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Global platforms face regulatory threats

The year 1995 was three years before Google was founded, nine years ahead of Facebook, a decade before YouTube and 11 years earlier than Twitter. US lawmakers, concerned a recent court ruling would stifle innovation, introduced an amendment to the Communications Decency Act to ensure “providers of an interactive computer service” were not liable for what people might say and do on their websites. The amendment contrasted with how publishers and broadcasters are legally accountable in the US and elsewhere for the content they make public in traditional or online form.

The amendment, which became Section 230 in the Telecommunications Act of 1996 (known as CDA 230), enabled companies such as Facebook, Google, LinkedIn (Microsoft owned since 2016), Reddit, Snapchat, Tumblr, Twitter and YouTube (Google owned since 2006) to emerge as human ingenuity allowed.

Will future restrictions stifle profit growth?

The growth of these companies seems to have outpaced their ability to police misuse of their products without them incurring any legal penalty. Across these platforms the world over, examples of compromised quality include:

  • fake news and cheapened facts
  • manipulation of algorithms to promote articles to ‘trending’ status
  • troll armies
  • bogus ‘likes’
  • web-based smear campaigns
  • viral conspiracy theories with hyped partisanship

They have amplified the role that emotion has played in discourse on these for-profit ‘public squares’ such that social media is accused of being a ‘threat to democracy’.

The controversies have roused policymakers, egged on by traditional media that has lost advertising income to these newcomers. Moves are underway in the US to extend to the internet the same regulations that govern political advertising in traditional media. Some people even question the rationale behind CDA 230.

US lawmakers are restrained when taking on the tech giants on content for two main reasons.

First, the products of these companies are beloved by their billions of users so anything that would disrupt these services would prove unpopular.

Second, digital platforms are difficult to regulate, no matter their size, because they are different from traditional publishers and broadcasters.

The content-heavy business models of the platforms are likely safe for now.

That said, the tech companies (as distinct from their products) have shed much goodwill in recent years as these and other controversies have swirled. With so many controversies raging, the platforms are under pressure to limit abuses on their inventions that have a more sinister side than their creators perhaps expected.

Platforms must take more control or regulators will force them to

It’s already happening. US Republican and Democratic senators are pushing (via the Honest Ads Act) to end the exception from laws governing advertising that online has enjoyed since 2006. While legislation on political ads stands a fair chance of being passed, the challenge for lawmakers on content remains that the internet is unique. Digital platforms refute suggestions they are publishers or broadcasters even though many people go to them for their news.

The tech industry overall says that CDA 230 is a needed protection for online services that provide third-party content and for bloggers who host comments from readers. Without the exception, sites would either forgo hosting content or be forced to ensure content didn’t breach laws – a claim that would apply differently across the platforms.

The solution for US politicians would seem to be to impose content rules on the digital platforms that are forceful but less stringent than those governing traditional media. Germany’s new Network Enforcement Law is a portent of regulation to come – it is regarded as the toughest of laws passed recently to regulate internet content in more than 50 countries. Under the German law effective from October 1, digital platforms face fines for hosting for more than 24 hours any content that “manifestly” violates the country’s Criminal Code, which bars incitement to hatred or crime.

In the US, a workable compromise on regulating content could take time, even years, to work out. With the public still enamoured with their favourite platforms, the tech companies will enjoy the protections that flow from CDA 230 for a while yet.

 

Michael Collins is an Investment Specialist at Magellan Asset Management, a sponsor of Cuffelinks. This material is general informational and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.


 

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