Forget AT&T. The Real Monopolies Are Google and Facebook.


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Jeff Chiu/Associated Press

The proposed merger of AT&T and Time Warner has drawn censure from both sides of the political aisle, as well as a Senate hearing that looked into the potential for the combined company to become a monopoly.

But if we are going to examine media monopolies, we should look first at Silicon Valley, not the fading phone business.

Mark Cuban, the internet entrepreneur, said at the meeting of the Senate Judiciary Antitrust Subcommittee last week that the truly dominant companies in media distribution these days were Facebook, Google, Apple and Amazon.

“Facebook is without question in a dominant position, if not the dominant position, for content delivery,” he said.

Look at the numbers. Alphabet (the parent company of Google) and Facebook are among the 10 largest companies in the world. Alphabet alone has a market capitalization of around $550 billion. AT&T and Time Warner combined would be about $300 billion.

Alphabet has an 83 percent share of the mobile search market in the United States and just under 63 percent of the US mobile phone operating systems market. AT&T has a 32 percent market share in mobile phones and 26 percent in pay TV. The combined AT&T-Time Warner will have $8 billion in cash but $171 billion of net debt, according to the research company MoffettNathanson. Compare that to Alphabet’s balance sheet, with total cash of $76 billion and total debt of about $3.94 billion.

In the first quarter of 2016, 85 cents of every new dollar spent in online advertising will go to Google or Facebook, according to Brian Nowak, an analyst with Morgan Stanley.

Google and Facebook can achieve huge net profit margins because they dominate the content made available on the web while making very little of it themselves. Instead, they both have built their advertising businesses as “free riders” on content made by others, some of it from Time Warner. The rise of these digital giants is directly connected to the fall of the creative industries of our country.

Every pirated music video or song posted on YouTube or Facebook robs the creators of income, and YouTube in particular is dominated by unlicensed content. Google’s YouTube has an over 55 percent market share in the streaming audio business and yet provides less than 11 percent of the streaming audio revenues to the content owners and creators. But Facebook, which refuses to enter into any licensing agreement on music or video, is challenging YouTube in the free online video and music world.

In the past decade, an enormous reallocation of revenue of perhaps $50 billion a year has taken place, with economic value moving from creators of content to owners of monopoly platforms.

I reached this conclusion from the following statistics: Since 2000, recorded music revenues in the United States have fallen to $7.2 billion per year from $19.8 billion. Home entertainment video revenue fell to $18 billion in 2014 from $24.2 billion in 2006. United States newspaper ad revenue fell to $23.6 billion in 2013 from $65.8 billion in 2000.

And yet, by every available metric, people are consuming more music, video, news and books. During that same period, Google’s revenue grew to $74.5 billion from $400 million.

The former editor of The Guardian, Alan Rusbridger, estimated that Facebook had “sucked up $27 million” of the paper’s projected digital advertising revenue in the last year by essentially keeping Guardian readers on Facebook, rather than linking them to the Guardian site.

“They are taking all the money,” he noted. “They have algorithms we don’t understand, which are a filter between what we do and how people receive it.”

But the problem isn’t just for musicians, authors, filmmakers or even the phone company. As the former Google “design ethicist” Tristan Harris wrote, “If you control the menu, you control the choices.”

We have ceded much of our freedom to choose by giving networks like Google and Facebook control of the menu (Google’s search rankings and Facebook’s Newsfeed). How that menu is determined by these black box algorithms isn’t known by anyone outside those companies. As more and more of our lives become digital, these new algorithms will assume more power over our lives.

Regulators should take a hard look at the merger between AT&T and Time Warner. After the hearing on Wednesday, Senator Amy Klobuchar of Minnesota, the ranking Democrat on the antitrust subcommittee, suggested that what was needed were hearings that would also include Alphabet and Facebook. She’s right.

But in some ways, that’s just fighting the last war. We have gone through a long election cycle without any discussion about the unregulated world now dominated by a few Silicon Valley giants. Perhaps in January we can have an honest national conversation on monopoly and our future.

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