When the commercial internet was born in the 1990s, governments made many allowances for young companies navigating this new space. They were given carve-outs and exemptions, either explicitly or implicitly, from laws and regulations that older legacy businesses faced in areas ranging from tax, to liability for user misconduct on their sites, to copyright infringement.
Silicon Valley companies — now the largest, richest corporate entities in the world — have thrown millions of dollars and all their lobbying muscle at protecting these carve-outs, which amount in effect to billions of dollars in subsidies.
That is a key reason why the European Parliament this week voted to reject a draft reform of EU copyright laws that would have forced internet groups, such as Facebook and Google, the owner of YouTube, to use content filters to avoid breaching copyright, or to pay publishers for the right to use their content.
The platform companies, which have increased lobbying in Washington and Brussels in recent years, pushed back hard, and European lawmakers will now have to redraft their plans. They should hold their line when their final vote is due in September. While search and social media are wonderful innovations, the business model of internet platform companies has been predicated on the notion that “information wants to be free”. This is a clever branding of a concept that is less about consumer welfare than protecting unfair advantages held by powerful businesses.
It is no accident that over the past 20 years, as companies such as Google and Facebook have grown, newspaper and music revenues have fallen. As academics such as Jonathan Taplin of the University of Southern California have noted, YouTube controls 60 per cent of all streaming audio business, but pays only 11 per cent of the revenues that artists receive.
More content than ever is being consumed. But the vast majority of the profits are channelled not to creators, but to a handful of companies that enjoy unfair monopoly power. That power stems from the network effects of their platforms and their ability to benefit from rules set when the industry was radically different.
The political capital thrown into protecting these advantages smacks of oligopoly. Consider the technology industry’s successful lobbying efforts in the US, in 2012, to shoot down the “Stop Online Piracy Act”. The bill aimed to crack down on copyright infringement by restricting access to sites that host pirated content. The day after the bill was introduced, Google put a blackout sign on its search page with a message to users to “Tell Congress, please don’t censor the web!” Congressional email servers were overwhelmed and the bill was promptly killed. Similar tactics have been adopted in the EU.
Silicon Valley has been able to convince many consumers that their interests and those of the platform tech companies are the same. But the era of the Teflon tech group is ending. As the economy shifts from one driven by tangible assets to one driven by intangibles such as intellectual property and data, there is strong reason to think that the platform companies that have ringfenced these assets enjoy unfair regulatory advantages. Their efforts to protect outdated exceptions look increasingly like rent-seeking.
The rules of the digital economy need rewriting to reflect the shifts of the past 20 years. There may be room for improvement in the EU’s proposals. But at a time when an increasing portion of global wealth resides in content, data and intellectual property, the biggest companies should respect that IP and pay a fair price for it.