On December 13th, I will be participating in an Atlas Network panel on, “Big Tech, Free Speech, and Censorship: The Classical Liberal Approach.” In anticipation of that event, I have also just published a new op-ed for The Hill entitled, “Left and right take aim at Big Tech — and the First Amendment.” In this essay, I expand upon that op-ed and discuss the growing calls from both the Left and the Right for a variety of new content regulations. I then outline the classical liberal approach to concerns about free speech platforms more generally, which ultimately comes down to the proposition that innovation and competition are always superior to government regulation when it comes to content policy.

In the current debates, I am particularly concerned with calls by many conservatives for more comprehensive governmental controls on speech policies enforced by various private platforms, so I will zero in on those efforts in this essay. First, here’s what both the Left and the Right share in common in these debates: Many on both sides of the aisle desire more government control over the editorial decisions made by private platforms. They both advocate more political meddling with the way private firms make decisions about what types of content and communications are allowed on their platforms. In today’s hyper-partisan world,” I argue in my Hill column, “tech platforms have become just another plaything to be dominated by politics and regulation. When the ends justify the means, principles that transcend the battles of the day — like property rights, free speech and editorial independence — become disposable. These are things we take for granted until they’ve been chipped away at and lost.”

Despite a shared objective for greater politicization of media markets, the Left and the Right part ways quickly when it comes to the underlying objectives of expanded government control. As I noted in my Hill op-ed:

there is considerable confusion in the complaints both parties make about “Big Tech.” Democrats want tech companies doing more to limit content they claim is hate speech, misinformation, or that incites violence. Republicans want online operators to do less, because many conservatives believe tech platforms already take down too much of their content.

This makes life very lonely for free speech defenders and classical liberals. Usually in the past, we could count on the Left to be with us in some free speech battles (such as putting an end to “indecency” regulations for broadcast radio and television), while the Right would be with us on others (such as opposition to the “Fairness Doctrine,” or similar mandates). Today, however, it is more common for classical liberals to be fighting with both sides about free speech issues.

My focus is primarily on the Right because, with the rise of Donald Trump and “national conservatism,” there seems to be a lot of soul-searching going on among conservatives about their stance toward private media platforms, and the editorial rights of digital platforms in particular.

In my new  Hill essay and others articles (all of which are listed down below), I argue there is a principled classical liberal approach to these issues that was nicely outlined by President Ronald Reagan in his 1987 veto of Fairness Doctrine legislation, when he said:

History has shown that the dan­gers of an overly timid or biased press cannot be averted through bureaucratic regulation, but only through the freedom and compe­tition that the First Amendment sought to guarantee.

Let’s break that line down. Reagan admits that media bias can be a real thing. Of course it is! Journalists, editors, and even the companies they work for all have specific views. They all favor or disfavor certain types of content. But, at least in the United States, the editorial decisions made by these private actors are protected by the First Amendment. Section 230 is really quite secondary to this debate, even though some Trumpian conservatives wrongly suggest that it’s the real problem here. In reality, national conservatives would need to find a way to work around well-established First Amendment protections if they wanted to impose new restrictions on the editorial rights of private parties.

But why would they want to do that? Returning to the Reagan veto statement, we should remember how he noted that, even if the First Amendment did not protect the editorial discretion of private media platforms, bureaucratic regulation was not the right answer to the problem of “bias.”  Competition and choice were the superior answer. This is the heart and soul of the classical liberal perspective: more innovation is always superior to more regulation.

For the past 30 years, conservatives and classical liberals were generally aligned on that point. But the ascendancy of Donald Trump created a rift in that alliance that now threatens to grow into a chasm as more and more Right-of-center people begin advocating for comprehensive control of media platforms.

The problems with that are numerous beginning with the fact that none of the old rationales for media controls work (and most of them never did). Consider the old arguments justifying widespread regulation of private media:

• “Scarcity” was the oldest justification for media regulation, but we live in the exact opposite world today, in which the most common complaint about media is the abundance of it!
• Conversely, the supposed “pervasiveness” of some media (namely broadcasting) was used as a rationale for government censorship in the past. But that, too, no longer works because in today’s crowded media marketplace and Internet-enabled world, all forms of communications and entertainment are equally pervasive to some extent.
• State ownership and licensing of spectrum was another rationale for control that no longer works. No digital media platforms need federal licenses to operate today. So, that hook is also gone. Moreover, the answer to the problem of government ownership of media is to stop letting the government own and control media assets, including spectrum.
• “Fairness” is another old excuse for control, with some regulatory advocates suggesting that five unelected bureaucrats at the Federal Communications Commission (or some other agency) are well-suited to “balance” the airing of viewpoints on media platforms. Of course, America’s disastrous experience with the Fairness Doctrine proved just how wrong that thinking was. [I summarize all the evidence proving that here.]

That leaves a final, more amorphous rationale for media control: ” gatekeeper” concerns and assertions that private media platforms can essentially become “state actors.” In the wake of Donald Trump’s “de-platorming” from Facebook and Twitter, many of his supporters began adopting this language in defense of more aggressive government control of private media platforms, including the possibility of declaring those platforms common carriers and demanding that some sort of amorphous “neutrality” mandates be imposed on them. But as Berin Szóka and Corbin Barthold of Tech Freedom note:

Where courts have upheld imposing common carriage burdens on communications networks under the First Amendment, it has been because consumers reasonably expected them to operate conduits. Not so for social media platforms. [. . . ] When it comes to the regulation of speech on social media, however, the presumption of content neutrality does not apply. Conservatives present their criticism of content moderation as a desire for “neutrality,” but forcing platforms to carry certain content and viewpoints that they would prefer not to carry constitutes a “content preference” that would trigger strict scrutiny. Under strict scrutiny, any “gatekeeper” power exercised by social media would be just as irrelevant as the monopoly power of local newspapers was in [previous Supreme Court holdings].

Put simply, efforts to stretch extremely narrow and limited common carriage precedents to fit social media just don’t work. We’ve already seen lower courts declare that recently when blocking the enforcement of new conservative-led efforts in Florida and Texas to limit the editorial discretion of private social media platforms. If conservatives really hope to get around these legal barriers to regulation, what would be needed would be a more far-reaching strike at the First Amendment itself. That would entail a jurisprudential revolution at the Supreme Court — reversing about a century of free speech precedents — or an some sort of an effort to amend the First Amendment itself. These things are almost certainly not going to occur.

But, again, this hasn’t stopped some conservatives from pitching extreme solutions in their efforts to regulate digital media at both the state and federal level. I discuss these efforts in previous essays on, “How Conservatives Came to Favor the Fairness Doctrine & Net Neutrality,“ “Sen. Hawley’s Radical, Paternalistic Plan to Remake the Internet,“ and “The White House Social Media Summit and the Return of ‘Regulation by Raised Eyebrow’.“ Perhaps some Trump-aligned conservatives understand that these legislative efforts are unlikely to work, but they continue to push them in an attempt to make life hell for tech platforms, or perhaps just to troll the Left and “own the Libs.”

On the other hand, some conservatives seem to really believe in some of the extreme ideas they are tossing around. What is particular troubling about these efforts is the way — following Trump’s lead — some conservatives, including even more mainstream conservative groups like the Heritage Foundation, are increasingly referring to private media platforms as “the enemy of the people.” That’s the kind of extremist language typically used by totalitarian thugs and Marxist lunatics who so hate private enterprise and freedom of speech that they are willing to adopt a sort of burn-the-village-to-save-it rhetorical approach to media policy.

And speaking of Marxists, here’s what is even more incredible about these efforts by some conservatives to use such rationales in support of comprehensive media regulation: It is all based on the “media access” playbook concocted by radical Leftist scholars a generation ago. As I summarized in my essay on, “The Surprising Ideological Origins of Trump’s Communications Collectivism“:

Media access advocates look to transform the First Amendment into a tool for social change to advance specific political ends or ideological objectives. Media access theory dispenses with both the editorial discretion rights and private property rights of private speech platforms. Private platforms become subject to the political whims of policymakers who dictate “fair” terms of access. We can think of this as communications collectivism.

Media access doctrine is rooted in an arrogant, elitist, anti-property, anti-freedom ethic that suggest the State is a better position to dictate what can and cannot be said on private speech platforms. “It’s astonishing, yet nonetheless true,” I continued on in that essay, “that the ideological roots of Trump’s anti-social media campaign lie in the works of those extreme Leftists and even media Marxists. He has just given media access theory his own unique nationalistic spin and sold this snake oil to conservatives.” Yet, Trump and other national conservatives are embracing this contemptible doctrine because now more than ever the ends apparently justify the means in American politics. Nevermind that all this could come back to haunt them when the Left somehow leverages this regulatory apparatus to control Fox News or other sites and content that conservatives favor! Once media platforms are viewed as just another thing to be controlled by politics, the only question is which politics and how are those politics enforced? Certainly both the Left and the Right cannot both have their way given all that current divides them.

Finally, what is utterly perplexing about all this is how much thanks national conservatives really owe to the major digital platforms they now seek to destroy. As I noted in my new Hill op-ed:

There has never been more opportunity for conservative viewpoints than right now. Each day on Facebook, the top-10 most shared links are dominated by pundits such as Ben Shapiro, Dan Bongino, Dinesh D’Souza and Sean Hannity. Right-leaning content is shared widely on Twitter each day. Websites like Dailywire.com and Foxnews.com get far more traffic than the New York Times or CNN.

Thus, conservatives might be shooting themselves in the foot if they were able to convince more legislatures to adopt the media access regulatory playbook because it could have profound unintended consequences once the Left uses those tools to somehow restrict access to “hate speech” or “misinformation” — and then define it so broadly so as to include much of the top material posted by conservatives on Facebook and Twitter ever day.

Not all conservatives have drank the media access kool-aid. In the wake of Trump’s deplatforming from a few major sites, a wave of new Right-leaning digital services are being planned or have already launched. (Axios and Forbes recently summarized some of these efforts.) I don’t know which will of these efforts will succeed, but more competition and platform-building are certainly superior to current calls by some Trump supporters for government regulation of mainstream social media services.

Again, this is the old Reagan vision at its finest! We can achieve a better media landscape, “only through the freedom and compe­tition that the First Amendment sought to guarantee,” not through bureaucratic regulation. It remains the principled path forward.

Additional Reading :

• “Left and right take aim at Big Tech — and the First Amendment“
• “When It Comes to Fighting Social Media Bias, More Regulation Is Not the Answer“
• “FCC’s O’Rielly on First Amendment & Fairness Doctrine Dangers“
• “Conservatives & Common Carriage: Contradictions & Challenges“
• “The Great Deplatforming of 2021“
• “A Good Time to Re-Read Reagan’s Fairness Doctrine Veto“
• “Sen. Hawley’s Radical, Paternalistic Plan to Remake the Internet“
• “How Conservatives Came to Favor the Fairness Doctrine & Net Neutrality“
• “Sen. Hawley’s Moral Panic Over Social Media“
• “The White House Social Media Summit and the Return of ‘Regulation by Raised Eyebrow’“
• “The Not-So-SMART Act“
• “The Surprising Ideological Origins of Trump’s Communications Collectivism“

Older essays & testimony :

• Adam Thierer, “Why Regulate Broadcasting: Toward a Consistent First Amendment Standard for the Information Age,” Catholic University Law School, 15 CommLaw Conspectus (Summer 2007): 431-482.
• Adam Thierer, Testimony at FCC’s Hearing on “Serving the Public Interest in the Digital Era”, March 3, 2010.
• Adam Thierer, “FCC v. Fox and the Future of the First Amendment in the Information Age,” Federalist Society, Engage (Feb. 2009).

Interoperability is a topic that has long been of interest to me. How networks, platforms, and devices work with each other–or sometimes fail to–is an important engineering, business, and policy issue. Back in 2012, I spilled out over 5,000 words on the topic when reviewing John Palfrey and Urs Gasser’s excellent book, Interop: The Promise and Perils of Highly Interconnected Systems.

I’ve always struggled with the interoperability issues, however, and often avoided them became of the sheer complexity of it all. Some interesting recent essays by sci-fi author and digital activist Cory Doctorow remind me that I need to get back on top of the issue. His latest essay is a call-to-arms in favor of what he calls “adversarial interoperability.” “[T]hat’s when you create a new product or service that plugs into the existing ones without the permission of the companies that make them,” he says. “Think of third-party printer ink, alternative app stores, or independent repair shops that use compatible parts from rival manufacturers to fix your car or your phone or your tractor.”

Doctorow is a vociferous defender of expanded digital access rights of many flavors and his latest essays on interoperability expand upon his previous advocacy for open access and a general freedom to tinker. He does much of this work with the Electronic Frontier Foundation (EFF), which shares his commitment to expanded digital access and interoperability rights in various contexts.

I’m in league with Doctorow and EFF on some of these things, but also find myself thinking they go much too far in other ways. At root, their work and advocacy raise a profound question: should there be any general right to exclude on digital platforms? Although he doesn’t always come right out and say it, Doctorow’s work often seems like an outright rejection of any sort of property rights in networks or platforms. Generally speaking, he does not want the law to recognize any right for tech platforms to exclude using digital fences of any sort.

Where to Draw the Lines?

As someone who has authored a book about the importance of permissionless innovation, I need to be able to answer questions about where these lines between open versus closed systems are drawn. Definitions and framing matter, however. I use “permissionless innovation” as a descriptor for one possible policy disposition when considering where legal and regulatory defaults should be set. Another conception of permissionless innovation is more of an engineering ideal; a general freedom to connect, tinker, modify, etc. (I speak more about these conceptions in my latest book, Evasive Entrepreneurs.) Of course, someone advocating permissionless innovation as a policy default will sometimes be confronted with the question of what the law should say when someone behaves in an “evasive” fashion in the latter conception of permissionless innovation.

Doctorow would generally answer that question by saying that law should not be rigged to favor exclusion through laws like the DMCA (and specifically the law’s anti- circumvention provisions), Computer Fraud and Abuse Act, patent law, and various other rules and laws. “[T]he current crop of Big Tech companies has secured laws, regulations, and court decisions that have dramatically restricted adversarial interoperability.”

Generally speaking, I agree. I’m not a fan of technocratic laws or regulations that seek to micro-manage interoperability and which stack the deck in favor of exclusionary conduct with steep penalties for evasion. But does that mean adversarial interoperability should be permitted in all cases? Should there exist any sort of common law presumption one way or the other when a user or competitor seeks access to an existing private platform or device?

Specifics matter here and I don’t have time to get into all the case studies that Doctorow goes through. Some are no-brainers, like the infamous Lexmark case involving refillable printer ink cartridges. Other cases are far more complicated, at least for me. Does Epic, creator of Fortnite, have a right of adversarial interoperability that it can exercise against Apple and their AppStore? As Dirk Auer suggests in a new essay, this episode looks more like a straightforward pricing dispute. Epic is making it out to be much more than that, suggesting Apple is guilty of unfair and exclusionary practices that require a legal remedy.

Why not take that logic further and just say Apple’s App Store us tantamount to a natural monopoly or digital essential facility that Epic and everyone else is entitled to on whatever terms they want? For that matter, why not apply the same logic to Epic’s Fortnite platform or even its Unreal Engine? Does every other gaming developer have a right to piggyback on the juggernaut that Epic has built?

This gets to the core question about Doctorow’s concept of adversarial interoperability: Exactly what should common law and the courts say platform owners make access rights a simple pricing matter and say: “You pay or you are out.” Like Doctorow and EFF, I don’t want Apple to benefit from any special favors from laws like DMCA. Where we differ is that I would still leave the door open for Apple to exercise various other common law contractual rights or property rights in court.

I suspect Doctorow would deny any such claims by Apple or anyone else. If so, I would like to see him spell out in more precise terms exactly what Apple’s property rights and contractual rights are in this instance. Or, again, should we just treat the App Store as a digital commons with unfettered open access rights for developers? If so, would Apple be required to still manage the resource once it is a quasi-commons?

I think that would end miserably, but would like to hear Doctorow’s preferred approach before saying more. I suspect a lot rides on the distinction between “open” verses “proprietary” standards, but compared to Doctorow and EFF, I am willing to embrace a world of both open and proprietary systems, and many hybrids in between. I don’t want the law favoring one type over the other, but that means I need to endorse a generalized property right for digital operators such that they can still exclude others (even in the absence of artificial regulatory rights like DMCA creates). Again, I suspect Doctorow would reject that standard, preferring a generalized right of access, even if that means the platforms become de facto commons.

More Radical Steps

Elsewhere, Doctorow has said is that some of these questions would be better addressed through more aggressive antitrust regulation. Mere data portability or mandatory interoperability isn’t enough for him. “Data portability is important,” Doctorow says, “but it is no substitute for the ability to have ongoing access to a service that you’re in the process of migrating away from.”

In his latest online book on “How to Destroy Surveillance Capitalism,” Doctorow suggests that it is time to “make Big Tech small again” through an “anti-monopoly ecology movement.” That “means bans on mergers between large companies, on big companies acquiring nascent competitors, and on platform companies competing directly with the companies that rely on the platforms.” And he desires a host of other remedies.

So, here we have the convergence of interoperability policy and antitrust policy, with a layer of property confiscation layered on top apparently. “Now it’s up to us to seize the means of computation, putting that electronic nervous system under democratic, accountable control,” he insists in his latest manifesto.

What’s funny about this is that Doctorow begins most of his essays by pointing out all the ways that politics is the problem when it comes to access issues, only to end by suggesting that a lot more political meddling is the required solution. He repeatedly laments how large tech players have so often been able to convince lawmakers and regulators to pass special laws or regulations that work to their favor. Yet, in his We-Can-Build-A-Better-Bureaucrat model of things, all those old problems will apparently disappear when we get the right people in power and get rid of those nefarious capitalist schemers.

Thus, what really animates Doctorow’s advocacy for adversarial interoperability is a deep suspicion of free market capitalism and property rights in particular. In this worldview, interoperability really just becomes a Trojan Horse meant to help bring down the entire capitalist order. Am I exaggerating? “As to why things are so screwed up? Capitalism.” Those are his exact words from the conclusion of his latest book.

Adversarial Innovation & Evolutionary Interop

Still, Doctorow raises many legitimate issues about interconnection and digital access rights. But we need a better approach to work though these questions than the one he suggests.

In my lengthy review of the Palfrey and Gasser Interop book, I tried to sketch out an alternative framework for thinking seriously about these issues. I referred to my preferred approach as “experimental interoperability” or “evolutionary interoperability.” I described this as the theory that ongoing marketplace experimentation with technical standards, modes of information production and dissemination, and interoperable information systems, is almost always preferable to the artificial foreclosure of this dynamic process through state action. The former allows for better learning and coping mechanisms to develop while also incentivizing the spontaneous, natural evolution of the market and market responses.

Adversarial interoperability is important, but not nearly as important as adversarial innovation and facilities-based competition. Stated differently, access rights to existing systems is an important value, but the incentives we have in place to encourage entirely new systems is what really matters most. At some point, a generalized right of access to existing systems discourages the sort of platform-building that could help give rise to the sort of creative destruction we have seen at work repeatedly in the past and that we still need today. Taken too far, adversarial interoperability threatens to undermine this goal. Why seek to build a better alternative platform if you can just endlessly free ride off someone else’s by force of law?

Thus, I prefer to work at the margins and think through how to balance these competing claims of access / interoperability rights versus contractual / property rights. My take will be too utilitarian for not only Doctorow but also for some libertarians, who want clear answers to all these questions based upon their preferred natural law-oriented constructions of rights. The problem with that approach is that it leads to all-or-nothing extremes (complete digital property rights, or virtually none) and that approach is fundamentally unworkable and destructive. We need to work harder about how to balance these rights and values in pro-competitive, pro-innovation fashion.

There is No Such Thing as Optimal Interoperability

In sum, there is no such thing as “optimal interoperablity.” Sometimes proprietary or “closed” systems will offer the public features and options that they will find preferable to “open” ones.  “There are many reasons why consumers might prefer ‘closed’ systems – even when they have to pay a premium for them,” argues Dirk Auer in a separate essay. It could be greater convenience, security, or other things. Palfrey and Gasser correctly noted in their book that, “the state is rarely in a position to call a winner among competing technologies” (p. 174). Moreover, they concluded:

“Lawmakers need to keep in view the limits of their own effectiveness when it comes to accomplishing optimal levels of interoperability. Case studies of government intervention, especially where complex information technologies are involved, show that states tend to be ill suited to determine on their own what specific technology will be the best option for the future (p. 175)

A thousand amens to that! The law should not artificially foreclose experimentation with many different types of platforms, standards, devices and the interoperability that exists among them.

Ronald J. Deibert is the director of The Citizen Lab at the University of Toronto’s Munk School of Global Affairs and the author of an important new book, Black Code: Inside the Battle for Cyberspace, an in-depth look at the growing insecurity of the Internet. Specifically, Deibert’s book is a meticulous examination of the “malicious threats that are growing from the inside out” and which “threaten to destroy the fragile ecosystem we have come to take for granted.” (p. 14) It is also a remarkably timely book in light of the recent revelations about NSA surveillance and how it is being facilitated with the assistance of various tech and telecom giants.

The clear and colloquial tone that Deibert employs in the text helps make arcane Internet security issues interesting and accessible. Indeed, some chapters of the book almost feel like they were pulled from the pages of techno-thriller, complete with villainous characters, unexpected plot twists, and shocking conclusions. “Cyber crime has become one of the world’s largest growth businesses,” Deibert notes (p. 144) and his chapters focus on many prominent recent examples, including cyber-crime syndicates like Koobface, government cyber-spying schemes like GhostNet, state-sanctioned sabotage like Stuxnet, and the vexing issue of zero-day exploit sales.

Deibert is uniquely qualified to narrate this tale not just because he is a gifted story-teller but also because he has had a front row seat in the unfolding play that we might refer to as “How Cyberspace Grew Less Secure.” Indeed, he and his colleagues at The Citizen Lab have occasionally been major players in this drama as they have researched and uncovered various online vulnerabilities affecting millions of people across the globe. (I have previously reviewed and showered praise on a couple important books that Deibert co-edited with scholars from The Citizen Lab and Harvard’s Berkman Center, including: Access Controlled: The Shaping of Power, Rights, and Rule in Cyberspace and Access Denied: The Practice and Policy of Global Internet Filtering. They are truly outstanding resources worthy of your attention.)

Black Code’s Many Meanings

So, what is “black code” and why should we be worried about it? Deibert uses the term as a metaphor for many closely related concerns. Most generally it includes “that which is hidden, obscured from the view of the average Internet user.” (p. 6) More concretely, it refers to “the criminal forces that are increasingly insinuating themselves into cyberspace, gradually subverting it from the inside out.” (p. 7) “Those who take advantage of the Internet’s vulnerabilities today are not just juvenile pranksters or frat house brats,” Deibert notes, “they are organized criminal groups, armed militants, and nation states.” (p. 7-8) Which leads to the final way Deibert uses the term “black code.” It also, he says, “refers to the growing influence of national security agencies, and the expanding network of contractors and companies with whom they work.” (p. 8)

Deibert is worried about the way these forces and factors are working together to undermine online stability and security, and even delegitimize liberal democracy itself. His thesis is probably most succinctly captured in this passage from Chapter 7:

We live in an era of unprecedented access to information, and many political parties campaign on platforms of transparency and openness. And yet, at the same time, we are gradually shifting the policing of cyberspace to a dark world largely free from public accountability and independent oversight. In entrusting more and more information to third parties, we are signing away legal protections that should be guaranteed by those who have our data. Perversely, in liberal democratic countries we are lowering the standards around basic rights to privacy just as the center of cyberspace gravity is shifting to less democratic parts of the world. (p. 130-1)

What Deibert is grappling with in this book is the same fundamental problem that has long plagued the Internet: How do you preserve the benefits associated with the most open and interconnected “network of networks” the world has ever known while also remedying the various vulnerabilities and pathologies created by that same openness and interconnectedness?  Deibert acknowledges this problem, noting:

Ever since the Internet emerged from the world of academia into the world of the rest of us, its growth trajectory has been shadowed by a grey economy that thrives on opportunities for enrichment made possible by an open, globally connected infrastructure. (p. 141)

The Paradox of the Net’s Open, Interconnected Nature

Again, paradoxically, this inherent instability and vulnerability is due precisely to the Net’s open and globally interconnected nature. And many governments are looking to exploit that fact. “These unfortunate by-products of an open, dynamic network are exacerbated by increasing assertions of state power,” Deibert notes. (p. 233)

More generally, this uncomfortable fact—that the Net’s open, interconnected nature leads to both enormous benefits as well as huge vulnerabilities—isn’t just true for criminal online activity or the cyber-espionage activities that various nation-states are pursuing today. It is equally true for everything online today. There is a sort of yin and the yang to the Net that is simply undeniable and completely unavoidable. For one issue after another we find that the Net’s greatest blessing—its open, interconnected nature—is also its greatest curse.

For example, as I noted here recently in my review of Abraham H. Foxman and Christopher Wolf ‘s new book, Viral Hate: Containing Its Spread on the Internet, the open and interconnected Internet gives us “the most widely accessible, unrestricted communications platform the world has ever known” but also  means we have to tolerate a great many imbeciles “who use it to spew insulting, vile, and hateful comments.” The same is true for other types of online speech and content: You have access to an abundance of informational riches, but there’s also no avoiding all the garbage out there now, too.

Similarly, as I noted in my essay, “Privacy as an Information Control Regime: The Challenges Ahead,” the open and interconnected Internet has given us historically unparalleled platforms for social interaction and commerce. But that same openness and interconnectedness has left us with a world of hyper-exposure and a variety of privacy and surveillance threats—not just from governments and large corporations, but also from each other.

And then there’s the never-ending story of digital copyright. On one hand, the open and globally interconnected network or networks has provided us with an amazing platform for sharing knowledge, art, and expression. On the other hand, as I noted in this essay on “The Twilight of Copyright,” creators of expressive works have less security than ever before in terms of how they can control and monetize their artistic and scientific inventions.

I could go on and on—as I did in my essays on “Copyright, Privacy, Property Rights & Information Control: Common Themes, Common Challenges” and “When It Comes to Information Control, Everybody Has a Pet Issue & Everyone Will Be Disappointed”—but the moral of the story is pretty clear: The Internet giveth and the Internet taketh away. Openness and interconnectedness offer us enormous benefits but also force us to confront major risks as the price of admission to this wonderful network.

Will the Whole System Collapse?

The uncomfortable question that Deibert’s book tees up for discussion is: When will this balance get completely out of whack in terms of online security? Or, has it already? In some portions of the text, he hints that may already be the case. Consider this passage in Chapter 11 in which Deibert discusses whether the Chicken Little-ism of digital security worry-warts like Eugene Kaspersky and Richard Clarke is warranted:

Eugene Kaspersky, Richard Clarke, and others may sound like broken records or self-serving fear mongers, but there is no denying the evolving cyberspace ecosystem around us: we are building a digital edifice for the entire planet, and it sits above us like a house of cards. We are wrapping ourselves in expanding layers of digital instructions, protocols, and authentication mechanisms, some them open scrutinized, and regulated, but many closed, amorphous, and poised for abuse, buried in the black arts of espionage, intelligence gathering, and cyber and military affairs. Is it only a matter of time before the whole system collapses? (p. 186)

That sounds horrific, but is it really the case that the entire system really about to collapse? And, if so, what are we going to do about it?

This raises a small problem with Deibert’s book. He does such a nice job itemizing and describing these security vulnerabilities that by the time the reader wades through 230 pages and nears the end of the book, they are left in a highly demoralized state, searching for some hope and a concrete set of practical solutions. Unfortunately, they won’t find an abundance of either in Deibert’s brief closing chapter, “Toward Distributed Security and Stewardship in Cyberspace.”

Don’t get me wrong; I agree with the general thrust of Deibert’s framework, which I describe below. The problem is that it is highly aspirational in nature and lacks specifics. Perhaps that is simply because there are no easy answers here. Digital security is damn hard and, as with most other online pathologies out there, no silver-bullet solutions exist.

Deibert notes that some government officials will seek to exploit those vulnerabilities—many of which they created themselves—to expand their authority over the Internet. “Faced with mounting problems and pressures to do something, too many policy-makers are tempted by extreme solutions,” he notes. (p. 234) He worries about “a movement towards clamp down” that would be “antithetical to the principles of liberal democratic government” by undermining checks and balances and accountability. (p. 235) In turn, this will undermine the “mixed common-pool resource” that is the current Internet.

Deibert’s alternative cyber security strategy to counter the push to “clamp down” is based on three interrelated notions or components:

1. Principles of restraint or “mutual restraint”: “Securing cyberspace requires a reinforcement, rather than a relaxation, of restraint on power, including checks and balances on governments, law enforcement, intelligence agencies, and on the private sector,” he argues. (p. 239)
2. “Distributed security”: “The Internet functions precisely because of the absence of centralized control, because of thousands of loosely coordinated monitoring mechanisms,” Deibert notes. “While these decentralized mechanisms are not perfect and can occasionally fail, they form the basis of a coherent distributed security strategy. Bottom-up, ‘grassroots’ solutions to the Internet’s security problems are consistent with principles of openness, avoid heavy-handedness, and provide checks and balances against the concentrations of power,” he observes. (p. 240)
3. “Stewardship” which Deibert defines as “an ethic of responsible behavior in regard to shared resources” and which, he argues, “would moderate the dangerously escalating exercise of state power in cyberspace by defining limits and setting thresholds of accountability and mutual restraint.” (p. 243)

Again, as an aspirational vision statement this all generally sounds fairly sensible, but the details are lacking. I think Deibert would have been wise to spend a bit more time developing this alternative “bottom-up” vision of how online security should work and bolstering it with case studies.

Digital Security without Top-Down Controls

Luckily, as my Mercatus Center colleague Eli Dourado noted in an important June 2012 white paper, distributed security and stewardship strategies are already working reasonably well today. Dourado’s paper, “Internet Security Without Law: How Service Providers Create Order Online,” documented the many informal institutions that enforce network security norms on the Internet and shows how cooperation among a remarkably varied set of actors improves online security without extensive regulation or punishing legal liability. “These informal institutions carry out the functions of a formal legal system—they establish and enforce rules for the prevention, punishment, and redress of cybersecurity-related harms,” Dourado noted.

For example, a diverse array of computer security incident response teams (CSIRTs) operates around the globe and share their research and coordinate their responses to viruses and other online attacks. Individual Internet service providers (ISPs), domain name registrars, and hosting companies, work with these CSIRTs and other individuals and organizations to address security vulnerabilities. A growing market for private security consultants and software providers also competes to offer increasingly sophisticated suites of security products for businesses, households, and governments.

A great deal of security knowledge is also “crowd-sourced” today via online discussion forums and security blogs that feature contributions from experts and average users alike. University-based computer science and cyberlaw centers (like Citizen Lab) and experts have also helped by creating projects like “Stop Badware,” which originated at Harvard University but then grew into a broader non-profit organization with diverse financial support.

Dourado continues on in his paper to show how these informal, bottom-up efforts to coordinate security responses offer several advantages over top-down government solutions, such as administrative regulation or punishing liability regimes.

Dourado’s description of the ideal approach to online security is entirely consistent with Deibert’s vision in Black Code. In fact, Deibert notes, “It is important to remind ourselves that in spite of the threats, cyberspace runs well and largely without persistent disruption. On a technical level, this efficiency is founded on open and distributed networks of local engineers who share information as peers,” he observes. (p. 240) That is exactly right, but I wish Deibert would have spent more time discussing how this system works in practice today and how it can be tweaked and improved to head off the heavy-handed and very costly top-down solutions that we both dread.

Toward Resiliency

But there’s one other thing I wish Deibert would have explored in the book: resiliency, or how we have adapted to various cyber-vulnerabilities over time.

For example, in another recent Mercatus Center study entitled “Beyond Cyber Doom: Cyber Attack Scenarios and the Evidence of History,” Sean Lawson, an assistant professor in the Department of Communication at the University of Utah, has stressed the importance of resiliency as it pertains to cybersecurity and concerns about “cyberwar.” “Research by historians of technology, military historians, and disaster sociologists has shown consistently that modern technological and social systems are more resilient than military and disaster planners often assume,” he writes. “Just as more resilient technological systems can better respond in the event of failure, so too are strong social systems better able to respond in the event of disaster of any type.”

More generally, as I noted in my recent law review article on “technopanics” and “threat inflation” in information technology policy debates:

while it is certainly true that “more could be done” to secure networks and critical systems, panic is unwarranted because much is already being done to harden systems and educate the public about risks. Various digital attacks will continue, but consumers, companies, and others organizations are learning to cope and become more resilient in the face of those threats.

What Professor Lawson and I are getting at in our respective articles is that the ability of organizations, institutions, and individuals to bounce back from adversity is a frequently unheralded feature of various systems and that it deserves more serious study. (See Andrew Zolli and Ann Marie Healy’s nice book, Resilience: Why Things Bounce Back, for more on this general topic). In the context of online security, what is most remarkable to me is not that the Internet suffers from vulnerabilities due to its open and interconnected nature; it’s that we don’t suffer far more damage as a result.

This gets us back to that very profound question that Deibert poses in Black Code: “Is it only a matter of time before the whole system collapses?” The better question, I think, is: why hasn’t the system already collapsed? Perhaps the answer is, because things haven’t gotten bad enough yet. But I believe that the more realistic answer is that: individuals and institutions often learn how to cope and become resilient in the face of adversity. This is partially the case online because of the stewardship and distributed, decentralized security we already see at work today that makes digital life tolerable.

But it has to be something more than that. After all, many of the security problems that Deibert describes in his book are quite serious and already affect millions of us today. How, then, are we getting by right now? Again, I think the answer has to be that adaptation and resiliency are at work on many different levels of online life.

Consider, for example, how we have learned to deal with spam, viruses, online porn, various online advertising and privacy concerns, and so on. Our adaptation to these threats and annoyances has not been perfectly smooth, of course. No doubt, some people would still like “something to be done” about these things. But isn’t it remarkable how we have, nonetheless, carried on with online commerce and interactive social life even as these problems have persisted?

Conclusion

Going forward, therefore, perhaps there are some reasons for hope. Perhaps the various generic strategies that Deibert outlines in his book, coupled with the remarkable ability of humans to roll with the punches and adapt, will help us come out of this just fine (or at least reasonably well).

Of course, it could also be the case that these security concerns just multiply and that the Internet then morphs into sometime quite different than the interconnected “network of networks” we know today. As I noted in my 2009 essay on “Internet Security Concerns, Online Anonymity, and Splinternets,” we might be moving toward a world with more separate dis­connected digital networks and online “gated communities.” This could take place spontaneously over time and be driven by corporations seeking to satisfy the demand of some consumers for safer and more secure online experiences. As I noted in my review of Jonathan Zittrain’s book, The Future of the Internet, I am actually fine with some of that. I think we can live in a hybrid world of “walled gardens” alongside of the “Wild West” open Internet, so long as this occurs in a spontaneous, organic, bottom-up fashion. [For a more extensive discussion, see my book chapter, “The Case for Internet Optimism, Part 2 – Saving the Net From Its Supporters.”]

If, however, this “splintering” of the Net is done from the top-down through intentional (or even incidental) government action, then it is far more problematic. We already see signs, for example, that Russia is pushing even more strongly in that direction in the wake of the NSA leaks. (See “N.S.A. Leaks Revive Push in Russia to Control Net,” New York Times, July 14.) The Russians have been using amorphous security concerns to push for greater Internet control for some time now. Of course, China has been there for years. So have many Middle Eastern countries. Of course, there’s no guarantee that their respective “splinternets” are, or would be, any more secure than today’s Internet, but it sure would make those networks far more susceptible to state control and surveillance. If that’s our future, then it certainly is a dismal one.

Anyway, read Ron Deibert’s Black Code for an interesting exploration of these and other issues. It’s an excellent contribution to field of Internet policy studies and a book that I’ll be recommending to others for many years to come.

Additional resources:

• the official website for Black Code
• the Citizen Lab website at the University of Toronto
• follow Ronald Deibert and The Citizen Lab on Twitter
• video of Washington, D.C. book launch for Black Code (held at the National Endowment for Democracy on 6/24/13)

Other books you should read alongside “Black Code” (links are for my reviews of each book):

• Access Controlled: The Shaping of Power, Rights, and Rule in Cyberspace edited by Ronald J. Deibert, John G. Palfrey, Rafal Rohozinski, and Jonathan Zittrain
• Consent of the Networked: The Worldwide Struggle for Internet Freedom , by Rebecca MacKinnon
• Cyber War: The Next Threat to National Security and What to Do About It, by Richard A. Clarke and Robert K. Knake
• Liars & Outliers: Enabling the Trust that Society Needs to Thrive, by Bruce Schneier
• Regulating Code: Good Governance and Better Regulation in the Information Age, by Ian Brown & Christopher T. Marsden
• Networks and States: The Global Politics of Internet Governance, by Milton Mueller
• Resilience: Why Things Bounce Back, by Andrew Zolli & Ann Marie Healy

Jane Yakowitz of Brooklyn Law School recently posted an interesting 63-page paper on SSRN entitled, “Tragedy of the Data Commons.” For those following the current privacy debates, it is must reading since it points out a simple truism: increased data privacy regulation could result in the diminution of many beneficial information flows.

Cutting against the grain of modern privacy scholarship, Yakowitz argues that “The stakes for data privacy have reached a new high water mark, but the consequences are not what they seem. We are at great risk not of privacy threats, but of information obstruction.” (p. 58)  Her concern is that “if taken to the extreme, data privacy can also make discourse anemic and shallow by removing from it relevant and readily attainable facts.” (p. 63)  In particular, she worries that “The bulk of privacy scholarship has had the deleterious effect of exacerbating public distrust in research data.”

Yakowitz is right to be concerned. Access to data and broad data sets that include anonymized profiles of individuals is profound importantly for countless sectors and professions: journalism, medicine, economics, law, criminology, political science, environmental sciences, and many, many others. Yakowitz does a brilliant job documenting the many “fruits of the data commons” by showing how “the benefits flowing from the data commons are indirect but bountiful.” (p. 5) This isn’t about those sectors making money. It’s more about how researchers in those fields use information to improve the world around us. In essence, more data = more knowledge. If we want to study and better understand the world around us, researchers need access to broad (and continuously refreshed) data sets. Overly restrictive privacy regulations or forms of liability could slow that flow, diminish or weaken research capabilities and output, and leave society less well off because of the resulting ignorance we face.

Consequently, her paper includes a powerful critique of the “de-anonymization” and “easy re-identification” fears set forth by the likes of Paul Ohm, Arvind Narayanan, Vitaly Shmatikov, and other computer scientists and privacy theorists. These scholars have suggested that because the slim possibility exists of some individuals in certain data sets being re-identified even after their data is anonymized, that fear should trump all other considerations and public policy should be adjusted accordingly (specifically, in the direction of stricter privacy regulation / tighter information controls).

She continues on to brilliantly dissect and counter this argument that the privacy community has put forward, which is tantamount to a ‘it’s better to be safe than sorry’ mentality. “If public policy had embraced this expansive definition of privacy — that privacy is breached if somebody in the database could be reidentified by anybody else using special non-public information — dissemination of data would never have been possible,” she observes.

If anything, Yakowitz doesn’t go far enough here. In my recent filing to the Federal Trade Commission in their “Do Not Track” proceeding, I noted that we are witnessing the rise of a “Privacy Precautionary Principle” that threatens to block many forms of digital progress through the application of a “Mother, May I” form of prophylactic information regulation. Basically, you won’t be allowed to collect many forms of information / data until receiving permission from some agency, or at least an assurance that crushing liability won’t be imposed later if you do. Such a Privacy Precautionary Principle will have troubling implications for the future of the Internet and free speech (especially press freedoms) as it essentially threatens to stop digital progress in its tracks based on conjectural fears about data collection / aggregation. But it’s effect will be even more deleterious on the research community. Yakowitz brilliantly addresses this danger in her paper when she notes:

Privacy advocates tend to play the role of doom prophets — their predictions of troubles are ahead of their times. Convinced of the inevitability of the harms, privacy scholars are dissatisfied with reactive rather than proactive, regulation. Reactive legislation gets a bad wrap, but it is the most appropriate course for anonymized research data. Legislation inhibiting the dissemination of research data would have guaranteed drawbacks today for the research community and to society at large. We should find out whether reidentification risk materializes before taking such drastic measures. (p. 48-9)

Quite right. The application of a Privacy Precautionary Principle would have radical ramifications for the research community and, then, society more generally. It is essential, therefore, that policymaker think carefully about calls for sweeping privacy controls and, at a minimum, conduct a comprehensive cost-benefit analysis of any proposed regulations before shutting off the flow of information online.

But we should realize that there will never be black-and-white answers to some of these questions. Using the example of Google Flu Trends, Yakowitz notes that it is often impossible to predict in advance what data or data sets are “socially valuable” in an effort to determine preemptively what should be allowed vs. restricted:

Google Flu Trends exemplifies why it is not possible to come to an objective, prospective agreement on when data collection is sufficiently in the public’s interest and when it is not. Flu Trends is an innovative use of data that was not originally intended to serve an epidemiological purpose. It makes use of data that, in other contexts, privacy advocates believe violate Fair Information Practices. This illustrates a concept understood by data users that is frequently discounted by the legal academy and policymakers: some of the most useful, illuminating data was originally collected for a completely unrelated purpose. Policymakers will not be able to determine in advance which data resources will support the best research and make the greatest contributions to society. To assess the value of research data, we cannot cherry-pick between “good” and “bad” data collection. (p. 11-12)

Importantly, Yakowitz also notes that data access is a powerful accountability mechanism. “A thriving public data commons serves the primary purpose of facilitating research, but it also serves a secondary purpose of setting a data-sharing norm so that politically-motivated access restrictions will stick out and appear suspect.” (p. 17)  In essence: the more data, the more chances we can hold those around us more accountable and check their power.  (David Brin also made this point brilliantly in his provocative 1998 book, The Transparent Society, in which he noted that it was access to information and openness to data flows that put the “light” in Enlightenment!)

Yakowitz feels so passionately about openness and access to data that she goes on to propose a safe harbor to shield data producers / aggregators from liability if they follow a set of reasonable anonymization protocols. She compares this to the sort of protection that the First Amendment offers to journalists as they seek to unearth and disseminate important truthful information of public interest. She argues that aggregated research data serves a similar purpose because of the myriad ways it benefits society and, therefore, those who produce and aggregate it deserve some protection from punishing liability.  (I thought she might also reference CDA Sec. 230 here as well, but she didn’t.  Sec. 230 immunizes online intermediaries from potentially punishing forms of liability for the content sent over their digital networks. The purpose is to ensure that information continues to flow across digital networks by avoiding the “chilling effect” that looming liability would have on intermediaries and online discourse. See my essays: 1, 2, 3, 4.)

Anyway, read the entire Yakowitz paper. It deserves serious attention. It could really shake up the current debate over privacy regulation.

Yesterday I engaged in a lively luncheon debate about Net neutrality regulation with Ben Scott of Free Press at a Catholic University Law School event on “Implementing the National Broadband Plan.” To open the debate, I made a very quick 5-Part Case against Net Neutrality Regulation. I argued that the the objections to a Net neutrality regulatory regime can be grouped into 5 major categories: (1) Legal; (2) Economic; (3) Engineering; (4) Practical; and (5) Philosophical / Principled. Down below you will find my working notes to see how I then elaborated on each objection in a bit more detail. And then Ben and I engaged in some spirited banter for the next 45 minutes.

Unfortunately, it doesn’t appear that the video of our debate is online just yet, but once it is I will post it here. However, the folks from NextGenWeb asked me to shoot a short 2 1/2 min video clip after the debate summarizing my remarks. If you can stand the sight of my big fat head in your browser for that long, here ya go:

The 5-Part Case against Net Neutrality Regulation

The objections to a Net neutrality regulatory regime can be grouped into 5 major categories: (1) Legal; (2) Economic; (3) Engineering; (4) Practical; and (5) Philosophical / Principled. Each objection will be briefly summarized below:

(1)   The Legal Case

• The FCC utterly lacks the authority to regulate in this way: The Commission’s current effort, which is tantamount to throwing stuff at wall to see what sticks, is troubling. They should go to Congress for authority.
• Importantly, Sec. 230 & 706 of the Telecom Act cannot be the hook: They were deregulatory in nature & aimed at keeping govt’s hands off the Net.
• Litigation nightmare : Regardless of how the FCC or Congress plows forward, we’re going to get tied up in the courts for years if we continue down the regulatory path. It will become “full employment” for telecom lawyers.

(2)    The Economic Case

• NN will likely create substantial disincentives to invest and innovate: At a time when we’re trying to build out broadband infrastructure the last thing we should be doing is disincentivizing network investment.
• NN could regress into old fashion rate or return / price control regime. In the history of network regulation, price and rate controls have always accompanied service regulations.
• Sharing is not competing: If this is all just greasing the skids for a new line-sharing or forced access regime, well, we’ve been there before and it didn’t end well. Creating networks built on paper is a worthless endeavor.
• Facilities-based competition, not infrastructure sharing is the path forward if we want truly robust & competitive networks and markets.
• Contestability counts: This is a contestable market. Threats of new entry at margins keep incumbents on their toes.

(3)   The Engineering Case

• We shouldn’t be freezing networks in stone: (Can you imagine if we would have frozen 1999 walled garden model in place?) The Net was “designed for change” (Richard Bennett) and it should be allowed to adapt to changing circumstances.
• Flexibility is crucial for fast-moving technologies & networks: In particular, we need to grant network managers the flexibility to deal with congestion, latency, malware & other unforeseen problems.
• Innovation at the core of networks is every bit as important as innovation at the edge: We don’t want stagnation at the core or networks, and the applications that ride on them, will suffer.

(4)   The Practical Case

• The FCC just isn’t very good at regulating fast-moving industries & technologies: And its track record is poor when it comes to incentivizing new things (remember Video Dialtone? Open Video System rules?)
• No such thing as a “simple rule” when it comes to Net neutrality or network regulation in general: Consider the paperwork burden generated by just three major “competition” rules the FCC issued in an attempt to implement the Telecom Act and define the “cost” of unbundled network elements (“UNEs”):

o   Local Competition Order (1996): 737 pages, 3,283 footnotes o   UNE Remand Order (1999): 262 pages, 1,040 footnotes o   UNE Triennial Review (2003): 576 pages; 2,447 footnotes o   That’s 1,575 pages and 6,770 footnotes worth of regulation in just three orders! o   This was all implemented following the passage of a bill (The Telecom Act) that was supposed to be deregulatory in character! And this doesn’t even begin to cover the tens of thousands of pages of legal filings, economic studies, consultant reports and other filings submitted to the FCC and state agencies by groups and individuals looking to have a say in the matter. That’s an enormous deadweight loss.

• The potential for industry capture grows in proportion to size of the regulatory regime: Alfred Kahn, author of the seminal Economics of Regulation said it best long ago: “Responsible for the continued provision and improvement of service, [the regulatory commission] comes increasingly and understandably to identify the interest of the public with that of the existing companies on whom it must rely to deliver goods.”
• Markets need not be perfect to be preferable to government regulation: That’s especially true in light of the inefficiencies associated with bureaucratic regulation.
• Community policing can help: Any deviations from “neutrality” will be policed by the watchful eyes of the digital world (and the press) and the white hot spotlight of public attention will scrutinize every carrier move (and already is). Plus, experts and technical bodies (ex: Net Neutrality squad) will be watching.

(5)   The Philosophical/Principled Case

• Whatever happened to “Hands Off the Net”? Do we believe in markets or not? And are we willing to let the experiment we started with the Telecom Act continue or not?
• NN is a declaration of surrender and a call to return to the era of public utility-style regulation. We should not give up so easily on the idea of facilities-based competition. Even just two major rivals per region is better than one regulated monopoly.
• The slippery slope of regulation is real: Neutrality mandates will gradually spread to other layers of the Net and cover content and applications. (FCC is already hinting at interest in regulating in the cloud and other Net services and content). Google and Apple’s necks will be on the neutrality chopping block next.
• There are some First Amendment concerns in play here, but not those raised by regulatory advocates (Net Neutrality is not the Internet’s First Amendment as the regulatory advocates claim; the First Amendment is the Internet First’s Amendment).

by Adam Thierer & Berin Szoka, Progress Snaphot 6.1

Stephanie Clifford of the  New York Times posted a very interesting article this week summarizing a recent “on-the-record chat” the Times staff had with Federal Trade Commission (FTC) chairman Jon Leibowitz and FTC Bureau of Consumer Protection chief David Vladeck.  The interview [discussed by Braden here] is profoundly important in that it reveals an alarming disconnect regarding the relationship between “privacy” regulation and the future of media, which were the subjects of their discussion with Times staff.  Namely, Leibowitz and Vladeck apparently fail to appreciate how the delicate balance between commercial advertising and journalism is at risk precisely because of the sort of regulations they apparently are ready to adopt.  Because the value of online advertising depends on data about its effectiveness and consumers’ likely interests, and because advertising is indispensable to funding media, what’s ultimately at stake here is nothing short of the future of press freedom.

The “Day of Reckoning” Is Upon Us

Leibowitz and Vladeck spend the first half of The Times interview wringing their hands about “privacy policies,” the declarations made by websites and advertising networks about their data collection and use practices (for which the FTC can and must hold them accountable).  But the two feel that privacy policies don’t adequately inform consumers.  Chairman Leibowitz claims that online companies “haven’t given consumers effective notice, so they can make effective choices.”  And Mr. Vladeck states that advise-and-consent models “depended on the fiction that people were meaningfully giving consent.” But he and the FTC seem ready to abandon the notice and choice model because the “literature is clear” that few people read privacy policies, Vladeck told the Times.  He and Leibowitz continue:

“Philosophically, we wonder if we’re moving to a post-disclosure era and what that would look like,” Mr. Vladeck said. “What’s the substitute for it?” He said the commission was still looking into the issue, but it hoped to have an answer by June or July, when it plans to publish a report on the subject. Mr. Leibowitz gave a hint as to what might be included: “I have a sense, and it’s still amorphous, that we might head toward opt-in,” Mr. Leibowitz said.

This clearly foreshadows the regulatory endgame we have long suspected was coming.  When the FTC released its “Self-Regulatory Principles for Online Behavioral Advertising” eleven months ago, we asked: “What’s the Harm & Where Are We Heading?”  Their answers to both questions have become clearer with each new calculated comment—all apparently intended to slowly “turn up the heat” on the advertising industry so that the proverbial frog will stay in the pot until the water finally boils.  Leibowitz’s FTC has simply dodged the “harm” question with a four-part strategy:

1. Cobble together a “record” full of sympathy-evoking anecdotes submitted by advocates of regulation in comments and the FTC’s ongoing “Exploring Privacy” Roundtables;
2. Let the most extreme Chicken Littles fulminate about the grand conspiracy of “neuromarketing manipulation” and the like (and sometimes even shout down FTC staff in panel discussions) in order to redefine the “reasonable center” of the debate;
3. Define-down “harm” as purely a matter of “consumer expectations” or consumers’ “dignity interests” (whatever that vague and infinitely elastic term means); and
4. Attack the effectiveness of “consent” itself by suggesting that consumers cannot be trusted to understand privacy policies or be expected to make any effort to protect their own privacy.

Conveniently, this strategy leads right back to the “day of reckoning” Chairman Leibowitz threatened was coming last February: We are heading precisely where he told us we would be—to full-on, opt-in regulation.  The writing on the wall becomes more apparent every day: Leibowitz set out to bring online advertising to heel even before becoming Chairman, and his Commission is reprising almost precisely the same approach that led to the passage of the Children’s Online Privacy Protection Act (COPPA) of 1998: building a case for new authority, dismissing industry self-regulation as ineffective, and finally presenting a report to Congress intended to produce a rapid legislative response.  After the FTC presented its report on the need for regulation in congressional testimony in June 1998, it took Congress just four months to pass COPPA—and much of that time was consumed by the summer recess.  In short, Leibowitz is mounting a carefully choreographed campaign for increased regulation.

The only real question is whether Leibowitz will somehow try to use the FTC’s existing authority over “unfair or deceptive” trade practices or wait for expanded authority from Congress.  While most observers typically assume that such expanded authority would come in the form of a privacy-specific bill—be it a broad “baseline” privacy bill or one specifically focused on online data collection for advertising purposes—the authority Leibowitz yearns for could just as easily come in the form of increased rulemaking authority as part of a broader bill that allows the FTC to preemptively regulate practices that are not deceptive but merely deemed “unfair.”

This would take the agency “ Back to the Future”—to the late 1970s, when the agency reached the height of its efforts to regulate purely on “unfairness” grounds by trying to ban advertising to children.  The agency’s behavior earned it the moniker “National Nanny” from the Washington Post, hardly a bastion of regulatory skepticism.[1] That outpouring of popular resentment caused a heavily Democratic Congress to cut-off the Democratic-led agency’s regular funding and prohibit it from regulating advertising merely on the grounds of “unfairness.”  In essence, they told the agency to “go back to its knitting” and focus on protecting consumers from demonstrated harms.^[2] Duly chastened (and actually shut down for several days), the FTC formulated a meaningful legal standard for “unfairness,” which Congress codified in 1994: for a practice to be unfair, the injury it causes must be (1) substantial, (2) without offsetting benefits, and (3) one that consumers cannot reasonably avoid.

Under this statutory standard, as FTC Commissioner Thomas Rosch has argued, the commission must carefully consider:

[the] legitimate pro-consumer and pro-competitive benefits that result from [targeted advertising]. Absent hard data weighing these benefits against the limited “invasion of privacy interests” involved, it would seem difficult to conclude that treating that practice as an actionable violation of the “unfairness” prong of Section 5 will pass muster.[3]

So Leibowitz and Vladeck either need to get serious about weighing the costs and benefits of targeted advertising—or, in the absence of such actually measuring these trade-offs, get Congress to give them the authority to regulate.  But one thing is clear from their past statements: they are in a hurry to do  something. As Vladeck told The Times last August, “There is a sense of urgency around here… Consumers, I don’t think are sufficiently protected under the current regime.”  Apparently, the case is closed in their minds.

“Left Hand, Meet Right Hand”

The second half of the  Times interview concerns the future of news. Chairman Leibowitz is not optimistic:

“There are some areas where you clearly see positive creative destruction,” Mr. Leibowitz said, giving the example of travel agents who were replaced by Orbitz and other online-booking systems. The news, he said, was not one of those. “When you’re dealing with something as critical as news is to a democracy, you need to ensure, certainly, that it’s independent, but also that it’s vibrant going forward,” he said. Areas like investigative reporting, foreign and domestic bureaus, and state-house reporting, he said, would likely falter under blog operations because of “economies of scale.”

He said he wasn’t sure what the solution was, but threw out a few ideas discussed at the conference: maybe special tax treatment for newspapers, a Corporation for Public Broadcasting-like fund, or for the newspaper industry to charge fees for the re-use of its content, similar to the model that the American Society of Composers, Authors and Publishers uses. [emphasis added]

Mr. Chairman, with all due respect, haven’t you forgotten about the solution that has powered private media for a few centuries in this country?  You know— advertising!  Indeed, what’s stunning about these comments is the complete disconnect with what Leibowitz and Vladeck said earlier in the interview.  It certainly may be the case that they said more on the subject than what The Times has reported, but given their escalating rhetoric, it seems likely that significantly increased FTC regulation is on the horizon.  And, yet, as Chairman Leibowitz marches us into this brave new world of regulating Internet media through their key funding source, he and Mr. Vladeck seem to have little appreciation of the vital role played by advertising in sustaining a truly free and vibrant press.

An Attack on Advertising Is an Attack on Media Itself

Let’s step back and revisit Media Economics 101.  Almost every serious scholar in the field acknowledges this truism: Advertising cross-subsidizes media platforms and the creation of valuable information—especially news.  “Advertising is the mother’s milk of all the mass media,”  Wall Street Journal technology columnist Walt Mossberg has noted.  Similarly, Harold L. Vogel, author of Entertainment Industry Economics, the leading text in the field, has noted, “Advertising is the key common ingredient in the tactics and strategies of all entertainment and media company business models.  Indeed, it might further be said that advertising has substantively subsidized the production and delivery of news and entertainment throughout the last century.”[4] Mossberg agrees and notes, “Without ads, most editorial products and other programming would be either unavailable or prohibitively expensive.”

The reason for the indispensability of advertising is simple: Information (including news and other forms of “content”) has “public good” characteristics that make it is very difficult (and occasionally impossible) for information-publishers to recoup their investments.  Simply put, they quite literally lack pricing power: Whatever they charge, someone else will charge less for a close substitute, inevitably leading to “free” distribution of the content, even though the content is anything but free to produce.  Advertising is the one business model that has traditionally saved the day by rewarding publishers for attracting the attention of an audience.

Which raises another under-appreciated point: Private advertising promotes press independence.  “Newspapers, magazines, radio, television, and many websites all receive their primary income from advertising,” notes William F. Arens, author of  Contemporary Advertising, another leading textbook in the field. “This facilitates freedom of the press and promotes more complete information” he concludes.[5] Why?  Because, contrary to what some critics claim, advertising and marketing help keep private media providers independent of the need for taxpayer subsidies or private patrons.  This begs an even more profound question: If not advertising, then what else?

A “Public Option” for the Press?

What’s most troubling about Chairman Leibowitz’s comments to the Times is that he has apparently found his alternative to advertising: a “public option” for the press! He mentions special tax treatment for newspapers or a new CPB-like fund (don’t we already have one?) as two possibilities.  That certainly will be music to the ears of radical, pro-regulatory activist groups like the ironically-named “Free Press,” which wants to see a massive “public works” program for the media sector.

Free Press recently filed comments with the FTC in the agency’s recent workshop, “Can Journalism Survive the Internet Age?” and proposed a far-reaching industrial policy for “saving the news.”  They call for over $50 billion in subsidies for the Corporation for Public Broadcasting and other bureaucracies, a “journalism jobs program” for that would be part of AmeriCorps, a variety of new tax incentives for struggling media operations or individuals who support favored institutions, and an assortment of government incentives to encourage local ownership and media divestiture (by handing over control to smaller operators or minority-owned groups).  Ironically, “Free Press” has also floated the concept of “a small tax on advertising” as one way to pay for a press bailout.

The organization’s founder Robert W. McChesney, the prolific neo-Marxist media scholar, penned an essay with John Nichols of The Nation last year, claiming that saving journalism essentially requires that media become an appendage of the State.  Although advertising has supported journalism as a “public good” for centuries, the only way they can conceive to provide a public good is to socialize its means of production.  Thus, journalism, like education and national defense, requires constant government oversight and support: “A moment has arrived at which we must recognize the need to invest tax dollars to create and maintain news gathering, reporting and writing with the purpose of informing all our citizens.”  They ask us to consider the $60 billion in government spending they propose as a “free press ‘infrastructure project,’” which would “keep the press system alive.”

Some in Congress seem willing to listen.  The Senate has already held hearings about the future of journalism.  And Senator Benjamin L. Cardin (D-MD) recently introduced what he has called the “Newspaper Revitalization Act,” which would allow newspapers to become nonprofit organizations in an effort to help them stay afloat.  Importantly, however, the bill would also disallow political endorsements on newspaper editorial pages—which, like campaign finance restrictions, would be a boon for incumbent politicians.  That bill should serve as fair warning to journalists about the sort of strings lawmakers will attach to press-welfare efforts going forward.  What other “golden shackles” might come with media subsidies?

To be clear, Chairman Leibowitz hasn’t called for a complete press takeover along the lines of the Free Press plan.  Yet, he hasn’t answered a key question in this debate: Who pays for news?  He appears ready to endorse a bold new regulatory scheme for the Internet and online media that, in the name of “protecting privacy” would put at risk the one traditionally successful method of supporting private media operations—advertising.  As the Pew Research Center’s Project for Excellence in Journalism noted in its latest State of the News Media report, “The problem facing American journalism is not fundamentally an audience problem or a credibility problem.  It is a revenue problem—the decoupling… of advertising from news.”  There’s probably no way policymakers can stop this process, nor should they try.  But they shouldn’t be creating new obstacles to the survival of traditional media creators, either.

Unfortunately, that’s exactly what Chairman Leibowitz’s new regulatory scheme would do.  The revenue “delta” between “smart” advertising (tailored to consumers’ likely interests and measured for effectiveness in producing clicks, purchases, etc.) and “dumb advertising” (based purely on surrounding keywords or demographics of users presumed to visit the site) is difficult to measure but potentially enormous—even 10 times as great for some sites.[6] The difference between opt-in and opt-out could be nearly as dramatic, because it’s difficult to get consumers to opt-in for anything, especially for small players—which means that opt-in regulation could, perversely, force consolidation in the online advertising and content markets.  If the FTC cares about its statutory responsibility to safeguard competition, they should take this dynamic seriously and be hyper-cautious about heavy-handed mandates that could derail smarter advertising.

Finally, to be fair, in his interview, the Chairman also suggests the newspaper industry might want to find new way “to charge fees for the re-use of its content.”  We’re certainly not opposed to the notion and think that, if it could somehow be made to work (especially by removing antitrust obstacles), it could part of a diverse revenue mix for digital journalism.  But, there’s the rub.  Micropayments inevitably face the problem of “mental transaction costs”  that likely swamp the perceived value of most content and, like pay-walls, have generally worked only in media environments characterized by a scarcity of providers and a uniqueness of a sufficiently valuable product.  These cold, hard economic realities are why advertising remains indispensable.

The Principled Alternative to Regulation

Convinced that privacy policies simply don’t work, Leibowitz and Vladeck are asking what a “post-disclosure era” would look like.  We appreciate the continued sensitivities expressed by certain groups and individuals about online privacy and data use more generally.  But there is another way forward.  We have proposed the following “5-E” layered approach to concerns about online privacy, focusing on restraining government access to data as a clear harm, rather than crippling the private sector uses of data that directly benefit consumers:

1. Erect a higher “Wall of Separation between Web and State” by increasing Americans’ protection from government access to their personal data—thus bringing the Fourth Amendment into the Digital Age.
2. Educate users about privacy risks and data management in general as well as specific practices and policies for safer computing.
3. Empower users to implement their privacy preferences in specific contexts as easily as possible.
4. Enhance self-regulation by industry sectors and companies to integrate with user education and empowerment.
5. Enforce existing laws against unfair and deceptive trade practices as well as state privacy tort laws.

Such a layered approach would not only be a “less restrictive” alternative to top-down, one-size-fits-all government regulation, but also potentially more effective in key respects than government data use/collection mandates.  In an ideal world, adults would be fully empowered to tailor privacy decisions, like speech decisions, to their own values and preferences (“household standards”).  Consumers would have (1) the information necessary to make informed decisions and (2) the tools and methods necessary to act upon that information. Importantly, those tools and methods would give them the ability to block the things they don’t like—annoying ads or the collection of data about them, as well as objectionable content—while also helping them find the information and content they desire.

But of course, the devil’s in the details.  Leibowitz and Vladeck would set the bar so high as to what constitutes “effective” consumer choice that current privacy policies necessarily fail their test—if only because most users don’t care enough to make the “right” privacy choices.  Privacy policies, even if read by relatively few consumers, nonetheless allow privacy advocates, journalists and watchdog-bloggers to scrutinize what companies say they’re doing—promises to which the FTC should hold companies stringently.  That’s clearly not good enough for Leibowitz and Vladeck, who want to give up on “notice and choice” and move on to “opt-in” mandates.  But why not first try to make “notice” more effective?  The advertising industry is currently developing standardized interfaces that could communicate key information about privacy practices in a single icon, label or other easily-digested “consumer touch point.”

More radically, why focus on tinkering with consumer interfaces, when standardized data disclosure formats like the Protocol for Privacy Preferences (P3P) could distill legalistic privacy policies into “machine-readable” code?  Such disclosures could provide a powerful form of “notice” that the ordinary consumer could “use”: simply setting their own privacy preferences in a browser tool that automatically implements those preferences by blocking tracking that users object to.  Such a privacy disclosure format could also allow the FTC to automate enforcement of its existing authority to punish unfair or deceptive trade practices.

Conclusion

And so we return to the question the FTC asked in its recent workshop, “Can Journalism Survive the Internet Age?”  Answer: Not if the FTC kills the golden goose that lays the golden eggs through onerous advertising regulations and data controls in the name of “privacy.”  Chairman Leibowitz and Bureau Chief Vladeck shouldn’t foreclose the possibility that advertising can play a central role in the future of a free press in the Digital Age—just as it has done historically in the United States.  Indeed, they would be wise to remember that advertising has always been with us.  As the Supreme Court noted in its 1996 decision, 44 Liquormart, Inc. v. Rhode Island.

Advertising has been a part of our culture throughout our history. Even in colonial days, the public relied on “commercial speech” for vital information about the market. Early newspapers displayed advertisements for goods and services on their front pages, and town criers called out prices in public squares. Indeed, commercial messages played such a central role in public life prior to the founding that Benjamin Franklin authored his early defense of a free press in support of his decision to print, of all things, an advertisement for voyages to Barbados.[7]

Of course, for advertising to continue to play the role as sustainer of the press, it must be allowed to evolve.  Media operators—large and small alike—must be allowed to craft new strategies, some of which may require data collection and marketing practices that will make some privacy-sensitive users uncomfortable, but will also ensure that the goose keeps on laying golden eggs for them and everyone else.

While Chairman Leibowitz may decry the creative destruction at work in the news sector and information industries today, that shakeup will continue and, no doubt, be painful for incumbent players.  Advertising alone may not “save the day” for media as it has in the past, but it will likely remain essential to sustaining private media platforms and providers going forward— if federal policymakers allow it.  The alternative—massive government intervention into the news and media sectors—is too horrifying to think about.

[1] Washington Post, March 1, 1978.

[2] Congress terminated the FTC’s efforts to prohibit advertising to children, and barred the agency from issuing any advertising regulation predicated solely on unfairness for three years.  FTC Improvements Act, Pub. L. No. 96-252, § 11 (May 1980).  See generally J. Howard Beales, Director of the Bureau of Consumer Protection, Federal Trade Commission, The FTC’s Use of Unfairness Authority: Its Rise, Fall, and Resurrection, www.ftc.gov/speeches/beales/unfair0603.shtm.

[3] Thomas Rosch, Some Reflections on the Future of the Internet: Net Neutrality, Online Behavioral Advertising, and Health Information Technology, Remarks at U.S. Chamber of Commerce Telecommunications & E-Commerce Committee Fall Meeting, October 26, 2009, 13, www.ftc.gov/speeches/rosch/091026chamber.pdf.

[4] Harold L. Vogel, Entertainment Industry Economics (Cambridge, MA: Cambridge University Press, 7th Edition, 2007), at 46.

[5] William F. Arens, Contemporary Advertising (McGraw-Hill Irwin, 10^th Ed., 2006) at 50.

[6] See Berin Szoka & Mark Adams, The Benefits of Online Advertising & Costs of Privacy Regulation, PFF Working Paper, Nov. 8, 2009, www.scribd.com/doc/22445754/Benefits-of-Online-Advertising-Paper.

[7] 517 U.S. 484, 495 (1996), http://www.law.cornell.edu/supct/html/94-1140.ZO.html

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Related PFF Publications

• Privacy Trade-Offs: How Further Regulation Could Diminish Consumer Choice, Raise Prices, Quash Digital Innovation & Curtail Free Speech, Berin Szoka, Comments to the Federal Trade Commission “Exploring Privacy” Roundtable, November 10, 2009.
• Online Advertising & User Privacy: Principles to Guide the Debate, Berin Szoka & Adam Thierer, Progress Snapshot 4.19, Sept. 2008.
• Targeted Online Advertising: What’s the Harm & Where Are We Heading?, Berin Szoka & Adam Thierer, Progress on Point 16.2, April 2009.
• Privacy Polls v. Real-World Trade-Offs, Berin Szoka, Progress Snapshot 5.10, Oct. 2009.
• The Benefits of Online Advertising & Costs of Privacy Regulation, Berin Szoka & Mark Adams, PFF Working Paper, Nov. 8, 2009.
• Benefits of Online Advertising, Berin Szoka, Mark Adams, Howard Beales, Thomas Lenard & Jules Polonetsky, PFF Capitol Briefing, July 2009.
• Public Option for Press Should Get the Red Pen, Adam Thierer, The Daily Caller, Jan. 12, 2010.

I’ve just released a new PFF white paper looking at the hysteria that has often accompanied major media mergers and then taking a look at the marketplace reality years after the fact.  Here‘s the PDF, but I have also pasted the entire thing down below.

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A Brief History of Media Merger Hysteria: From AOL-Time Warner to Comcast-NBC

by Adam Thierer

Although the pending union of Comcast and NBC Universal has not yet made it to the altar, Chicken Little-esque wails about the marriage have already begun in earnest. For example, the pro-regulatory media organization Free Press has already set up a website to complain about the deal.[1] And Jeff Chester, executive director of the Center for Digital Democracy, has called it “an unholy marriage.”[2] The fever only promises to spread once the deal is formally announced, and a lengthy fight over the deal is expected at the Federal Communications Commission (FCC) and whichever antitrust agency reviews the deal.[3]

But reality tends to play out somewhat less dramatically than the script penned by the media worrywarts. It’s worth looking back at some of the more prominent examples of media merger hysteria in recent years to understand why such panic is unwarranted, and why a deal between Comcast and NBC Universal is unlikely to lead to the sort of problems that the pessimists suggest.[4]

AOL-Time Warner: From the “New Totalitarianism” to Digital Divorce Court in Less Than a Decade

When the mega-merger between media giant Time Warner and Internet superstar AOL was announced in early 2000, the marriage was greeted with a cacophony of righteous indignation and apocalyptic predictions.  When referring to the dangers of the deal, syndicated columnist Norman Solomon, a longtime associate of the media watch group Fairness & Accuracy In Reporting, summoned the ghost of Aldous Huxley when he and referred to the transaction in terms of “servitude,” “ministries of propaganda,” and “new totalitarianisms.”[5] Similarly, USC Professor of Communications Robert Scheer wondered if the merger represented “Big Brother” and claimed, “Diversity is out, niches are gone, it’s Skippy peanut butter time. AOL is the Levitown of the Internet, mom and apple pie, ‘50s boredom, conformity and dullness as a virtue: A Net nanny reigning in potentially restless souls.”[6]

Such pessimistic predictions proved wildly overblown. To say that the merger failed to create the sort of synergies (and profits) that were originally hoped for would be an epic understatement.[7] The titles of two popular books about the deal summed up the firm’s troubles: One was entitled Fools Rush In (by Nina Munk) and the other, There Must Be a Pony in Here Somewhere (by Kara Swisher and Lisa Dickey).[8]

The numbers were mind-boggling. By April 2002, just two years after the deal was struck, AOL-Time Warner had already reported a staggering $54 billion loss.^[9] By January 2003, losses had grown to $99 billion.^[10] By September 2003, Time Warner decided to drop AOL from its name altogether and the deal continued to slowly unravel from there.^[11] In a 2006 interview with the Wall Street Journal, Time Warner President Jeffrey Bewkes famously declared the death of “synergy” and went so far as to call synergy “bullsh*t”!^[12] In early 2008, Time Warner decided to shed AOL’s dial-up service^[13] and now is set to spin off AOL entirely.[14] Looking back at the deal, Fortune magazine senior editor at large Allan Sloan called it the “turkey of the decade”:

The day the deal was announced, Jan. 10, 2000, Time Warner closed at the equivalent of $184.50 a share. After almost 10 years of travail, the $184.50 has shrunk to about $42.25, consisting of one Time Warner share and a quarter of a Time Warner Cable share. The 77 percent decline is triple the decline in the Standard & Poor’s 500-stock index over the same period.[15]

And the Time Warner-AOL split wasn’t the end of this messy divorce process. In 2008, Time Warner Cable and Time Warner Entertainment decided to split.^[16] Time Warner has even spun off some of its oldest properties. In 2006, it announced that it was putting 18 of the 50 magazines in its Time magazine division up for sale.^[17]

As is always the case, these divestitures and down-sizing efforts garnered little attention compared with the hullaballoo and hysteria that accompanied the announcement of the deal back in 2000.^[18]

News Corp/DirecTV: Murdoch’s “Digital Death Star” Blows Up

No media industry personality attracts more attention (or angst) than News Corp. Chairman and CEO Rupert Murdoch. The popular leftist blog The Daily Kos has likened him to “a fascist Hitler antichrist.”[19] And CNN founder Ted Turner once compared the popularity of the News Corp.’s Fox News Channel to the rise of Adolf Hitler prior to World War II.^[20] Alternatively, Murdoch has been accused of being a Marxist.[21] Meanwhile, Karl Frisch, a Senior Fellow at Media Matters for America, speaks of Murdoch’s “evil empire”^[22] and a recent MSNBC poll has asked people to vote on the question: “Is Rupert Murdoch evil?”[23] In 2003, when asked by talk show host Chris Matthews, “Would you break up [News Corp.-owned] Fox?” then Democratic presidential candidate Howard Dean answered, “On ideological grounds, absolutely yes.”^[24] And in their book Our Media, Not Theirs, John Nichols and Robert McChesney took the Murdoch-as-evil-overlord storyline to its logical extreme when they suggested Hollywood was on to something by scripting a media tycoon like Murdoch as the bad guy in a James Bond movie: “No wonder conspiracy theories are so popular in America; no wonder, when the makers of James Bond movies look for believable villains these days, they eschew Eurotrash bad guys for more credibly threatening villains such as the Rupert Murdoch-like media baron of 1997’s Tomorrow Never Dies.”^[25]

These Murdochian fears came to a head in 2003 when News Corp. announced it was pursuing a takeover of satellite television operator DirecTV.  Paranoid predictions of a pending media apocalypse followed.  A group of regulatory activists filed joint comments to the FCC claiming that if News Corp. and DirecTV were allowed to merge, “the result will be unprecedented concentration within all aspects of the television marketplace, as well as increased prices for consumers of cable and satellite television.”[26] Similarly, then-FCC Commissioner Jonathan Adelstein worried that the deal would “result in unprecedented control over local and national media properties in one global media empire. Its shockwaves will undoubtedly recast our entire media landscape.” He continued; “With this unprecedented combination, News Corp. could be in a position to raise programming prices for consumers, harm competition in video programming and distribution markets nationwide, and decrease the diversity of media voices.”[27]

Not to be outdone, full-time media fussbudget Jeff Chester predicted that Murdoch would use this “Digital Death Star” as the base of a nefarious scheme to conquer the media universe:

Murdoch will use DirecTV as a ‘death star’ to force his programming on cable companies by threatening a price war unless they give Fox favorable access. Since News Corp will control cable TV’s principal multichannel competitor, it will easily create new channels—unlike anyone else in the TV business.  Rather than engage in open combat and competition, cable powerbrokers such as Comcast and AOL-Time Warner will likely accommodate Murdoch and add his new channels to their own services. Imagine Fox News on steroids. Worse, with DirecTV’s capacity to ‘spotbeam’ channels to serve distinct communities, localized versions of Fox programs could be available in major cities across the nation.[28]

Imagine the horror of new, “spotbeamed” local media competition!  However, unlike the destruction of the planet Alderaan by the Death Star in Star Wars,[29] no one was harmed in the making of the News Corp-DirecTV marriage.  Indeed, the rebels would get the best of Darth Murdoch since his “Digital Death Star” was abandoned just three years after construction.  In December 2006, News Corp. decided to divest the company to Liberty Media Corporation in an effort to win back more controlling News Corp. stock.^[30]

Ironically, many of the same groups that had vociferously protested the original News Corp-DirecTV deal again found reason to complain when the deal was being undone! The FCC’s failure to implement various restrictions as part of the license transfer, they claimed, would “result in continuing control by News Corp. over content distribution, harming competition in both the programming and distribution markets, reducing consumer choice and raising cable prices.”^[31] Unsurprisingly, little mention was made of the previous round of pessimistic predictions or whether there had ever been any merit to the lugubrious lamentations of the media critics.

Sirius-XM: “Merger to Monopoly” or Prelude to Bankruptcy?

Some of the most entertaining and wrong-headed predictions about the future of the media marketplace often come from media moguls themselves. For example, back in 2003, when he was still President and Chief Operating Officer of Viacom, Mel Karmazin said in reference to Microsoft, AOL Time Warner, and Comcast: “I can’t imagine being a competitor with any of these guys.”[32] Just six years later, however, plenty of others are competing with those companies. Microsoft finds itself in a heated war with Google on all fronts, AOL-Time Warner has fallen apart, and Comcast is squaring off against telco (e.g., Verizon’s FiOS and AT&T U-Verse) and online video competitors (e.g., YouTube, Hulu) that were unfathomable in 2003—not to mention the traditional satellite TV competitors they still face. Meanwhile, Karmazin abandoned Viacom and is now struggling to find a way to make subscription-based satellite radio survive the ongoing digital music bloodbath caused by the rise of online music services and a little thing called the iPod.

Of course, hysteria ran rampant when Sirius and XM were merging, too.  Critics called it a “merger to monopoly” and predicted a variety of coming calamities.[33] National Association of Broadcasters Vice President Dennis Wharton described the merger as a “monopoly platform for offensive programming” that would be “anti-consumer.”^[34] Mr. Wharton later remarked that the merged firms “will raise prices, won’t improve their technology and will limit their offerings.”^[35] A coalition of six non-profits claimed that the merger was “perhaps the worst offense against the basic principle that competition is the consumer’s best friend” and, if approved, “a tsunami of mergers could ripple through the digital space at the worst possible moment.”^[36] They predicted that “once the competition is eliminated, prices will rise over time,” “innovation will slow to the pace preferred by the monopolist and consumers will be much worse off in the long run.”^[37] Another coalition argued that the new company would “abuse consumers, artists and other input suppliers in the satellite radio market.”[38]

In the end, the merger took an astonishing 500-plus days for the FCC to finally approve[39] and was conditioned with a lengthy set of “voluntary concessions” to supposedly rectify these potential harms—including pricing constraints that could limit the firm’s ability to cover costs and pay down debt over time.

Unsurprisingly, things haven’t turned out so well for Sirius XM. When the merger was finally approved by the FCC in August 2008, Commissioner Copps dissented vigorously on various grounds but specifically insisted that, “We must assume that the marketplace can support two financially viable competitors.”[40] Unfortunately for Commissioner Copps—as well as Sirius XM—it’s not even clear that the market can sustain one satellite radio provider. The company’s stock went into freefall following completion of the deal and, at one point, its stock fell below 10 cents per share. The company flirted with bankruptcy in February of this year as “satellite radio failed to win over many younger listeners, and competition from other sources slowed subscriber growth.”[41] In March 2009, Karmazin orchestrated a cash-for-stock swap with Liberty Media to get a $530 million lifeline and avoid bankruptcy.[42] But even with the cash infusion Sirius XM faces an uncertain future with stiff competition.[43] “Sirius is girding for slower growth than in the past,” notes Olga Kharif of Business Week, “and analysts remain concerned about the company’s ability to control costs.”[44] Former stockbroker and RealMoney.com contributor Tim Melvin predicts the overleveraged company “will disappear from the landscape. The subscribers will go to another tech or entertainment company in bankruptcy proceedings. Subscription radio just does not have that much appeal to most people.”[45]

Whether Melvin’s dour forecast for satellite radio proves accurate remains to be seen. What’s clear, however, is that the fears bandied about by critics when the Sirius-XM deal was pending have not come to pass.

Murdoch’s Wall Street Journal Quest

In 2007, Rupert Murdoch announced his desire to purchase The Wall Street Journal.  Once again, a great deal of hand-wringing ensued. “This takeover is bad news for anyone who cares about quality journalism and a healthy democracy,” argued Robert McChesney. “Giving any single company—let alone one controlled by Rupert Murdoch—this much media power is unconscionable.”[46] And FCC Commissioner Copps warned that “It will create a single company with enormous influence over politics, art and culture across the nation and especially in the New York metropolitan area.”[47]

Today, however, the Journal keeps humming along and continues to produce some of the finest journalism on the planet. Meanwhile, “politics, art and culture” seem largely unaffected by the deal—either in New York or the nation.

And the deal certainly hasn’t made Murdoch or News Corp. any richer. “His purchase of The Wall Street Journal is widely seen as one of the worst moves of his career,” notes Michael Wolff of Vanity Fair.[48] News Corp. has already taken a whopping $3 billion write-down on the deal.  Considering the $5 billion price tag Murdoch paid two years ago, one wonders if he’ll hold on to this property any longer than he did DirecTV.

Comcast-NBC Universal: Debunking the Fears Preemptively

No doubt we’ll soon be hearing many of these same apocalyptic predictions about the Comcast-NBC deal. Free Press has said the new entity “will have an incentive to prioritize NBC shows over other local and independent voices and programs, making it even harder to find alternatives on the cable dial.”[49] And Free Press Executive Director Josh Silver has called for the Obama Administration to block the deal saying “it would further starve Americans of [media] diversity.”[50] Even competitors are complaining. Liberty Media Corp. Chairman John Malone, which owns DirecTV, has suggested that they might push the government to reject the deal.[51] Many other rivals will likely join that bandwagon.

These critics will likely raise vertical integration fears and claim that Comcast will act as a “gatekeeper” by limiting the ability of independent voices to get a slot on cable distribution systems, or by withholding NBC-Universal content from other platforms and providers. But there’s little historical evidence that suggests this will be a problem. As the adjoining exhibit illustrates, the overall number of video programming channels available in America has skyrocketed, from just 70 channels in 1990 to 565 channels in 2006, the last year for which the FCC has made data available.

More importantly—and despite claims to the contrary—vertical integration in the video marketplace has plummeted over the past two decades. While many more cable and satellite networks are available today than ever before, the greatest share of the growth in the multichannel video marketplace has come from independently owned video networks. Since 1990, the number of cable-owned or affiliated channels has increased slightly, but it pales in comparison with the growth of independently owned and operated video networks. In real terms, therefore, the percentage of the overall video marketplace controlled (i.e., owned and operated) by cable companies has plummeted—from 50% in 1990 to just 14.9% in 2006. Moreover, in the wake of the Time Warner Cable and Time Warner Entertainment divorce, vertical integration in the cable sector has probably fallen into the single digits. Even if the merger of Comcast and NBC-Universal results in slight increase in industry vertical integration, it almost certainly will not surpass 20 percent.  Consequently, as far as vertically integrated industries go, it is impossible to conclude that this market could be characterized as being controlled by “gatekeepers.”

It is difficult to imagine that Comcast would buck these trends and begin restricting independent options on its systems or withhold its content from others.  Video distributors don’t make money by restricting choice. Consumers would flock to alternative video providers and media services if Comcast played such games. The great thing about the modern media marketplace is that there is always another place for consumers to turn to find something they want.[52] Sports programming could be an exception to the rule, and is the one issue that Comcast may need to bargain over with FCC regulators or antitrust officials since they own regional sports networks that other video distributors want access to.^[53] But traditional concerns about access to over-the-air broadcast signals (namely, the NBC local broadcast television properties) shouldn’t be as much of an issue today as it was the past.  Frankly, local broadcasters need all the eyeballs they can get these days. Thus, it’s unlikely that Comcast would try to withhold those stations from other video distributors, especially since a great deal of NBC programming is already available through other means. And intense competition exists for some of the most important news and informational services that NBC offers, such as local news, weather, and traffic.

Overall, therefore, it’s hard to see the case for the FCC rejecting the deal. Regulators need to be forward-looking about what is driving this deal.  This deal isn’t about protecting old markets but instead about building new ones. “The real motivation behind this deal,” argues Mike Berkley, former CEO of SplashCast Media, “is survival.”

Comcast understands that the price point for distributing TV into homes is going to fall dramatically in the coming years. Comcast’s 3 distribution products, Voice – TV – Internet, are collapsing into just one, single product: Internet. This poses a huge threat to Comcast’s top line. As such, Comcast is hedging through diversification into content, moving up the media value chain. Comcast will be looking to replace lost revenue in distribution with revenue from content (advertising, subscriptions, etc).[54]

Similarly, Wall Street Journal business columnist Holman Jenkins points out that Comcast is scrambling to find a way to rework their business model as the era of set-top box-delivered video slowly gives way to a world of ubiquitously available online video:

This would be a merger, after all, of two businesses that seem headed toward some combination of the fates of newspapers, music CDs and the old wireline telephone business. Customers want the product for free. Comcast’s lifeblood, the $100-a-month cable bill and the $50-a-month broadband bill, increasingly look like duplicative expenses. And so on. True, the number of households that have actually dropped their cable subscriptions in favor of subsisting on TV streamed or downloaded from the Internet is not yet large. But for the Roberts family and its Comcast property, their worst fears lurk just around the corner—being reduced to a “dumb pipe,” subject to commodity pricing while somebody else (Google) makes all the money. Yet an escape route is vexingly hard to envision. Time Warner and Comcast have been talking up plans to make their respective cable lineups available by computer—as long as you keep paying your cable bill. This is a stopgap, especially appealing to anyone who owns two homes but wants to pay only one cable bill. Never mind, too, that hundreds of shows are already available online for free, via Web sites operated by none other than Comcast and the TV networks themselves.[55]

In light of such technological upheaval and marketplace uncertainty, it’s important that regulators proceed cautiously when reviewing this deal or future deals.

Conclusion: Let Markets Evolve

The point here is not that media mergers are inherently good or always make sense. Indeed, as the examples discussed above illustrate, mergers sometimes prove to be huge blunders.[56] But the hysteria sometimes heard before media mergers are consummated rarely bears any relationship to reality once the deals move forward. Media markets are extremely dynamic and prone to disruptive change and technological leap-frogging. Mergers are often one response to that turbulence.

But mergers are no panacea, and they often fail to produce the “synergies” hoped for. A 2004 survey by McKinsey & Co. found that “Nearly 70 percent of the mergers in our database failed to achieve the revenue synergies estimated by the acquirer’s management.”[57] Perhaps, therefore, the best argument for blocking media mergers is not their potentially pernicious effect on markets or consumers, but rather to save the merging firms (and their stockholders) from a miserable marriage!

On the other hand, experimenting with alternative business models and ownership structures is an important part of any dynamic market, because markets are not static but represent and ongoing processes of entrepreneurial “discovery.”[58] Thus, policymakers would be wise to avoid micro-managing mergers and instead let things run their course.  Sometimes collaboration makes a great deal of sense, especially when the significant costs of providing a media service becomes impossible absent a partnership. Indeed, federal officials and agencies are currently exploring how (or whether) journalism can survive an era of seeming perpetual media upheaval.[59] Healthy media companies certainly must be part of the answer and new ownership arrangements might be part of the solution.

Given how difficult it is to predict the future course of events in this chaotic sector, humility—not hubris—is the sensible disposition when it comes to media merger policy. At a minimum, policymakers should insist that ongoing debates are governed by facts instead of fanaticism, because, if the past decade is any guide, discussions about media mergers have been more often rooted in hyperbolic rhetoric and unsubstantiated hysteria.

[1] www.freepress.net/comcast

[2] Quoted in Cecilia Kang, Public Interest Groups Rail against a Comcast and NBC Merger, Washington Post, Post Tech Blog, Nov. 9, 2009, http://voices.washingtonpost.com/posttech/2009/11/for_example_were_advancing_tv.html

[3] “For regulators, a deal like this is a gift; an occasion to impose their will upon needy companies that would otherwise be outside their regulatory reach.” Craig Moffett, Bernstein Research, Comcast: Snatching Defeat from the Jaws of Victory? Oct. 23, 2009, at 14.

[4] Cecilia Kang, A New Kind of Company, A New Kind of Challenge for Feds, Washington Post, Nov. 26, 2009, at 1, www.washingtonpost.com/wp-dyn/content/article/2009/11/26/AR2009112602500.html

[5] Norman Soloman, AOL Time Warner: Calling The Faithful To Their Knees, Jan. 2000, www.fair.org/media-beat/000113.html

[6] Robert Scheer, Confessions of an E-Columnist, Jan. 14, 2000, Online Journalism Review, www.ojr.org/ojr/workplace/1017966109.php

[7] Looking back at the deal almost ten years later, AOL co-founder Steve Case said, “The synergy we hoped to have, the combination of two members of digital media, didn’t happen as we had planned.” Quoted in Thomas Heath, The Rising Titans of ’98: Where Are They Now?, Washington Post, Nov. 30, 2009, www.washingtonpost.com/wp-dyn/content/article/2009/11/29/AR2009112902385.html?sub=AR

[8] Nina Munk, Fools Rush In: Steve Case, Jerry Levin, and the Unmaking of AOL Time Warner (New York: Harper Business, 2004); Kara Swisher and Lisa Dickey, There Must Be a Pony in Here Somewhere: The AOL Time Warner Debacle and the Quest for a Digital Future (New York: Crown Business, 2003).

[9] Frank Pellegrini, What AOL Time Warner’s $54 Billion Loss Means, April 25, 2002, Time Online, www.time.com/time/business/article/0,8599,233436,00.html

[10] Jim Hu, AOL Loses Ted Turner and $99 billion, CNet News.com, Jan. 30, 2004, http://news.cnet.com/AOL-loses-Ted-Turner-and-99-billion/2100-1023_3-982648.html

[11] Jim Hu, AOL Time Warner Drops AOL from Name, CNet News.com, Sept. 18, 2003, http://news.cnet.com/AOL-Time-Warner-drops-AOL-from-name/2100-1025_3-5078688.html

[12] Matthew Karnitschnig, After Years of Pushing Synergy, Time Warner Inc. Says Enough, Wall Street Journal, June 2, 2006, http://online.wsj.com/article/SB114921801650969574.html

[13] Geraldine Fabrikant, Time Warner Plans to Split Off AOL’s Dial-Up Service, New York Times, Feb. 7, 2008, www.nytimes.com/2008/02/07/business/07warner.html?_r=1&adxnnl=1&oref=slogin&adxnnlx=1209654030-ZpEGB/n3jS5TGHX63DONHg

[14] John Letzing, AOL, On The Verge Of Independence, Weighs On Parent, Wall Street Journal, Nov. 4, 2009, http://online.wsj.com/article/BT-CO-20091104-718782.html

[15] Allan Sloan, ‘Cash for . . .’ and the Year’s Other Clunkers, Washington Post, Nov. 17, 2009, www.washingtonpost.com/wp-dyn/content/article/2009/11/16/AR2009111603775.html

[16] Tim Arango, Time Warner Spinning Off Cable Unit, New York Times, April 30, 2008, www.nytimes.com/2008/04/30/business/30warner-web.html?ref=technology

[17] Carolyn Pritchard, Time Inc. to Sell 18 Magazine Titles, MarketWatch, Sept. 12, 2006,  www.marketwatch.com/News/Story/Story.aspx?guid=%7B94967C37%2D9B4A%2D4C1A%2D8AC0%2D64904C1267A1%7D&dist=rss&siteid=mktw&rss=1

[18] “Break-ups and divestitures do not generally get front-page treatment,” notes Ben Compaine, author of Who Owns the Media?  See Ben Compaine, Domination Fantasies, Reason, Jan. 2004, p. 28, www.reason.com/news/show/29001.html

[19] www.dailykos.com/story/2009/9/7/778254/-Rupert-Murdoch-is-a-Fascist-Hitler-Antichrist

[20] Jim Finkle, Turner Compares Fox’s Popularity to Hitler, Broadcasting & Cable, Jan. 25, 2005, www.broadcastingcable.com/CA499014.html

[21] Ian Douglas, Rupert Murdoch is a Marxist, Telegraph.Co.UK, Nov. 9, 2009,  http://blogs.telegraph.co.uk/technology/iandouglas/100004169/rupert-murdoch-is-a-marxist

[22] Karl Frisch, Fox Nation: The Seedy Underbelly of Rupert Murdoch’s Evil Empire? MediaMatters.org, June 2, 2009, http://mediamatters.org/columns/200906020036

[23] www.msnbc.msn.com/id/19817142/

[24] Dean Vows to ‘Break Up Giant Media Enterprises,’ The Drudge Report, Dec. 2, 2003, www.drudgereport.com/dean1.htm; Bill McConnell, Dean Threatens to Break Up Media Giants, Broadcasting & Cable, Dec. 3, 2003, www.broadcastingcable.com/index.asp?layout=articlePrint&articleID=CA339546.

[25] John Nichols and Robert W. McChesney, Our Media, Not Theirs: The Democratic Struggle against Corporate Media (New York: Seven Stories Press, 2002) at 31.

[26] Consumers Union, Consumer Federation of America, Center for Digital Democracy, and Media Access Project, Comments In the Matter of News Corporation/Fox Entertainment Group Merger with Hughes Electronics Corporation/DirecTV, MB Docket No. 03-124, July 1, 2003, www.consumersunion.org/pdf/0701-DirecTV.pdf

[27] Dissenting Statement of Commissioner Jonathan S. Adelstein, Re:  General Motors Corporation and Hughes Electronics Corporation, Transferors, and The News Corporation Limited, Transferee, MB Docket No. 03-124, Jan. 14, 2004, http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-03-330A6.doc

[28] Jeff Chester, Rupert Murdoch’s Digital Death Star, AlterNet, May 20, 2003, www.alternet.org/story/15949

[29] Destruction of Alderaan, Wookieepedia: The Star Wars Wiki, http://starwars.wikia.com/wiki/Destruction_of_Alderaan

[30] News Corporation and Liberty Media Corporation Sign Share Exchange Agreement, News Corp Press Release, Dec. 22, 2006, www.newscorp.com/news/news_322.html.  A frustrated Murdoch referred to DirecTV as a “turd bird” just before he sold it off. See Jill Goldsmith, Murdoch Looks to Release Bird, Variety, Sept. 14, 2006, www.variety.com/article/VR1117950090.html?categoryid=1236&cs=1

[31] Consumers Union, Consumer Federation of America, Free Press, and Media Access Project, Comments In the Matter of Authority to Transfer Control of DirecTV, MB Docket No. 07-18, March 23, 2007, www.mediaaccess.org/file_download/177

[32] Richard Linnett, Media Rivals Backslap at Cable Conference, AdAge.com, June 10, 2003.

[33] Dissenting Statement of Commissioner Michael J. Copps, Applications for Consent to the Transfer of Control of Licenses, XM Satellite Radio Holdings Inc., Transferor, to Sirius Satellite Radio Inc., Transferee, MB Docket No. 07-57, Aug. 5, 2008, http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-08-178A3.pdf

[34] Dennis Wharton, National Association of Broadcasters, NAB Statement in Response to Sirius/XM Proposed Merger, Feb. 19, 2007, www.nab.org/AM/Template.cfm?Section=Search&template=/CM/HTMLDisplay.cfm&ContentID=8258.

[35] Peter Whoriskey and Kim Hart, Justice Dept. Approves XM-Sirius Radio Merger, The Washington Post, Mar. 25, 2008, www.washingtonpost.com/wp-dyn/content/article/2008/03/24/AR2008032401645.html.

[36] The XM-Sirius Merger: Monopoly or Competition from New Technologies: Hearing Before the Senate Committee on the Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights, 3 & 6 (March 20, 2007) (statement of Common Cause et. al), www.hearusnow.org/fileadmin/sitecontent/2007_-_0320_Public_Interest_GroupsStatement-_Senate_Judiciary.pdf

[37] Id. at 6.

[38] Common Cause, Consumer Federation of America, Consumers Union, Free Press, Comments in the Matter of Consolidated Application for Authority To Transfer Control of XM Radio Inc. and Sirius Satellite Radio Inc., MB Docket No. 07-57July 9, 2007, at 1, www.hearusnow.org/fileadmin/sitecontent/xm-sirius_comments.pdf

[39] James Gattuso, Day 505: The XM-Sirius Circus Is Finally Over, Technology Liberation Front Blog, Aug. 7, 2008, http://techliberation.com/2008/08/07/day-505-the-xm-sirius-circus-is-finally-over

[40] Dissenting Statement of Commissioner Michael J. Copps, Applications for Consent to the Transfer of Control of Licenses, XM Satellite Radio Holdings Inc., Transferor, to Sirius Satellite Radio Inc., Transferee, MB Docket No. 07-57, Aug. 5, 2008, http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-08-178A3.pdf

[41] Andrew Ross Sorkin & Zachery Kouwe, Sirius XM Prepares for Possible Bankruptcy, New York Times, Feb. 10, 2009,  www.nytimes.com/2009/02/11/technology/companies/11radio.html

[42] Jon Birger, Mel Karmazin Fights to Rescue Sirius, Fortune.com, March 16, 2009, http://money.cnn.com/2009/03/13/technology/birger_sirius.fortune/index.htm

[43] Former stockbroker and RealMoney.com contributor Tim Melvin worries about the “significant competition for the company going forward” He notes:

Most of the younger people I know have iPod docks in their vehicles for listening to music. Smartphones are bringing music and podcasts to mobile consumers. E-reading machines have wireless connections that can eventually deliver content on a subscription or pay-per-use basis. I really do not need the sports channels from Sirius if I can watch and listen to the games I want on my phone. As time goes by, satellite radio will be viewed as a stepping-stone technology that was replaced by smartphones and other portable media devices.

Tim Melvin, Sirius’ Hopes Keep Slipping Away, The Street.com, Nov. 10, 2009, www.thestreet.com/story/10624757/1/sirius-hopes-keep-slipping-away.html?cm_ven=GOOGLEFI

[44] Olga Kharif, Sirius XM: The Good and Bad Earnings News, Business Week, Nov. 5, 2009, www.businessweek.com/technology/content/nov2009/tc2009115_002716.htm

[45] Melvin, supra 39.

[46] Robert McChesney, Murdoch’s Deal for the Journal: Yet Another Blow for Journalism, Free Press Press Release, July 30, 2007, www.freepress.net/release/260

[47] Michael Copps, Letter to FCC Chairman Kevin Martin, Oct. 25, 2007, http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-277576A1.pdf

[48] Michael Wolff, Rupert to Internet: It’s War! Vanity Fair, Nov. 2009, at 112.

[49] www.freepress.net/comcast

[50] Josh Silver, Too Big to Block? Why Obama Must Stop the Comcast-NBC Merger, Huffington Post, Nov. 13, 2009, www.huffingtonpost.com/josh-silver/too-big-to-block-why-obam_b_356826.html

[51] www.forbes.com/feeds/afx/2009/11/19/afx7143505.html

[52] Adam Thierer and Grant Eskelsen, The Progress & Freedom Foundation, Media Metrics: The True State of the Modern Media Marketplace, Summer 2008, www.pff.org/mediametrics

[53] However, experience with regulation of sports programming suggests that FCC meddling has had negative unintended consequences.  See W. Kenneth Ferree, Competition in the Sports Programming Marketplace, Testimony before the Subcommittee on Telecommunications and the Internet, House Committee on Energy and Commerce, March 5, 2008, www.pff.org/issues-pubs/testimony/2008/030508ferreetestimony.pdf; Barbara Esbin, Unable to Watch the Big Game? Testimony before the National Conference of State Legislatures Communications, Financial Services and Interstate Commerce Committee, Apr. 25, 2008, www.pff.org/issues-pubs/testimony/2008/080425esbinNCSLpresentation.pdf

[54] Mike Berkley, The Comcast-NBC Deal is a Defensive Move by Comcast. It’s about Survival, TV News Stream, Nov. 16, 2009, http://tvnewsstream.com/the-comcast-nbc-deal-is-a-defensive-move-by-c

[55] Holman Jenkins, The Economics of Jay Leno, Wall Street Journal, Nov. 18, 2009, at A17, http://online.wsj.com/article/SB10001424052748704431804574541684183772504.html

[56] Chris O’Brien, Beware the Hype Around Mergers, MercuryNews.com, Nov. 12, 2009, www.mercurynews.com/chris-obrien/ci_13756963?nclick_check=1

[57] Scott A. Christofferson, Robert S. McNish & Diane L. Sias, Where Mergers Go Wrong, McKinsey on Finance, Winter 2004, at 2, http://westportcapital.com/library/McKinsey_Where_Mergers_Go_Wrong.pdf.  The authors noted that, “acquirers face an obvious challenge in coping with an acute lack of reliable information. They typically have little actual data about the target company, limited access to its managers, suppliers, channel partners, and customers, and insufficient experience to guide synergy estimation and benchmarks.”

[58] See, e.g., Israel M. Kirzner, Competition, Regulation, and the Market Process: An “Austrian” Perspective, Cato Institute Policy Analysis No. 18, 1982, www.cato.org/pubs/pas/pa018.html

[59] For example, congressional hearings have been held on this topic and the Federal Trade Commission is holding a workshop on December 1^st and 2^nd asking, “Will Journalism Survive the Internet Age?” www.ftc.gov/opp/workshops/news/index.shtml

Last night here on the TLF, Bret Swanson raised a number of objections with this FCC-commissioned report about international broadband comparisons, which was conducted by some folks at Harvard University’s Berkman Center. Meanwhile, over at the Digital Society blog, George Ou also offers a hard-nosed look at the Berkman broadband report and concludes “The underlying data cited by Berkman study is simply too flawed to be of any use.”  I recommend everyone check out both essays.  It will be interesting to hear how the Berkman folks respond.  Some of these international broadband comparisons are really fishy.  [Here’s a podcast we did on that issue two years ago.]

One quick point… Like Bret, I also found it shocking that–even though the report reads like an ode to forced access regulation–the Berkman folks didn’t spend much time discussing the result of America’s previous open-access regime. “The gaping, jaw-dropping irony of the report,” Bret argues, “was its failure even to mention the chief outcome of America’s previous open-access regime: the telecom/tech crash of 2000-02. We tried this before. And it didn’t work!”  Indeed, America’s regulatory experiment with forced access regulation involved a lot of well intentioned laws and regulation, and too many acronyms to count–CLECs, TELRIC, UNE-P, etc– but it did not result in serious, facilities-based competition.  Instead it offered us the fiction of competition through network-sharing, or what Peter Huber once referred to as building “networks out of paper.” The results were disastrous for investment during that period since regulatory uncertainly led to a lot of stunted innovation.

In sum, sharing is not competing.  You can socialize and commoditize old pipes for awhile and get decent results in the short-term, but you’ll sacrifice long-run investment and innovation if you do.  [For more background, see my recent essay on “The Fiction of Forced Access ‘Competition’ Revisited” and this old Cato piece on “UNE-P and the Future of Telecom “Competition” as well as Jeff Eisenach’s PFF white paper, “Broadband Policy: Does the U.S. Have It Right After All?”]

“Liberty upsets patterns.” That was one of the many lessons that the late Harvard philosopher Robert Nozick taught us in his 1974 masterpiece “Anarchy, State, and Utopia.” What Nozick meant was that there is a fundamental tension between liberty and egalitarianism such that when people are left to their own devices, some forms of inequality would be inevitable and persistent throughout society. (Correspondingly, any attempt to force patterns, or outcomes, upon society requires a surrender of liberty.)

No duh, right? Most people understand this today–even if some of them are all too happy to hand their rights over to the government in exchange for momentary security or some other promise.  In the world of media policy, however, many people still labor under the illusion that liberty and patterned equality are somehow reconcilable. That is, some media policy utopians and Internet pollyannas would like us to believe that if you give every man, woman, and child a platform on which to speak, everyone will be equally heard.  Moreover, in pursuit of that goal, some of them argue government should act to “upset patterns” and push to achieve more “balanced” media outcomes. That is the philosophy that has guided the “media access” movement for decades and it what fuels the “media reformista” movement that is led by groups like the (inappropriately named) Free Press, which was founded by neo-Marxist media theorist Robert McChesney.

Alas, perfect media equality remains an illusive pipe dream. As I have pointed out here before, there has never been anything close to “equal outcomes” when it comes to the distribution or relative success of books, magazines, music, movies, book sales, theater tickets, etc.  A small handful of titles have always dominated, usually according to a classic “power law” or “80-20” distribution, with roughly 20% of the titles getting 80% of the traffic / revenue.  And this trend is increasing, not decreasing, for newer and more “democratic” online media.

For example, recent research has revealed that “the top 10% of prolific Twitter users accounted for over 90% of tweets” and  “the top 15% of the most prolific [Wkipedia] editors account for 90% of Wikipedia’s edits.” As Clay Shirky taught us back in 2003 in this classic essay, the same has long held true for blogging, where outcomes are radically inegalitarian, with a tiny number of blogs getting the overwhelming volume of blogosphere attention.  The reason, Shirky pointed out, is that:

In systems where many people are free to choose between many options, a small subset of the whole will get a disproportionate amount of traffic (or attention, or income), even if no members of the system actively work towards such an outcome. This has nothing to do with moral weakness, selling out, or any other psychological explanation. The very act of choosing, spread widely enough and freely enough, creates a power law distribution.

The latest proof of the persistence of power laws in the media world comes from Slate’s Chris Wilson, who recently analyzed traffic distribution over on YouTube to answer the question: “Will My Video Get 1 Million Views on YouTube?” Alas, YouTube proves every bit as anti-egalitarian as every other media platform throughout history:

This is the great promise of YouTube: Your video can soar in popularity through sheer word-of mouth—or rather, click-of-mouth—until eventually people are making T-shirts about it. No one ever said this was going to happen for everyone. So, what are your chances of achieving YouTube stardom? I crunched the numbers to find out what percentage of YouTube videos hit it big, cracking even 10,000 or 100,000 views. The results: You might have better odds playing the lottery than of becoming a viral video sensation.

And after he runs the numbers to show how such a small percentage of videos dominate YouTube, Wilson goes on to note:

These figures certainly don’t ratify the grand promise of social media. Not everyone uses YouTube to launch their showbiz or political career, but the potential to do so is central to the Web 2.0 narrative that figures in so many newsmagazine panegyrics. When the odds of even 1,000 people viewing your video in a month’s time are only 3 percent, however, it’s tough to argue that hitting it big on YouTube is anything more than dumb luck. You could argue that this is the way it’s always been in show biz, and you’d be right. But wasn’t the Web supposed to change all that?

Indeed, why is that?  After all, as Wilson suggests, the Internet, blogs, social networks, Twitter, YouTube, and so on, were the revolutionary platforms that were supposed to democratize all media and give everyone a fighting chance to be heard.  Instead, power laws and media inequality have proven relentlessly persistent.  Here’s how I explained why this is the case in an earlier essay:

There are several reasons that power laws always exist in all media contexts. We used to think it was because the economics of media are quite different than most other industries. Namely, media industries typically exhibit “public good” qualities; high fixed (production costs), but lower distribution costs.  But the primary reason why power laws are probably more prevent in media industries than other sectors of the economy is because the creation and consumption of news and popular culture is a truly social phenomenon. Think of it as the economics of popular choice and the sociology of fashion and fads. People (and consumers) react to what others are reading or watching. Word-of-mouth counts. Bandwagon effects exist. First-mover advantages are significant. And so on.  The end result is a hopeless imbalance of outcomes or outputs.  Media egalitarianism is simply an impossibility.

OK, so now that I’ve said all this and rained on the New-Media-Will-Produce-Perfect-Outcomes-Parade, let me explain why NONE OF THIS MAKES A DAMN BIT OF DIFFERENCE.   What is really important is equality of media opportunity, not equality of media outcomes.  A focus on the latter is both foolish and destructive. It is foolish because media equality is an impossibility absent extreme measures, which in turn explains why it is destructive. We would need totalitarian government controls on media outputs and consumption in order to achieve anything remotely close to “balance” or “equality” in terms of media results.

Again, all that really counts is that people have a chance to be heard, not whether millions are listening.  New media platforms really do change some things for the better because at least we now all have an equal chance to make a go at it and grab a bit of that audience. That’s certainly more than could be said back in the old analog media world, in which we suffered from outlet scarcity and information poverty. Today, by contrast, will live in a wonderful world of media abundance, where every man, woman, and child really does have a soapbox on which to stand and speak to the world.

Of course, no one may be listening.  And there will always be someone else who will nab greater audience share than you.

Get used to it. It is the way the media world has always worked, and it is the way every media platform will work until the end of time.  So long as citizens are free to choose, media inequality is inevitable.

Last week I discussed Barbara Esbin’s new PFF paper about the FCC’s absurd investigation into how the cable industry is transitioning analog customers over to digital. This is an essential transition is the cable industry is going to free up bandwidth to compete against telco-provided fiber offerings in the future. The faster the cable industry can migrate its old analog TV customers over to the digital platform, the more bandwidth they can re-deploy for high-speed Net access and services. Mark Cuban helps put things in perspective:

1. the only thing that cable companies, and satellite for that matter have to sell is bandwidth and the applications they can run on that bandwith. More bandwidth means more digital everything. 2. For Basic Cable subscribers that get say, 40 analog channels, they are consuming 40 x 38.6mbs or 1.54 Gbs. Let that sink in. 1.54 Gbs of bandwidth. Compare that to how fast your internet access is. That more bandwidth than your entire neighborhood consumes online, by a lot. Thats also the equivalent of 500 standard def digital channels. If you convert that to revenue per bit for cable companies, or cost per bit for basic cable consumers, the basic cable customers are getting the best deal in town. By a long shot. Digital cable customers, not so much. Digital customers are paying multiples of analog customers for bandwidth. In reality, analog customers are getting an amazing deal, and the cable companies have been hesitant to convert them only because of the potential FCC backlash. I’m as cynical as the next guy when it comes to cable rates and motivations, but the reality is that the longer analog remains, the fewer opportunities to leverage the freed up bandwidth to create next generation bandwidth hog applications. Will the cable companies charge us an a lot for that bandwidth, probably. But when we start to see applications built on top of 250mbs per second and more, it will have far more value to society than watching USA Network on your old analog TV. And Net Neutrality?  Well if everyone had that 1.54gbs available to them, net neutrality would be a non issue. We wouldn’t be arguing about access or pre-emption, we would be arguing about quality of service.

Once again we are reminded that all regulations have opportunity costs and in this case the FCC’s actions could cost consumers the loss (or at least delay) of higher-speed broadband offerings in the near-term.