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AustraliaInquiry into digital platforms:
Preliminary report

ACCC

Preliminary Report

Cover of prelim reportTo Government: 3 December 2018. Published: 10 December 2018

A media conference was held at 12:30 on 10 December and livestreamed here and here.

Preliminary recommendations

The Preliminary report contains 11 preliminary recommendations (reproduced from 'Preliminary recommendations' section of Preliminary Report commending page 9):

Measures to address Google and Facebook’s market power

The value of digital platforms to users and the lack of close alternatives has afforded both Google and Facebook substantial market power.

The ACCC considers that Google has substantial market power in supplying general search services (with a current market share of approximately 95 per cent) and appears likely to retain its dominant share at least in the short to medium term. This substantial market power has been extended to the supply of online search advertising and the supply of news referral services to news media businesses.

The ACCC also considers that Facebook has substantial market power in supplying social media services in Australia via its Facebook and Instagram platforms. In addition, the ACCC considers that Facebook also has substantial market power in display advertising and the supply of news referral services to news media businesses.

While dynamic competition may place some degree of competitive constraint on Google and Facebook, the ACCC considers that this constraint is likely to be weak due to the size of the barriers to entry and expansion (including the value of accumulating data on users, which includes, but is not limited to, data on their use of the platform). The ACCC is also of the preliminary view that Google’s position as the current default search engine on the major browsers underpins its market power.

The ACCC has reached the preliminary view that strategic acquisitions by both Google and Facebook have contributed to the market power they currently hold.

The aim of the preliminary recommendations below is to remove some of the potential impediments to the growth and independence of potential competitors that may challenge that market power by:

  • strengthening merger laws and processes
  • promoting consumer choice by addressing the barriers caused by the pre-installation or establishment of default search engines or internet browsers.

 

Preliminary Recommendation 1 - merger law

The ACCC considers that section 50(3) of the Competition and Consumer Act 2010, which identifies the factors to be taken into account in assessing the likely competitive effects of a merger or acquisition, could be amended to make it clearer that the following are relevant factors:

(a) the likelihood that an acquisition would result in the removal of a potential competitor, and

(b) the amount and nature of data which the acquirer would likely have access to as a result of the acquisition

 

Preliminary Recommendation 2 - prior notice of acquisitions

The ACCC is also intending to ask large digital platforms (such as Facebook and Google) to provide advance notice of the acquisition of any business with activities in Australia and to provide sufficient time to enable a thorough review of the likely competitive effects of the proposed acquisition.

If such a commitment were not forthcoming from the major digital platforms other options could be considered to address this issue.

 

Preliminary Recommendation 3 - choice of browser and search engine

The ACCC is considering recommending that:

(a) suppliers of operating systems for mobile devices, computers and tablets be required to provide consumers with options for internet browsers (rather than providing a default browser), and

(b) suppliers of internet browsers be required to provide consumers with options for search engines (rather than providing a default search engine).

The ACCC considers that where options for internet browsers and search engines are presented, no option should be pre-selected.

 

Measures to monitor digital platforms’ activities and the potential consequences of those activities for news media organisations and advertisers

A recurring theme in this Inquiry is the market power of Google and Facebook and the critical role these platforms play in enabling businesses to reach consumers, including the ability of news media businesses to reach their audience. The algorithms operated by each of Google and Facebook, as well as other policies, determine which content is surfaced and displayed to consumers in news feed and search results. However, the operation of these algorithms and other policies determining the surfacing of content remain opaque.

In the case of the advertising markets, this lack of transparency compounds concerns that Google or Facebook may be favouring either their own related businesses or those businesses with which they have a particular commercial relationship. The ACCC considers that given Google’s and Facebook’s market power, as well as their presence across multiple levels of the advertising supply chain, each has the ability and incentive to favour its own business interests above those of advertisers or potential competitors.

In the case of the media markets, the lack of transparency causes concerns that the algorithms and policies may be operating in a way that affect competition in media markets, and/or the production of news and journalistic content.

Given the significance of these issues, the preliminary recommendation below calls for a regulatory authority to be tasked with monitoring, investigating and reporting on the criteria, commercial arrangements or other factors used by relevant digital platforms (identified according to objective criteria reflective of influence and size) to impact:

(a) the ranking and display of advertisements (or other content when displayed alongside advertisements) with the aim of identifying whether the platforms may be discriminating in favour of their own related businesses or a business with which they have a specific commercial relationship as well as the potential competitive effect

(b) the ranking and display of news and journalistic content with the aim of identifying the effects of algorithms or other policies on the production of news and journalistic content or competition in media markets.

The regulatory authority could also refer matters to other government agencies for investigation where relevant.

The ACCC considers that such a regulatory approach would provide assurances to both businesses and consumers that algorithms are not being used to favour certain businesses or, in the case of news stories, are operating in such a way as to cause significant detriment to the production of news and journalistic content or media markets. The ACCC also considers that this regulatory proposal would ensure Governments stay ahead of the game and are able to identify potentially significant consumer detriment.

The ACCC recognises the importance of preventing ‘gaming’ of algorithms by advertisers and news media businesses. Accordingly, while the ACCC is proposing to recommend that the regulatory authority report publicly on the performance and impact of key algorithms and policies, the ACCC is not proposing that the underlying information provided by the relevant digital platforms to the regulatory authority be made publicly available.

 

Preliminary Recommendation 4 - advertising and related business oversight

A regulatory authority should be tasked to monitor, investigate and report on whether digital platforms, which are vertically integrated and meet the relevant threshold, are engaging in discriminatory conduct (including, but not limited to, conduct which may be anti-competitive) by favouring their own business interests above those of advertisers or potentially competing businesses.

These functions could apply to digital platforms which generate more than AU$100 million per annum from digital advertising in Australia.

The regulatory authority could consider the digital platform’s criteria, commercial arrangements and other circumstances which impact competition between advertisers, suppliers of advertising services and digital platforms. This may include:

  • the ranking and display of advertisements and also organic content (when advertisements are displayed alongside the organic content)
  • whether the acquisition of any other product or service from the same digital platform (or a related business) affects the display or ranking of advertisements or content
  • the impact of any related business of a digital platform (e.g. how referral links appear in the search engine results page or social media news feed).

The relevant digital platforms would need to be obliged to provide information and documents to the regulatory authority on a regular basis, and the regulatory authority would need appropriate investigative powers. The regulatory authority could have the power to investigate complaints, initiate its own investigations, make referrals to other government agencies and to publish reports and make recommendations.

 

Preliminary Recommendation 5 - news and digital platform regulatory oversight

The ACCC considers that the regulatory authority could also monitor, investigate and report on the ranking of news and journalistic content by digital platforms and the provision of referral services to news media businesses.

These functions could apply to digital platforms which generate more than AU$100 million per annum in revenue in Australia and which also disseminate news and journalistic content, including by providing hyperlinks to news and journalistic content, or snippets of such content.

In performing its functions, the regulatory authority could consider the digital platform’s criteria, commercial arrangements and other factors that affect competition in media markets or the production of news and journalistic content in Australia. This may include:

(a) the rankings of news and journalistic content presented to consumers

(b) the referrals of consumers to media businesses.

The relevant digital platforms would need to be obliged to provide information and documents to the regulatory authority on a regular basis, and the regulatory authority would need appropriate investigative powers.

The regulatory authority could have the power to investigate complaints, initiate its own investigations, make referrals to other government agencies and to publish reports and make recommendations.

 

Measures to address regulatory imbalance

Publishers, broadcasters and other media businesses, and digital platforms operate under different regulatory frameworks. The purpose of the preliminary recommendation below is to conduct a review of these frameworks to identify unnecessary regulation and to ensure, where practicable, regulations are applied effectively and consistently across business types, both online and offline.

 

Preliminary Recommendation 6 - review of media regulatory frameworks

The ACCC proposes to recommend the Government conduct a separate, independent review to design a regulatory framework that is able to effectively and consistently regulate the conduct of all entities which perform comparable functions in the production and delivery of content in Australia, including news and journalistic content, whether they are publishers, broadcasters, other media businesses, or digital platforms.

Such a review should focus on content production and delivery and consider the following matters: ƒ

Underlying principles: creating clear guiding principles for an overarching platform-neutral regulatory regime that can apply effectively across media formats and platforms, with common rules applying to online and offline activities, and which is adaptable to new services, platforms and technologies. ƒ

Extent of regulation: setting objective factors to determine whether regulations should be imposed on certain enterprises and determining appropriate roles for self-regulation and co-regulation. ƒ

Content rules: creating a nationally-uniform classification scheme to classify or restrict access to content regardless of the format of delivery. ƒ

Enforcement: implementing appropriate enforcement mechanisms and meaningful sanctions, including whether it is appropriate to establish or appoint a single agency responsible for monitoring, enforcing, complaints-handling, and administering the unified regulatory framework.

The implementation of a unified, platform-neutral framework will affect and simplify existing regulations across the different media, communications and telecommunications industries.

The ACCC would intend to contribute its knowledge and expertise to such a review.

 

Measure to assist a more effective removal of copyright infringing material

Rights holders in Australia, including media businesses, face particular difficulties requesting takedown of copyright-infringing content on digital platforms in a timely way. This is, in part, due to the uncertainties in establishing authorisation liability (that is, liability for ‘authorising’ a copyrightinfringing act) in relation to digital platforms. The purpose of the proposed recommendation below is to encourage the development of timely and effective procedures for the take-down of copyrightinfringing content of Australian rights holders on digital platforms and increase the enforceability of copyright protections online.

 

Preliminary Recommendation 7 - take-down standard

The ACCC proposes to recommend that the ACMA determine a Mandatory Standard regarding digital platforms’ take-down procedures for copyright infringing content to enable effective and timely take-down of copyright-infringing content. This may take the form of legislative amendments to the Telecommunications Act so that the ACMA has the power to set a mandatory industry standard applicable to digital platforms under Part 6 of the Telecommunications Act.

 

Measures to better inform consumers when dealing with digital platforms and to improve their bargaining power

A key preliminary finding of the Inquiry is that consumers are unable to make informed choices over the amount of data collected by the digital platforms, and how this data is used. This reflects the bargaining power held by the digital platforms vis-à-vis consumers, and the information asymmetries that exist between digital platforms and consumers.

In Australia, the collection, use and disclosure of personal information is primarily regulated under privacy laws, though the increasing volume and importance of data in the digital economy means that the collection, use and disclosure of user data increasingly impacts on competition, innovation, and consumer protection issues in Australian markets. The ACCC considers that the current regulatory framework, including privacy laws, does not effectively deter certain data practices that exploit the information asymmetries and the bargaining power imbalances that exist between digital platforms and consumers.

The preliminary recommendations below aim to better inform consumers when dealing with digital platforms and to improve their bargaining power

 

Preliminary Recommendation 8 - use and collection of personal information

The ACCC proposes to recommend the following amendments to the Privacy Act to better enable consumers to make informed decisions in relation to, and have greater control over, privacy and the collection of personal information. In particular, recommendations (a) and (b) are aimed at reducing information asymmetries to improve the transparency of digital platforms’ data practices. Recommendations (c) and (d) seek to provide consumers with stronger mandated controls over the collection, use, disclosure and erasure of their personal information to lessen the bargaining power imbalance between consumers and digital platforms. Recommendations (e) to (g) are measures to increase the deterrence effect of the Privacy Act.

(a) Strengthen notification requirements: Introduce an express requirement that the collection of consumers’ personal information directly or by a third party is accompanied by a notification of this collection that is concise, transparent, intelligible and easily accessible, written in clear and plain language (particularly if addressed to a child), and provided free of charge.

(b) Introduce an independent third-party certification scheme: Require certain businesses, which meet identified objective thresholds regarding the collection of Australian consumers’ personal information, to undergo external audits to monitor and publicly demonstrate compliance with these privacy regulations, through the use of a privacy seal or mark. The parties carrying out such audits would first be certified by the OAIC.

(c) Strengthen consent requirements: Amend the definition of consent to require express, opt-in consent and incorporate requirements into the Australian Privacy Principles that consent must be adequately informed (including about the consequences of providing consent), voluntarily given, current and specific. This means that settings that enable data collection must be pre-selected to ‘off’. The consent must also be given by an individual or an individual’s guardian who has the capacity to understand and communicate their consent.

(d) Enable the erasure of personal information: Enable consumers to require erasure of their personal information where they have withdrawn their consent and the personal information is no longer necessary to provide the consumer with a service.

(e) Increase the penalties for breach: Increase penalties for breaches of the Privacy Act to at least mirror the increased penalties for breaches of the Australian Consumer Law.

(f) Introduce direct rights of action for individuals: Give individual consumers a direct right to bring actions for breach of their privacy under the Privacy Act.

(g) Expand resourcing for the OAIC to support further enforcement activities: Provide increased resources to equip the OAIC to deal with increasing volume, significance, and complexity of privacy-related complaints.

 

Preliminary Recommendation 9 - OAIC Code of Practice for digital platforms

The ACCC proposes to recommend that the OAIC engage with key digital platforms operating in Australia to develop an enforceable code of practice under Part IIIB of the Privacy Act to provide Australians with greater transparency and control over how their personal information is collected, used and disclosed by digital platforms. A code would allow for proactive and targeted regulation of digital platforms’ data collection practices under the existing provisions of the Privacy Act.

The code of practice would likely contain specific obligations on how digital platforms must inform consumers and how to obtain consumers’ informed consent, as well as appropriate consumer controls over digital platforms’ data practices. The ACCC should also be involved in the process for developing this code in its role as the competition and consumer regulator.

 

Preliminary Recommendation 10 - serious invasions of privacy

The ACCC proposes to recommend that the Government adopt the Australian Law Reform Commission’s recommendation to introduce a statutory cause of action for serious invasions of privacy to increase the accountability of businesses for their data practices and give consumers greater control over their personal information.

 

Preliminary Recommendation 11 - unfair contract terms

The ACCC proposes to recommend that unfair contract terms should be illegal (not just voidable) under the Australian Consumer Law, and that civil pecuniary penalties should apply to their use, to more effectively deter digital platforms, as well as other businesses, from leveraging their bargaining power over consumers by using unfair contract terms in their terms of use or privacy policies.

 

ACCC media release on preliminary report

The ACCC media release accompanying the preliminary report is reproduced below under Creative Commons CC BY 3.0 AU licence (c) Commonwealth of Australia.

With Google and Facebook transforming the way consumers communicate, access news and view advertising online, it is critical that governments and regulators consider the potential issues created by the concentration of market power and the broader impacts of digital platforms.

The preliminary report, published today, contains 11 preliminary recommendations and eight areas for further analysis as the inquiry continues.

The ACCC has reached the view that Google has substantial market power in online search, search advertising and news referral and Facebook has substantial market power in markets for social media, display advertising and online news referral.

The report outlines the ACCC's concerns regarding the market power held by these key platforms, including their impact on Australian businesses and, in particular, the ability of media businesses to monetise their content and the extent to which consumers’ data is collected and used to enable targeted advertising.

“Digital platforms have significantly transformed our lives, the way we communicate with each other and access news and information. We appreciate that many of these changes have been positive for consumers in relation to the way they access news and information and how they interact with each other and with businesses,” ACCC Chair Rod Sims said.

“But digital platforms are also unavoidable business partners for many Australian businesses. Google and Facebook perform a critical role in enabling businesses, including online news media businesses, to reach consumers. However, the operation of these platforms’ key algorithms determining the order in which content appears is not at all clear.”

Google and Facebook are now the dominant gateways between news media businesses and audiences and this can reduce the brand value and recognition of media businesses. In addition traditional media businesses and in particular, traditional print media businesses, have lost advertising revenue to digital platforms. This has threatened the viability of business models of the print media and their ability to monetise journalism.

“News and journalism perform a critical role in society. The downturn in advertising revenue has led to a cut in the number of journalists over the past decade. This has implications across society because of the important role the media plays in exposing corruption and holding governments, companies, powerful individuals and institutions to account,” Mr Sims said.

The inquiry has also considered important questions about the range and reliability of news available via Google and Facebook. The ACCC’s preliminary view is that consumers face a potential risk of filter bubbles, or echo chambers, and less reliable news on digital platforms. While the evidence of filter bubbles arising on digital platforms in Australia is not yet strong, the importance of this issue means it requires close scrutiny.

The ACCC is further concerned with the large amount and variety of data which digital platforms such as Google and Facebook collect on Australian consumers, which go beyond the data which users actively provide when using the digital platform.

Research commissioned as part of the inquiry indicates consumers are concerned about the extent and range of information collected by digital platforms. The ACCC is in particular concerned about the length, complexity and ambiguity of online terms of service and privacy policies, including click-wrap agreements with take-it-or-leave-it terms.

Without adequate information and with limited choice, consumers are unable to make informed decisions, which can both harm consumers and impede competition.

The preliminary recommendations and the areas for further analysis identified in the preliminary report have been put forward as potential options to address the actual and potential negative impacts of digital platforms and contribute to the debate about the appropriate level of government oversight.

The report found that key digital platforms, Google and Facebook, had both the ability and incentive to favour related businesses or those businesses with which they may have an existing commercial relationship. The platforms’ algorithms rank and display advertising and news content in a way that lacks transparency to advertisers and news organisations.

“Organisations like Google and Facebook are more than mere distributors or pure intermediaries in the supply of news in Australia; they increasingly perform similar functions as media businesses like selecting, curating and ranking content. Yet, digital platforms face less regulation than many media businesses,” Mr Sims said.

“The ACCC considers that the strong market position of digital platforms like Google and Facebook justifies a greater level of regulatory oversight,” Mr Sims said.

“Australian law does not prohibit a business from possessing significant market power or using its efficiencies or skills to ‘out compete’ its rivals. But when their dominant position is at risk of creating competitive or consumer harm, governments should stay ahead of the game and act to protect consumers and businesses through regulation.”

The report makes preliminary recommendations aiming to address Google and Facebook’s market power and promote increased consumer choice, including a proposal that would prevent Google’s internet browser (Chrome) being installed as a default browser on mobile devices, computers and tables and Google’s search engine being installed as a default search engine on internet browsers.

The ACCC also proposes that a new or existing regulatory authority be given the task of investigating, monitoring and reporting on how large digital platforms rank and display advertisements and news content. Other preliminary recommendations suggest ways to strengthen merger laws.

Additional preliminary recommendations deal with copyright, and take-down orders, and the review of existing, disparate media regulations.

The ACCC also notes that consumers will be better off if they can make informed and genuine choices as to how digital platforms collect and use their data, and proposes changes to the Privacy Act to enable consumers to make informed decisions.

The ACCC is further considering a recommendation for a specific code of practice for digital platforms’ data collection to better inform consumers and improve their bargaining power.

“The inquiry has also uncovered some concerns that certain digital platforms have breached competition or consumer laws, and the ACCC is currently investigating five such allegations to determine if enforcement action is warranted,” Mr Sims said.

The ACCC is seeking feedback on its preliminary recommendations, and the eight proposed areas for further analysis and assessment.

These eight areas for further analysis include the proposed ‘badging’ by digital platforms of media content, produced by an accountable media business, as well as options to fund the production of news and journalism, such as tax deductions or subsidies, a digital platforms ombudsman to investigate complaints and provide a timely and cost effective means to resolve disputes, and a proposal for digital platforms to allow consumers to opt out of targeted advertising.

Submissions should be made by email to platforminquiry@accc.gov.au(link is external) by 15 February 2019.

Further stakeholder forums may be held in early 2019.

Further information is available at Digital platforms inquiry

A media conference will be held at the Westin Sydney at 12.30pm.

It will be live streamed at www.accc.gov.au and https://goliveaustralia.com.au/ACCC