Summary: On 26 July 2019, the ACCC released its final report for the Digital Platforms Inquiry.
Published: 9 January 2020
Transcript
Rod Sims: Excellent. Look, thank you everybody for coming along today. Today obviously the government's released our report into the digital platforms. Our inquiry has looked at the digital platforms in relation to competition matters, consumer matters, advertising and the media. There's vital linkages between those four topics and this whole area of digital platforms requires a holistic approach. In this sense our study has been unique in the world. It's the breadth of coverage that differentiates the work we've done compared to other reports that have occurred around the world. Now the ACCC is both the competition and consumer regulator, but the terms of reference that we have required us to look at both media and advertising issues. That explains why we've taken the holistic approach that we have.
Now the digital platforms are gateways for businesses to reach consumers and for consumers to access news and information. The issues associated with digital platforms therefore span the entire economy. We of course recognise the large innovation and other benefits that societies had from the growth of digital platforms. However these digital platforms have been too slow to recognise, let alone address, the costs associated with the operation of their platforms. Indeed the inquiry has uncovered some serious issues related to market power of the digital platforms that affects Australian businesses, the media, advertisers and particularly consumers.
We've made 23 recommendations stemming from our inquiry for government to consider that will help level the playing field for businesses and ensure Australian consumers are treated fairly and that their privacy is respected. We're particularly concerned that consumers do not realise how much of their data is collected and what is done with it. And when they do realise, the evidence we have is that largely they think the behaviour of the digital platforms in this regard is inappropriate. There's both a need to address current issues that we've identified and to establish a flow of information that can allow governments and regulators to stay ahead of these issues as they unfold. This is really, the recommendations we have set out here, are the beginning of a journey not the end of the journey. We've got recommendations to address current issues, which we think they do, and those recommendations will also give a continuing stream of information that will allow, as I say, governments and regulators to stay ahead of these issues. We think that there needs to be a lot more transparency and oversight of Google and Facebook and their operations and practices and we have been working with domestic regulators, our counterparts overseas and will continue to do that to ensure that transparency and oversight is actually in place and happening to the benefit of society. I just want to address seven particular harms that we think our report has exposed.
Firstly the large platforms have and do exercise substantial market power. The business model of Facebook and Google is to monetise your attention and your data. That's how they make their money. That's why they exist. Google and Facebook are both essential gateways for consumers and businesses so each has the ability and incentive to disadvantage current and future rivals in relation to their platforms. The market power and breadth of their activities enables Google and Facebook to obtain more consumer data from apps and from other websites and so in that way the market power is self-reinforcing. For example the collection of data by Facebook and Google from consumers’ use of independent apps. The apps, for example on the Google Play Store, 88% of them send data to Google and 43% of them send data to Facebook. Of course you've got evidence from overseas about the misuse of market power. Google Shopping is one example. Plus you've got a lot of continuing investigations overseas but also we've had numerous complaints from businesses in Australia in a wide range of sectors, from travel, home sales, job search, and indeed from Australian app developers.
The second harm I want to focus on is that consumers do not understand the amount of data collected and the use to which it's put. This issue is only going to get worse. It's only going to grow. The privacy policies of Facebook and Google give the illusion of data control and user privacy but in reality those privacy policies are really permissions to use your data. Their privacy policies are long, complex, vague and difficult to navigate. They also use bundled or take-it-or-leave-it terms that limit consumer choice and control so if you want to use the platforms you really have to agree to the data collection practices that accompany that. You've got very little choice to opt out of that. Consumers effectively pay for services with both attention and your data and your privacy, but competition on these terms is made very difficult because there's no transparency around these privacy arrangements so it's hard to get competition on this key price variable of access to your data and access to privacy.
The third issue, which is a really important one, they're all important, is consumer trust in data. This is vital if we want to get the best use of data for society. But at the moment consumer trust in data, we believe, is being undermined. We've had recently the five billion US dollar penalty from our equivalent in the United States, the Federal Trade Commission, that has, that raises, significant concerns about Facebook's data practices. You've got extensive data gathering, you've got targeting, these things can affect elections, they can affect filter bubbles, they can perpetuate fake news. Indeed what consumers, Australian consumers, see and read is largely in the hands of two very profit focused commercial entities that largely say, ‘Trust us’ but they don't take sufficient responsibility for the platforms they created and the algorithms they control from which they make great wealth. And I think as consumers become more and more aware of these issues their trust in online activity, their trust in data, might have them either withdraw from these systems, withdraw from engaging in a data economy, or try to input incorrect information – both of which will lessen the advantages to society from what data can bring. So we need trust in data if we're going to get the benefits that we all should be getting.
The fourth point is that while targeted advertisements can benefit advertisers and consumers, the use of extensive, indeed unparalleled data, and advanced analytics in advertising can exploit behavioural biases and consumer vulnerabilities, which we all have on a scale which we've never seen before. The digital platforms can target ads to maximise buying opportunities. They can catch you in a low mood. They can discriminate and they can cause exclusion and manipulation. And of course that's particularly important in a political context, as we've seen. The digital platforms can also design their user interfaces to manipulate consumer behaviour, which they're in a unique position to do given they’re the gateways for so much consumer information. A high-profile example of social media user data used in psychological profiling is the Cambridge Analytica data breach in March 2018. Access to data profiles led to Cambridge Analytica building models that enabled it to profile individual US voters and target them with personalised political ads with information that may or may not have been correct. From an economic point of view, price discrimination can reduce the surplus that consumers obtain from purchasing a good. For example, if you buy a particular good and it's on sale for ten dollars and you would have actually been prepared to pay a lot more for it, the data gathering of Google and Facebook can allow advertisers to determine that and extract more value from you than currently is the case now.
The fifth concern is that the rise of digital platforms has caused significant harm to news and journalism and of course to consumers who read news and journalism. Public interest journalism is essential for a well-functioning society. This type of journalism however is disadvantaged and suffering as news content creators increasingly cannot monetise their content. For example, media competes on an uneven playing field, for example how and when to advertise. That's regulated amongst media companies. It's not regulated on digital platforms and we have that very clear example of the blackout around elections in traditional media and so advertising goes onto digital platforms where there is no blackout. You've got costly investigative journalism. Journalism that can take some months to put together is often not rewarded as the algorithms don't prioritise original material. The use of algorithms also encourages clickbait where you've got sensational stories or headlines designed to capture people's attention, which is a development occurring on the basis we haven't seen before. And also algorithms work in ways that disadvantage news sources that sit behind paywalls. And if you can't make money out of advertising you need to make money out of subscriptions.
The sixth point is that we have a very opaque, very unclear digital advertising market and that creates many problems. The digital advertising market is one the ACCC has come to completely understand, how the demand and buy-side and sell-side of digital ad tech works. It's extremely complicated it's taken a lot of effort to get to the bottom of it, but what's clear is that we really don't know what money goes to the advertisers versus to a range of intermediaries who are involved in delivering these targeted advertisements. And of course Google is by far the largest ad tech intermediary. It's also unclear whether there's unfair preferencing in the many auctions that take place around digital advertising. And there's also questions about where the ads are placed, whether the clicks on them are real and so forth.
And finally the seventh issue is that the trust, trust in news and information, is in decline. The business system of Facebook and Google of course is to atomise news, have it from any source, be the source of that information rather than brands, brand names that actually, media brand names that produce the content, so they want to attract and keep you on their platform. That's their incentive. They don't particularly want you going to the publisher platforms that originated the news content. This atomisation of use, this break from brands, increases the potential for misinformation, disinformation. It also can bias the amount of information we get and affect the debate on key society issues.
So we've come up with 23 recommendations to deal with these issues. In essence we’ve formed the view that we really cannot leave these issues to be dealt with by commercial entities with substantial reach and market power. It's really up to government and regulators to get up to date and stay up to date in relation to all these issues. And that's what our recommendations are set up to do.
So firstly, we've made a range of competition and consumer law and policy changes. We're recommending that unfair contract terms be made illegal because that's a big issue with digital platforms. Secondly, we've recommended that the Australian government introduce an unfair practices provision into consumer law. Such provisions exist in the United States, the European Commission, the UK, Singapore and so on. But we don't have them in our law and so there's a crucial gap in Australian Consumer Law that we're recommending needs to be filled. And that gap has really been brought home in terms of our work on digital platforms where there are a range of practices that may not be misleading but are nonetheless unfair. And we think these issues, both unfair contract terms being illegal and the introduction of unfair practices provision, is going to be increasingly important as we get new devices, the internet-of-things, smart speakers, which are already emerging, and a range of other technologies that are already on the horizon.
Secondly we've recommended that a new branch be created within the ACCC with standing, proactive information gathering powers that will both allow us to investigate competition and consumer enforcement matters, but also crucially provide a continuing flow of information to governments so that they can stay ahead of these issues and will allow us on a continuing basis to provide recommendations to government. So again, recommendations are there now to deal with the problems we can see, we need a continuing flow of information so that we can address new problems as they arise and that's what we intend to do with that branch. This branch will also be testing Facebook and Google algorithms to see whether there's any anti-competitive or misleading behaviour. We can do that by throwing a lot of things at those algorithms. If we find things we're unclear of then we'd have the ability to get information from the digital platforms. So this will allow serious scrutiny of the algorithms of Facebook and Google.
We’re also recommending that the ACCC conduct an inquiry into the ad tech system as I mentioned earlier so that we can bring some clarity as to who is making money at what level.
And finally we're recommending a direction to Google to remove the default status for Google Chrome and Google search on new and existing Android devices in Australia.
We're also recommending changes to our merger laws so that there could be more account taken of potential competitors and acquisitions that result in the aggregation of even more data.
In relation to journalism, we're recommending that there be a new ACMA code that ACCC will also be closely involved in with ACMA to govern the relationships between designated digital platforms and media businesses. This code would cover data sharing, algorithm ranking, the sharing of fair value and it would be designed not to impede the media's ability to monetise their content. This is designed to address the clear imbalance in the bargaining power between the digital platforms and media businesses and, importantly, if ACMA's not happy with what they're getting they can impose the standard, in effect, be the umpire, be the arbiter, to make sure that these bargaining arrangements between digital platforms and media businesses are appropriate and reflect a competitive environment, rather than the taker delivered environment we have now.
Next we're recommending the creation of a harmonised regulatory framework between media, the media and digital platforms so that you have a level playing field.
We're recommending targeted funding for regional and local journalism that is particularly hit by the practices of the digital platforms and it's in a much worse position than metropolitan media and it is disappearing and that's not good for Australia.
We’re also suggesting that there be a code introduced to govern digital platforms handlings handling of complaints about disinformation.
In relation to privacy, we're recommending that the Privacy Act be strengthened. Currently, for example, there's no requirement to disclose third-party data sharing if it's deemed to be within the primary purpose of the data collection. Consent is not required if information collection is reasonably necessary for the business’ functions or activities.
And finally we're recommending a code registered with the Information Commissioner for digital platforms so that there can be much better privacy policies that deal with disclosure and consent so the digital platforms can be fully transparent about what data is collected and what is done with it.
I'll finally just mention other measures such as a mandatory takedown code to ensure removal of copyright protected content and also we're recommending the establishment of an ombudsman that would have the power to deal with disputes and impose remedies when there's disputes between the platforms and businesses and consumers.
Now the world has recognised that the impact of the digital platforms’ market power, they have recognised the importance of that. They have now recognised the impact this has on consumers, competition, advertising and media businesses. I believe that continuing national and world action will now follow. We are going to work with other arms of government within Australia and we will be the crucial link with international agencies in making sure that we all learn from each other and respond in a coordinated way, which I believe is increasingly going to happen. Thank you very much, happy to take questions.
Journalist: We have fines from European and US regulators. Did you find anything in your inquiry that suggested any similar conduct here?
Rod Sims: We have seen similar conduct here particularly in terms of preferencing, which is the issue with the Google shopping case. We're seeing issues here in relation to data. We actually have five investigations underway, one under competition law, four under consumer law. Those are investigations that would not have occurred unless we had been looking at these issues because these are markets that firstly don't charge an upfront price and they're very difficult to get on top of. So only by having a proactive look as we've had over the last five months have we been able to get these investigations going and I believe more will follow.
Journalist: Were you shocked by what you found (inaudible)?
Rod Sims: Shocked is probably too large a term because we're fairly familiar with these issues but I guess the aggregation of everything we've found, particularly the way the ad tech market works, particularly the ineffectiveness of private privacy policies, particularly the way data has been used, that has been much worse than what we expected and I suppose, to slightly contradict what I've just said, there were things that did shock us. So in part we were shocked, but it's just that the enormity of the issue that we all have to grapple with that has really come home to us after this 18 months inquiry.
Journalist: On that point, once you give away privacy in the way in a sense that’s occurred willingly it would seem, can you ever really get it back?
Rod Sims: I think the problem that we've had here is that people's privacy has been invaded in ways they didn't fully understand and I've had conversations with people about these platforms over a very long period and I think that realisation of what data was being collected and what's being done with the data, I suspect many consumers don't fully understand it now, but that understanding has grown and grown and grown. I think you're right once things are out on the internet it's hard to get them back. But as part of the code we're recommending with the digital platforms and the Information Commissioner there should be the right to erase your data. Indeed the erasure of data could actually be something that forms part of a general review of the Privacy Act so that the data that's all collected in one place, that's used, that can be used in ways to disadvantage you, can be erased. Now I think we've got to both deal with past issues but also make sure we have a framework that gives consumers a full understanding going forward of what's going on. The transparency here is key exactly what data is being collected exactly what's being done with it.
Journalist: Do you think the fines the ACCC is able to give our at the moment are of the appropriate level given we've seen much larger fines, obviously the five billion dollar fine in the US during the week and also the European Union have multi-billion dollar fines for different competition consumer privacy offences?
Rod Sims: Fortunately the Australian Government has changed the law and the fines we can impose now, under both competition and consumer law, can be anywhere the higher of either 10 million or 10 per cent of turnover. We can fine people up to 10 per cent of their turnover. That is in the same ballpark as what the European Community Commission has done and so our fines can be on a par, that law’s just changed, we're very anxious to use it, so I think you're going to see fines in Australia that will be many hundreds of millions of dollars.
Journalist: Is that the local like the local entity or is that the global turnover?
Rod Sims: It's the local turnover, it's the turnover of the business in Australia. So yes where you’ve got much bigger economies the fines will be larger but in Australia you'll still see fines of hundreds of millions of dollars. The other point I want to emphasise though is the way we'll be intending to deal with these issues is, yes take enforcement action, yes get high penalties where we find there's breaches of the Act, but this continuing flow of information, what's different here is our ability to recommend to government that things be addressed. And so other remedies can be imposed. If things aren't working, if privacy is not being dealt with appropriately, if penalties aren't changing behaviour, then we can urge and advocate strongly, and we are strong advocates, when we think the law needs to be changed. So this is why I say this is the beginning of a journey not the end of it.
Journalist: The code, the code of conduct, the Treasurer made quite a big thing of the fact that if you weren’t satisfied with the code, if regulators weren’t satisfied with the code, you could come in, you could enforce your own code on digital platforms. Quite willing to do that, prepared to do that?
Rod Sims: Oh yes absolutely. I mean there's the bargaining code between digital platforms and the media, we've recommended that be governed by ACMA so ultimately it's their decision, but we've talked to them a lot about this we're happy to be involved as well and there's no doubt that if those codes are not appropriate, then we've recommended that ACMA have the power to impose an appropriate code and I've no doubt that would be done. Now different people are going to have different views about what they think should be in that code and there may well be some learning by doing. There may well be a code in the first place and if it's got inadequacies it can be amended at any time into the future. So again, this is a bit of a journey but the future of journalism is extremely important. I think everybody recognises that, not just the people in this room, but democracy depends on journalism. So it's vital that we make sure that that survives in an appropriate way. So this is a power that will and must be used.
Journalist: You've been talking to international regulators during the conduct of this inquiry. Are there particular areas you'd point out where your recommendations are going further than other countries? And you, you don't seem to have gone into the forced divestment area. Why not and do you see other international regulators, for example the US antitrust investigation that’s been organise maybe looking at that area, would there be value?
Rod Sims: I'll deal with divestment first and then pick up the other point. So we have not recommended divestment at this stage because we want to deal with the harms we see. Once you go down the divestment path that's sets off a whole level of activity that puts all the focus on breaking up companies. We want the focus to be on remedying the harms. The other problem was trying to break up companies that have what's known in economics as network effects, that is usually one company dominant dominates, is you don't know that if you break them up one of those companies won't come back and dominate and you actually aren't that much further ahead. That's the big difference here. So we want to address the harms. If on this journey that I'm talking about it turns out that that's not working, that divestiture is a better approach that that can always be recommended down the track. So as I say, this is the beginning of a journey not the end. In terms of our recommendations, they are much broader than has been seen elsewhere because most things that have been done overseas are each regulator looking at how they use their powers, be it competition regulator or a media regulator, how they use their powers. We've looked much broader than that, our scope is much broader. And we're not only looking to see how we use our powers, we're also making recommendations to government in a much broader range of areas, things like privacy, things like media regulation, things like disinformation, copyright, so our recommendations are much broader than I think has been seen before.
Journalist: On that, did you have any interaction with the US government on their big dive into big tech?
Rod Sims: Oh yes, we've had extensive engagement with many countries but particularly the US government. I've, well, I've been to see, I went to Washington I met with the Department of Justice, met with the Fair Trade Commission, which is our equivalent organisation, and we've had extensive discussions with both those organisations.
Journalist: Would you expect if these recommendations are adopted will it have any meaningful effect on the revenue that commercial media companies can return from their journalists?
Rod Sims: I have absolutely no doubt that these recommendations will have a positive effect on the viability of media businesses. Absolutely no doubt.
Journalist: Do you expect intense lobbying from the digital platforms given it was only a few months ago they were trying to argue they don’t have market power?
Rod Sims: Well I think the arguments over whether they get, have market powers are rather strange when they obviously clearly do have market power. I think we've got to move on from that argument because it's patently obvious they have market power. Look I think, I mean this is a complex report, it’s 650 pages, I dare you to attempt to read it in one day without alcohol but the the government as I understand it is proposing a 12-week consultation process and promising to make decisions by the end of the year. I think that would be terrific progress, that would be great. You're going to get a whole lot of people getting involved. Now we put out a report in December, we got a lot of submissions from a lot of people, both the digital platforms and many others, on all that so we've had extensive consultation but now that the final recommendations are there for everybody to see it's quite appropriate that there be a lot more consultation and I'm expecting that will occur. I'm expecting you'll have digital platforms knocking on the door of government, media companies, business organisations, there's going to be a lot of discussion and we're really looking forward to being in the middle of all that.
Journalist: Is there anything that you've dumped from the interim report in coming up with your final report because of those consultations?
Rod Sims: I don't think we dumped anything. I think, indeed, we approved, we improved on the essence of all the recommendations. So in my view, we had some ideas we put out in December both draft recommendations and also other ideas, we've now shaped those and improved them, so this is a much stronger set of recommendations than we put out in December, very much stronger.
Journalist: Rod, you issued a call I think in February for people to give you information about the ad tech industry. Did you get much of a response and, if so, why do you feel the need to have a formal inquiry?
Rod Sims: Look we didn't get the response we wanted in relation to ad tech but I'd make, so partly more work needs to be done because of that lack of response, but the bigger issue is just the complexity. I mean if you visit a website then an auction immediately can occur online as to who wants to advertise to you while you're on that website. This is all done in nanoseconds. There's intermediaries taking bits of cuts out all over the place. We have absolutely got to the bottom of that, it's all in our report, it's I think the best description of the ad tech market and the way it works anywhere in the world, so we've done all that, but we do need to understand more. We do need more transparency. It's in everybody's interest that we know how much of that ad dollar is effectively giving you an ad, and it's in everybody's interest that we know who's taking what out of this value chain.
Journalist: Rod you mentioned that governments and regulators need to get up to date and stay up to date, how far behind the eight-ball did we get, or are we now?
Rod Sims: I think that this inquiry has been exactly the right inquiry for its time. These platforms are relatively new, they haven't been around that long, I think it's fair to say some of the privacy issues probably have taken a while to get on top of, but I think now is exactly the right time when we can see everything that's going on and bring it all together and I think now is the time for government to get on top of these issues and for governments to stay on top of these issues by the continuing flow of information our recommendations will give. So governments have been looking at these issues for a while. The advantage of our inquiry is the breadth of it. I think, I think what was missing is an inquiry that looked at all these issues as a whole, a single focus, a siloed focus, say just a competition focus or just an advertising focus or just a media focus was never going to unlock all these issues. So I think that the review is timely, I'm not at all concerned about whether it should have occurred today or two years ago. I don't think it could have happened much before that because you just wouldn't have had the array of information, so I'm very comfortable with the timing and I'm also very comfortable with the way the world is beginning to notice many things that are going on. I think the world is coming together to deal with these issues.
Journalist: The headline, one of the headlines today was this idea that digital platforms are approaching this, they’re just saying, just trust us. What do you say after going through this? Can they be trusted?
Rod Sims: I think you can't let the sort of issues we've identified be dealt with by commercial companies. So Google and Facebook, I mean they're very different businesses Google and Facebook, I want to emphasise that and they've brought many benefits to society, but their business model is based on creating a platform that they make enormous economic wealth from but which they've taken no responsibility for what actually happens on that platform –that that in a sense is ingrained in their psyche. So I don't think they've got the right approach to deal with these issues, I don't think dealing with these issues would suit their business model, it would cost them money, so I think it's unrealistic to expect any commercial company to forego profits in the interests of fixing these sorts of issues. That's why governments exist that's why regulators exist. Thank you very much for coming, I really appreciate it.