04 December 2017

ACCC commences inquiry into digital platforms

This article was written by Sharon Henrick and Haidee Leung.

1. Inquiry into digital platforms

On Monday 4 December 2017, the Treasurer, the Hon. Scott Morrison MP, directed the Australian Competition and Consumer Commission (ACCC) to hold an inquiry into the impact of digital “platform services” on the state of competition in media and advertising services markets, particularly in relation to the supply of news and journalistic content and the implications of this for media content creators, advertisers and consumers.

The ACCC is being directed to hold the inquiry under section 95H(1) of the Competition and Consumer Act 2010 (Cth) (Act).  This means the ACCC will have a broad range of information gathering powers to conduct the inquiry, including the ability to compel parties to produce documents, furnish information and / or provide evidence under oath at a public or private hearing.

Why is this inquiry being held?

The inquiry is one of the measures agreed with Senator Nick Xenophon in exchange for his support of the Federal Government’s media ownership reform package, which was implemented through the Broadcasting Legislation Amendment (Broadcasting Reform) Act 2017 (Cth).[1]  The crux of Mr Xenophon’s concern with the media reform package was that “internet giants such as Google and Facebook” could be dominating and distorting the market to the detriment of content providers. [2]

The media reform package included repeal of the ‘75% reach rule’, which prevented a person controlling television licenses that reached more than 75% of the Australian population and the ‘2 out of 3 rule’, which prohibited a single entity from owning more than 2 out of 3 platforms across television, radio and newspaper in a single geographic market.  These reforms were aimed to better reflect the contemporary digital media environment.

Who will be the target of this inquiry?

Although Google and Facebook have specifically been named by the ACCC as digital platform service providers in its media release, the ACCC’s investigation will target a broad range of companies that operate in Australia.  The Treasurer’s direction defines “platform services” to include digital search engines, social media platforms and other digital content aggregation platforms.  

The ACCC’s Chairman, Mr Rod Sims, has also said they are interested in the views of content creators, mainstream media outlets and smaller media operators, platform providers, advertisers, journalists, consumers and small business interest groups.

What will the ACCC investigate in its inquiry?

The Treasurer has directed the ACCC to consider the following matters, although the ACCC may investigate additional matters it considers appropriate:

  1. The extent to which platform service providers are exercising market power in commercial dealings with the creators of journalistic content and advisers.
  2. The impact of platform service providers on the level of choice and quality of news and journalistic content to consumers.
  3. The impact of platform service providers on media and advertising markets.
  4. The impact of longer-term trends, including innovation and technological change, on competition in media and advertising markets.
  5. The impact of information asymmetry between platform service providers, advertisers and consumers and the effect on competition and media and advertising markets.

What are the key dates for this inquiry?

The ACCC must submit its preliminary report by Tuesday, 4 December 2018 and a final report by Tuesday, 4 June 2019.

In terms of immediate next steps, the ACCC will be publishing an “issues paper” in early 2018 with a call for public submissions. 

Based on our recent experience in other inquiries, the ACCC may issue statutory notices compelling the production of documents and furnishing of information within about a month of releasing the issues paper.

The ACCC will also conduct public and private hearings next year. 

2.  The ACCC’s approach to digital disruption and media

Mr Rod Sims said the ACCC will “go into this inquiry with an open mind” and “will study how digital platforms such as Facebook and Google operate to fully understand their influence in Australia”.[3] 

Although the ACCC has previously acknowledged the economic advantages of fast-moving, disruptive and data-driven innovation, it has also been wary of the challenges posed by new technology for competition[4] and consumer rights.[5]

In 2012, the ACCC won an appeal against Google in the Full Federal Court for misleading and deceptive conduct in relation to the use of keywords in Google’s advertisement practices.   More recently, the ACCC considered the impact of technology and media in the context a number of mergers, including Seven West Media’s acquisition of The Sunday Times from News Limited, PMP Limited’s merger with IPMG Group, News Corporation’s acquisition of APN News Media’s Australian Regional Media Division, Adstream’s acquisition of Dubsat and, most recently in August 2017, Birketu and Illyria’s joint bid for interests in Ten Network Holdings.   The ACCC did not oppose any of those transactions.

The ACCC has acknowledged that significant changes have occurred in the past decade to the way media is delivered and consumed, which affects the nature of competition in media industries.  The ACCC’s new Media Merger Guidelines (published 31 October 2017) includes several observations on the impact of technology on competition in media-related industries.  In particular:

  • The ACCC appreciates that advances in technology may introduce entirely new products and services that challenge traditional business models, give consumers greater choice in how they consume content and may increase the closeness of competition between products or services that were previously less direct competitors. Further, new technology may also lower barriers to entry and/or mean that increased market power gained through a merger is only transitory in nature.
  • However, the ACCC also considered it was possible that network effects may give the first supplier of a new type of product that is able to attract a large number of customers significant and stable market position. Further, the ACCC observed that as new, innovative products emerge, an incumbent may wish to “neutralise” this threat by acquiring the maverick firm.

Additionally, in the ACCC’s media release announcing the digital platform inquiry, Mr Sims said that “[r]ecent ACCC merger reviews have shown that most advertisers are spending less on print newspapers and finding alternative ways of reaching target audiences, including through digital media” and there have been “growing concerns” that digital platforms are affecting traditional media’s ability to fund the development of content. 

3. The ACCC’s market study powers and trends

What’s the trend in market studies?

The announcement of the digital platforms inquiry further demonstrates the Federal Government’s increasing propensity to direct the ACCC to conduct inquiries and monitor prices under the Act.  In 2017 alone, the ACCC commenced inquiries into the pricing of residential mortgages, the supply of home content and strata insurance in northern Australia as well as digital platforms.  In recent years, the ACCC also has also more frequently used its power to initiate research studies, such as the beef and cattle study and new car retailing industry study. 

The graph below illustrates the trend of an increasing number of market studies initiated in the past 5 financial years, which we expect to continue.

Number of market studies between FY2012-2013 and FY2016-2017 - ACCC

What are the ACCC’s “market study” powers under the Act?

The ACCC has three powers to conduct “market studies” under the Act, which are either initiated by the Minister or by the ACCC itself with varying degrees of information gathering powers.  The key features of these market studies powers are summarised in the table below.

Figure 1:  Summary of key features of the ACCC’s market studies power under the Act

 

Inquiry function
(section 95H(1))

Monitoring function (section 95ZE)

General research function (section 28(1)(c))

Who initiates?

The Minister (by written direction)

The Minister (by written direction)

The ACCC may initiate (with respect to matters to which Parliament has powers to make laws)

What are the ACCC’s information gathering powers?

Section 95ZK notices to compel production of documents, furnishing of information and providing evidence under oath at a public or private hearing

Section 95ZK notices to compel production of documents, furnishing of information and providing evidence under oath at a public or private hearing

Voluntary information requests only

What are the possible outcomes?

Recommendations, enforcement actions

Examples

  • Dairy inquiry
  • East coast gas inquiry
  • Electricity supply and prices inquiry
  • Residential mortgage products price inquiry
  • Residential building, contents and strata insurance in northern Australia
  • Petrol price reports
  • Carbon pricing monitoring report
  • Container stevedoring report
  • Airports
  • Cattle and beef market study
  • New car retailing industry study
  • Communications sector study


[1]     This Act received Royal Assent on 16 October 2017.

[2]     Senator Stirling Griff, ‘NXT welcomes ACCC inquiry into Facebook, Google’ (4 December 2017).

[3]     ACCC Media Release, ACCC commences inquiry into digital platforms (4 December 2017): https://www.accc.gov.au/media-release/accc-commences-inquiry-into-digital-platforms.

[4]     ACCC Media Release, ‘The ACCC’s approach to colluding robots’ (16 November 2017): https://www.accc.gov.au/speech/the-accc%E2%80%99s-approach-to-colluding-robots.

[5]     ACCC Media Release, ‘New technology and digital disruption bring new challenges for consumer regulator’ (15 March 2017): https://www.accc.gov.au/media-release/new-technology-and-digital-disruption-bring-new-challenges-for-consumer-regulator.

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