Facebook is a monopolistic behemoth. Like the Achaemenid Persian Empire that ruled over a greater percentage of the world’s population than any other in history, it presides over 1.8 billion active users, roughly equivalent to the combined populations of China, the US and Nigeria.
While the vast majority of users consider it a benign social platform, its behaviour is beginning to resemble that of a potentate, capable of exerting a great deal of influence over their lives. It has completely repositioned publishing, and has set its sights firmly on the online video game. The Fourth Estate is no longer a force.
Facebook’s stated mission is to give people the power to share and make the world more open and connected. The latter part of that is incontestable: it does personal connections better than any company in the history of mankind. It’s the “more open” part that increasingly disturbs those attuned to monopolistic behaviours. Many claim that Facebook is a monopoly with too much power, one that I find increasingly difficult to rejoin. Facebook made no less than sixty acquisitions in the past decade, including Instagram, Oculus VR and in 2014 most memorably paid a whopping $19bn for WhatsApp. While this sort of anti-corporate speak may sound Naomi Klein-ish, as a self-identified hard-core libertarian free-market proponent, I identify more closely with it than I do with tech optimists who believe that technology can solve everything.
Old tech, new tech and GAFA
There is a long held assumption that new technologies would emerge to compete with the monopolies of old technologies. In the IT era, many old technology monopolies simply bought up new technologies: internet providers, TV broadcasters, media distributors and content creators are increasingly all housed under a smaller number of corporate roofs. The best example of this is the at&t/ DirecTV/ Time Warner bundle, a composite triple play giant that vertically integrates content, distribution and internet services. On top of this structure sits the internet’s GAFA crown, an acronym for Google, Apple, Facebook and Amazon. Facebook and Google have between them taken near total control of the internet’s two dominant functions: the social platform and the search engine. They are instances of increasingly proving the assumption correct.
Monopoly and commercial leverage
Google and Facebook are the two most dominant ways that media companies get their content distributed. That gives them almost all the bargaining power, enabling them to exploit content producers. In the past decade, an enormous reallocation of revenue in the order of $50 billion a year transpired, with economic value moving from content creators to these platforms. Monopolies are inherently anti-competitive: they deny market access and exploit other participants in the economy. At this scale they also become anti-capitalist.
Here are some statistics from the US: Annual recorded music revenues fell from $19.8bn in 2000 to $7.2bn in 2015. Annual home entertainment video revenue fell from $24.2 billion in 2006 to $18bn in 2015, and newspaper ad revenue fell from $65.8bn in 2000 to $23.6bn in 2013.
And yet, by every available metric, people are consuming more music, video, news and books. Between 2005 and 2015, Google’s revenue exploded from $6bn to $67bn, while Facebook’s grew from a paltry $9m to nearly $18bn. This is the massively disruptive power of the internet era, and it’s a fact of life, like it or not.
Despite their success, there’s economic destruction here. A former editor of The Guardian, the biggest newspaper-to-digital transition success story, estimated that Facebook sucked up £20 million of the paper’s projected £100 million digital advertising revenue in 2015. That figure is likely to have doubled by now, forcing the paper into a downscaling restructure. By 2020, over 70% of all global online advertising revenue will flow into Facebook and Google’s coffers, revenue that was previously spread across literally thousands of companies. This creates massive market imbalances and is alarming considering the importance of the Fourth Estate in keeping governments and other centres of power in check.
The problem is not that new business models are destroying old ones. It’s a consequence of progress that Facebook and Google have trumped old media companies with an order of magnitude of efficiency. The problem is that Facebook is the de facto front page of the internet, and their algorithms determine what a large percentage of the world gets to see by way of a news feed based on what makes them feel good, rather than the variety they ought to be seeing. Similarly, Google’s search ranking serves up the most popular links. Both models feed the ever-narrowing echo chambers of banality. To contextualise the dangers of this I quote US Supreme Court Justice Louis Brandeis who in a 1927 judgment gravely warned, “The greatest menace to freedom is an inert people”. Allowing your worldview to be dominantly influenced by one or two companies’ algorithms creates an ever-increasing circle of inertia.
Media company or technology company?
Many publishers state emphatically that Facebook is a media company, and should be subject to minimum editorial standards. But the very definition of a media business is one that generates content, and since it doesn’t produce any, it simply doesn’t fit that classification. It is in fact a distribution company (or platform if you like) that derives income from selling advertising to audiences drawn by other companies’ content. The truth is that journalism in all formats needs a new, sustainable business model, and quickly. Besides internet companies, the greatest threat to journalism is the incredible commercial pressure exerted on their old business model that has encouraged some to accept sources of income packaged with expectations of partisan editorial influence.
Not only is this a commercial shot in the foot but also a credibility shot in the head. As Ben Thompson of stratechery puts it, “I strongly agree with Jack Shafer, for example, that newspapers “still publish a disproportionate amount of the accountability journalism available” and that “we stand to lose one of the vital bulwarks that protect and sustain our culture.” Fixing that and the many other problems wrought by the internet, though, requires looking forwards, not backwards.
Facebook takes the wheel
Joe Public and Madame Media we have ceded much of their freedom of choice by giving Google and Facebook control of the menu, that being Google’s search rankings and Facebook’s Newsfeed and Instant Articles. How that menu is organised is closely guarded company IP. As more and more components of our lives become digital, these secret algorithms assume more power over our lives. Facebook’s power is enormous but not absolute, but every sign is pointing in the direction of absolute. Once control is ceded, it is nigh impossible to claim it back.
Fake news is the new propaganda machine
2016 was the year Facebook became a public villain for the algorithms that amplify misinformation, lure us into ideological bubbles and cater to our worst instincts. The debate about the influence of fake news in the US election rages on as Trump readies himself for the Oval Office. A bunch of Macedonian teenagers may have famously made millions feeding online communities fabricated news stories, but Facebook makes billions. According to BuzzFeed, the 20 best-performing US election stories from hoax sites generated over 8,7-million engagements. Comparatively, the 20 best-performing election stories from 19 legitimate media outlets saw only 7.3-million engagements. None of these sites is older than a year, yet they “outperformed” iconic news institutions such as The New York Times and Washington Post. This is a serious problem.
“It’s crazy that Zuckerberg says there’s no way Facebook can influence the election when there’s a whole sales force in Washington DC that does nothing but convince advertisers that they can,” said Antonio García Martínez, who used to work in Facebook’s advertising sales department. “We used to joke that we could sell the whole election to the highest bidder.”
Accusations levelled at the company were initially denied by Facebook’s chief of everything, Emperor Zuckerberg, before flipping and releasing a mealy mouthed presser about how much the company cares about everyone. Herein lies another perennial problem – its default position appears to be to deny before being forced to retract in the face of contrary evidence. This doesn’t endear it to many, but it doesn’t appear to matter to them. It should, because the problem with Facebook’s behaviour is that it invites regulators into the game, which isn’t a solution and brings a host unintended consequences as baggage. Regulators invariably apply century-old thinking to new problems, but the world needs different solutions for the internet age.
Ethics, trust and Big Brother
Perhaps the most infamous example of their censorious arrogance was the removal of Nick Ut’s iconic Pulitzer Prize-winning photograph of a naked Vietnamese girl fleeing napalm bombs from a post by the editor of Norwegian newspaper Aftenpost. When he criticised the action he was barred from the Facebook for 24 hours. Buoyed by a public backlash that saw thousands of users, including Norway’s Prime Minister, re-post the image in protest, he re-posted it only to be barred for a further three days. Facebook was forced to backtrack altogether, blaming algorithmic programming, but several reliable insider sources claim that the algorithm merely alerts human editors of transgressions and the final decision lies with them.
The editor in this instance was a Hamburg employee who clearly elected for “editorial policy” over common sense. Facebook’s response was to lay off the entire editorial team and rely solely on algorithmic decision-making to surface trending stories across the site, a move that could be interpreted as a defence against future accusations of human based editorial decision-making. It’s much less damaging to lay blame at the feet of an algorithm than admit to human error.
Yet it’s precisely in the domain of editorial policy that lays a hornet’s nest of pain for the behemoth. The company insists it’s not a media player, yet it has no fewer than eleven editorial rules, euphemistically called community standards – nudity being a prime example of how editorial policy always requires a human touch. The policy is driven by mainstream Christian American values, which is automatically going to place it at odds with other religious and cultural beliefs. If, for example, you visit the Himba tribe of Kaokoland in northern Namibia and post images of their permanently bare-breasted women, chances are those pictures will be removed by a titty algorithm.
So what’s to stop Facebook from either bowing to pressure or deciding for itself that their policy should extend to things like free speech? In fact it already does, under the hate speech section. This is the most difficult area to regulate, as which versions of hate speech applies? What about countries that don’t regulate against hate speech, or where hatred is defined quite differently? With massive scale comes massive responsibility: 510 comments are posted, 293,000 statuses are updated, and 136,000 photos are uploaded every 60 seconds. At that scale policing becomes a genuine logistical nightmare, even for the smartest programmers in Silicon Valley.
The answer is blanket-type regulations that deal uniformly with transgressions – and results like the Aftenpost saga. There is a fundamental culture clash at play here with algorithmic technology on one side and human emotion on the other. This can only lead to regulatory creep, where policing inevitably increases to deal with the near endless scale of perceived offenses. That by its very nature increasingly resembles an Orwellian Big Brother – with, in certain respects, more influence than the Chinese and Russian Central Committees and the US Congress combined.
Facebook has a history of denying problems only to reluctantly admit them after exposure. But the timing of the admissions is usually suspicious and the tone nearly always crafted in corporate puffery that deflects responsibility. At the heart of this lies advertiser and user trust – and the company has repeatedly demonstrated a lack of transparency, candour and trustworthiness. A massive advertiser issue is Facebook’s inflated video metrics: for two whole years they mislead advertisers, wittingly or unwittingly we will never know, about the average video viewing time. The company admitted to one giant media buyer that the wrong metric may have inflated viewing durations by between 60% and 80%. That’s a massive discrepancy by any measure, particularly at a time when the company specifically amended its algorithms to promote video ahead of text-based content and introduced video autoplay as the default setting.
The error is a primary school level mathematical one, so coming from a company that employs a sizeable quota of the world’s finest mathematical brains, it’s difficult not to view this with deep suspicion. Consider the company’s public explanation: We had previously *defined* the Average Duration of Video Viewed as “total time spent watching a video divided by the total number of people who have played the video.” But we erroneously had *calculated* the Average Duration of Video Viewed as “the total time spent watching a video divided by *only* the number of people who have viewed a video for three or more seconds.”
That’s an elementary error, not a blockchain-standard mathematical formula. It excluded billions of video views that would bring down the average significantly, by as much as 80%. In addition, various researchers have pointed that up to 85% of all videos are played with the sound off. Now, as an advertiser, would you not question your trust in a commercial relationship with a company driven entirely by metrics that gets some of those metrics wrong? Not for the first time either, and not for the last. Another three errors were revealed shortly after this one. In the scheme of social media metrics this scandal has been downplayed by (notably, social media agencies, who stand to lose if the big gorilla in the game loses) as well as some marketers. As the error didn’t affect costs it’s quite easily dismissed, but trust remains scarred by such scandals and begs the question of how many other metrics are or have been wrong in the past? In earlier days of less transparency would Facebook have owned up to them? Who’s watching Big Brother?
Video – the next frontier
To date the influence over the fourth estate has been largely limited to newspapers and their online equivalent, known as link posts. But video became the company’s watchword back in 2014. Here’s Facebook’s head of global creative strategy, Ricky Van Veen: “Earlier this year , we started rolling out the Video tab, a dedicated place for video on Facebook. Our goal is to kickstart an ecosystem of partner content for the tab, so we’re exploring funding some seed video content, including original and licensed scripted, unscripted, and sports content, that takes advantage of mobile and the social interaction unique to Facebook. Our goal is to show people what is possible on the platform and learn as we continue to work with video partners around the world.”
Van Veen, just a year before being recruited to Facebook, asserted, “Mark Zuckerberg is the most powerful person who has ever lived”. Zuckerberg hiring him is perhaps an example of the age-old adage of keeping your friends close and your enemies closer, as Van Veen is a top video content specialist. In the same post he went on to say: “Facebook has gotten so big it’s easy to forget that it’s still completely controlled by a single 31-year-old human (worth $45B+). But it is! And if you believe proclamation #7, that Facebook is the Internet, then by the transitive property, this one person is arguably the gateway to the primary source for news, commerce, and communication for pretty much the entire world.
“With one code push, Facebook could materially impact (perhaps fatally) the viability of most news publications. It could block Fortune 500 companies from reaching their customers as efficiently as their competitors. It could send an alert to every spouse in the world at once if their partner has actively been in touch with an ex. Just scratching the surface here, and again, that ability is with one person.”
Van Veen isn’t suggesting that Zuckerberg would do any such things, he merely points out the amount of power vested in one man in this the most democratic and decentralised 21st century. Just imagine if, say, Donald Trump or Vladimir Putin or Xi Pinjing had this amount of influence? The world would be going berserk with frenzied attempts to dismantle such a power base. Yet nobody appears to be scrambling to do the same to Zuckerberg. Perhaps because he’s not a politician, or perhaps because few actually realise the extent of the power they readily cede.
It’s not like Zuckerberg doesn’t harbour political ambitions, because he does. He may even harbour presidential ambitions. This was revealed in court papers in April 2016, in a class action lawsuit filed by minority shareholders aimed at preventing Zuckerberg from diluting their voting power to give him “eternal control” (the term coined by shareholders’ counsel) over the company, even if he were to serve in a government position or office. It’s not the money Zuck is after, he’s already worth over $50bn and has pledged 99% of his shares to public interest causes, but the control he seeks to retain. That level of control combined with political office is pure trouble on an unprecedented scale never before contemplated.
Video-centric apps like Snapchat are partially replacing television, especially for young people, and such successors will reap hundreds of billions in advertising revenue once reserved exclusively for television. Facebook video is a copycat attempt to trump Snapchat and extend its reach beyond text and images into the big daddy of media. If it succeeds, which at the current pace and scale appears a good bet, Facebook will be many times more dominant than it already is today. It will be a media company, an advertising platform and a content distributor all in one, with more power than the rest of the world’s media combined. This is a frightening prospect for a single company, even more so one controlled by a single individual. It means the end of the Fourth Estate, unless the latter manages to rebuild an entirely new fit for purpose internet-age business model.
Quo vadis, Fourth Estate?
“If there is a single phrase that describes the effect of the Internet, it is the elimination of friction. With the loss of friction, there is necessarily the loss of everything built on friction, including value, privacy, and livelihoods. And that’s only three examples! The Internet is pulling out the foundations of nearly every institution and social more that our society is built upon.” Ben Thompson, stratechery.
These words neatly encapsulate the truly disruptive internet age. With Facebook colonising news on the internet, a publisher’s content is now consumed somewhere they don’t own, control and, increasingly, monetise. In the near future this is likely to apply to video news publishers. It means all media players need to rethink their entire business model. As a media owner, you’re no longer in the business of producing content and selling ads, but you are still in the business of producing content. In an age of instant access, verified, qualified or not, what is there to sell? I would argue the answer lies not in news but in good, old fashioned, high quality journalism focused on analysis – aka influence.
Twitter does breaking news better than any other internet business because of its immediacy, which is why journalists feature among its heaviest users – in many instances it dispenses with the need for the link to the article. Following a reliable journalist’s live tweet stream of an unfolding drama such as the Oscar Pistorius trial is a good case in point. It’s not just the facts being presented, but a contextual interpretation of them that differentiates a good tweet stream from an ordinary one. This analytical content already existed pre-internet, particularly in periodicals. It’s flourishing today in a wider array of distribution channels such as podcasts, which are often deep dives into complex subjects involving two or more experts.
While audio content is an efficient form of consumption (e.g. listening while doing something else like driving), it won’t replace the sheer beauty of the well-written word. Great writers will always command an audience not only for their ability to simplify a subject analytically but also for the manner in which they are capable of expressing it. These are but two examples of influence, and while few are ever going to dominate the internet, this level of scale is about quality over quantity. There is always a market for quality that someone is happy to pay for. That someone may be a subscriber or a sponsor, or a combination of both, but it will replace the old publishing model that required large capital just to get into the game and scale to sustain it.
The barriers to entry are now so low that very little capital, if any at all, is required. This saw tens of millions of bloggers and vloggers flock to the internet in search of gold, few of whom have any differentiated offering, little or no training, and an alarming paucity of skill. They learned that income generating self-publishing isn’t as easy as it appears, and that old school middlemen such as editors and publishers they thought the decentralised model could dispense with actually do play a critical role. Quality content is steadily emerging from this raucous melee, and new outlets and brands are being built in a decentralised network of professionals the world over. One thing you can bet the farm on though, is that old school publishers who don’t put the internet at the centre of their businesses will disappear, and many who attempt to remodel will fail because institutionalised culture and memory will try to force fit a square peg into a round hole.
Leveraging this influence may involve Facebook in some shape or form, but giving quality content away isn’t an option, nor is subscribing to their model of winner takes all. The advertiser funded model is now so dominated by Facebook and Google that there’s only scraps left over to split between tens of thousands of publishers. It’s simply unviable. The advent of real-time secure online micro payments might just be one saving grace for independent publishers, a version of the pay per view model on one end of the spectrum combined with a variety of subscription options spread across the rest of it. So might many other advances in technology that are yet to find a route to market. If I were an existing publisher or broadcaster I would be testing dozens of variables while I still had an audience and balance sheet left.
In closing, I’ll leave you with yet another great quote from Thompson: “Count me with those who believe the Internet is on par with the industrial revolution, the full impact of which stretched over centuries. And it wasn’t all good. Like today, the industrial revolution included a period of time that saw many lose their jobs and a massive surge in inequality. It also lifted millions of others out of sustenance farming. Then again, it also propagated slavery, particularly in North America. The industrial revolution led to new monetary systems, and it created robber barons. Modern democracies sprouted from the industrial revolution, and so did fascism and communism. The quality of life of millions and millions was unimaginably improved, and millions and millions died in two unimaginably terrible wars.”
I don’t subscribe to the suggestion that the industrial revolution was in any part cause for the world wars, or that Thompson is even suggesting it, but I certainly do subscribe to the wholesale changes it brought to the world and the scale of change the internet is bringing, albeit at a much, much more accelerated pace. Media players don’t have decades to figure this out, we’re already into the third phase of internet redistribution of content, and right now Facebook is the Death Star that needs to be beaten, but certainly not by competing in its orbit.
Image: India’s Shri Narendra Modi and Facebook chairman and CEO, Mark Zuckerberg, at Townhall Q&A session, at Facebook HQ, in San Jose, California on September 27, 2015./Wikimedia Creative Commons Creative Commons Attribution-Share Alike 2.0 Generic
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