can occur.
The CMA has proposed that the DMU should have the ability to:
- enforce a code of conduct to ensure that platforms with a position of market power do not engage in exploitative or exclusionary practices, or practices likely to reduce trust and transparency, and to impose fines if necessary
- impose a range of pro-competitive interventions, including:
- order Google to open up its click and query data to rival search engines to allow them to improve their algorithms so they can properly compete. This would be designed in a way that does not involve the transfer of personal data to avoid privacy concerns
- order Facebook to increase its interoperability with competing social media platforms. Platforms would need to secure consumer consent for the use of any of their data
- restrict Google’s ability to secure its place as the default search engine on mobile devices and browsers in order to introduce more choice for users
- order Facebook to give consumers a choice over whether to receive personalised advertising
- introduce a “fairness-by-design” duty on the platforms to ensure that they are making it as easy as possible for consumers to make choices
- order the separation of platforms where necessary to ensure healthy competition.
Working with the ICO to examine the impact of privacy regulations, the CMA is concerned that big platforms could be interpreting the GDPR in a way which favours their business models, instead of in a way which gives users control of their data. The CMA advocates a competitive-neutral approach to implementing privacy regulation to ensure that big platforms are not exploiting privacy regulations to their advantage, and will be working further with the ICO and Ofcom to address these issues through the Digital Regulation Cooperation Forum.Why is this important?
The report illustrates the concerns relating to choice and giving consumers the information they need to make an informed choice between a paid-for subscription service and one that requires assigning personal data in lieu of payment. The CMA has proposed that the government takes forward legislative proposals and reforms, and proposes to assist in developing these through the DMU. This demonstrates the CMA’s evolving thinking relating to digital issues. The CMA recommends that the DMU has the power to introduce greater consumer control and separation of platforms where necessary, in order to be pro-competitive and protect consumers data.Any practical tips?
Any new regime will need to balance addressing potential competition harms identified without overpowering services that consumers typically regard as valuable and useful, and stifling the disruptive innovation that made Google and Facebook the market leaders they now are. Keep an eye out for further guidance and commentary provided by the CMA and the ICO on online market practices.