[Senate Hearing 118-112]
[From the U.S. Government Publishing Office]
______
S. Hrg. 118-112
COMPETITION IN THE
DIGITAL ADVERTISING ECOSYSTEM
=======================================================================
HEARING
before the
SUBCOMMITTEE ON COMPETITION POLICY, ANTITRUST, AND CONSUMER RIGHTS
of the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
MAY 3, 2023
__________
Serial No. J-118-15
__________
Printed for the use of the Committee on the Judiciary
GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT
www.judiciary.senate.gov
www.govinfo.gov
_______
U.S. GOVERNMENT PUBLISHING OFFICE
53-539 WASHINGTON : 2025
COMMITTEE ON THE JUDICIARY
RICHARD J. DURBIN, Illinois, Chair
DIANNE FEINSTEIN, California LINDSEY O. GRAHAM, South Carolina,
SHELDON WHITEHOUSE, Rhode Island Ranking Member
AMY KLOBUCHAR, Minnesota CHARLES E. GRASSLEY, Iowa
CHRISTOPHER A. COONS, Delaware JOHN CORNYN, Texas
RICHARD BLUMENTHAL, Connecticut MICHAEL S. LEE, Utah
MAZIE K. HIRONO, Hawaii TED CRUZ, Texas
CORY A. BOOKER, New Jersey JOSH HAWLEY, Missouri
ALEX PADILLA, California TOM COTTON, Arkansas
JON OSSOFF, Georgia JOHN KENNEDY, Louisiana
PETER WELCH, Vermont THOM TILLIS, North Carolina
MARSHA BLACKBURN, Tennessee
Joseph Zogby, Chief Counsel and Staff Director
Katherine Nikas, Republican Chief Counsel and Staff Director
Subcommittee on Competition Policy, Antitrust, and Consumer Rights
AMY KLOBUCHAR, Minnesota, Chair
SHELDON WHITEHOUSE, Rhode Island MICHAEL S. LEE, Utah, Ranking
CHRISTOPHER A. COONS, Delaware Member
RICHARD BLUMENTHAL, Connecticut CHARLES E. GRASSLEY, Iowa
MAZIE K. HIRONO, Hawaii JOSH HAWLEY, Missouri
CORY A. BOOKER, New Jersey TOM COTTON, Arkansas
PETER WELCH, Vermont THOM TILLIS, North Carolina
MARSHA BLACKBURN, Tennessee
Keagan Buchanan, Democratic Chief Counsel
Wendy Baig, Republican Chief Counsel
C O N T E N T S
----------
OPENING STATEMENTS
Page
Klobuchar, Hon. Amy.............................................. 1
Lee, Hon. Michael S.............................................. 3
WITNESSES
Alford, Roger P.................................................. 7
Prepared statement........................................... 41
Responses to written questions............................... 47
Henderson, Todd.................................................. 13
Prepared statement........................................... 54
Responses to written questions............................... 60
Kint, Jason...................................................... 11
Prepared statement........................................... 65
Responses to written questions............................... 70
Lynn, Barry C.................................................... 9
Prepared statement........................................... 75
Responses to written questions............................... 97
Srinivasan, Dina................................................. 6
Prepared statement........................................... 100
Responses to written questions............................... 224
COMPETITION IN THE
DIGITAL ADVERTISING ECOSYSTEM
----------
WEDNESDAY, MAY 3, 2023
United States Senate,
Subcommittee on Competition Policy, Antitrust, and
Consumer Rights,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:32 p.m., in
Room 226, Dirksen Senate Office Building, Hon. Amy Klobuchar,
Chair of the Subcommittee, presiding.
Present: Senators Klobuchar [presiding], Blumenthal,
Hirono, Booker, Welch, Lee, Hawley, and Tillis.
OPENING STATEMENT OF HON. AMY KLOBUCHAR,
A U.S. SENATOR FROM THE STATE OF MINNESOTA
Chair Klobuchar. All right, I call to order this hearing of
the Subcommittee on Competition Policy, Antitrust, and Consumer
Rights on ``Competition in the Digital Advertising Ecosystem.''
I'd like to welcome our witnesses, and thank Senator Lee, and
his staff, for their work in planning this hearing. He cares a
lot about the major bill that's the subject of this hearing, in
addition to many other pieces of legislation.
We are living in a time of rapid innovation and
technological change that is reshaping our economy and
transforming how we interact with each other. And we are now
seeing how quickly things can change when we leave here. We're
having a briefing on artificial intelligence systems, and I
think we all know that it's all tied up in the discussions that
we have today.
Now advertising, which is really at the center of this
market, digital advertising pays for many of the apps and
websites we use throughout the day to read the news, look up
recipes online, and stream movies. And like much of the digital
economy, there is a lack of competition in digital advertising
markets that it has been harmful to small businesses and
computers.
Today's hearing is about the consequences we are seeing
from the unchecked consolidation and a reluctance to enforce
the antitrust laws, and it's about what we can do about it.
Although Facebook and Amazon have significant ad
businesses, there is one company that dominates digital
advertising like no other, and that is Google. The ad
technology ecosystem connects advertisers like your local
coffee shop with publishers like your favorite online newspaper
via systems that price and sell ad space and place display ads
on websites.
Within that ecosystem, Google dominates the market for
platforms and services on the publisher side, that would be the
ads that publishers want to place, as well as the advertiser
side. So you have the coffee shops that want to put the ads in,
and then you have your local newspaper that's displaying the
ad. So they dominate both sides as well as the ad exchanges
that connect them. So it's like a three-pronged--and I can see
the witnesses nodding, I must be getting something right--a
three-part domination.
Google has a 90-percent share of the service that
publishers use to sell space on their sites. It has a 40-
percent share of the services that advertisers, like the coffee
shop, use to buy ads, and it has a 50-percent share of the
market for ad exchanges that connect those advertisers and the
publishers. This end-to-end control gives Google unique access
to information about virtually all digital ad transactions and
allows it to extract a higher percentage of revenues than they
would be able to get in a competitive ad technology market.
For example, publishers using Google AdSense to sell their
ad space must give Google 32 percent of the revenue generated.
That's a pretty big cut. Research has suggested that Google may
be taking between 30 and 70 percent of every advertising dollar
spent by advertisers using its services, depriving providers of
original content that are, in fact, struggling to receive their
own compensation.
This includes many of our news outlets. We have a separate
piece of legislation Senator Kennedy and I have on negotiating
news content rates, something that's worked successfully in
Australia.
But the other piece of this is just the overall advertising
market that involves news organizations and many other sites.
Google's ability to take a large share of the revenues
generated by publishers' ad space is contributing to the near
collapse of advertising-based revenue models for many news
organizations.
And this threatens more than competition. It threatens the
viability of a free and independent press, which is essential
to our democracy. And it is especially hurting the small local
radio, TV, and newspapers. Google's market dominance, combined
with its huge advantage in consumer data, gives it the market
power to exclude its ad tech rivals and maintain its monopoly
power.
This strategy has been very lucrative. As they say,
``Follow the money.'' Last week, Google announced first-quarter
results that included, in just ad revenue, $55 billion--not
million--$55 billion dollars in ad revenue in the first
quarter. And you wonder why we are losing what will be a third
of the Nation's newspapers in just over a decade? You can look
right there: $55 billion. That is where the revenue has
shifted.
And when you don't get paid for your content, and you're
not able to crack into this trio of monopolies with the
publishers, and the advertising, and the people in-between,
it's a recipe for disaster.
It was about $100 million less the $55 billion, than in the
first quarter last year. But $100 million is about a rounding
error when you look at numbers that big. What I bring that up
for is that it shows that it is consistently that high.
The Justice Department recently brought a case claiming
that Google has engaged in anticompetitive conduct to establish
and maintain monopoly power in these ad technology markets.
State attorneys general have also taken action, brought a case,
but we know that there are difficult cases to win, which is why
this conduct has continued.
We all saw what enforcers are up against last week when the
D.C. Circuit upheld the dismissal of New York's Federal
antitrust claims against Meta, citing the Supreme Court's
decision in Trinko. One of our arguments here, my arguments
maybe, not Mike's, is that the Supreme Court decisions have
narrowed the possibility of bringing these kinds of cases,
which is another argument for making some changes to the laws.
The good news is that there is a bipartisan desire to take
action. Last Congress we passed the bipartisan bill Senator
Grassley and I led, that Cicilline and Buck led in the House,
to modernize the merger filing fees to make more resources
available to the antitrust agencies.
We also passed the bill that Senator Lee led, and I was the
Democratic lead, to empower State antitrust enforcers. And when
these bills were included in the end-of-year funding bill,
Senator Lee and I led an amendment to ensure that the merger
fee reforms took effect this year. That passed with an 88-to-8
vote. It's just happy memories of the end of the year, I'm sure
you're remembering this--me calling you at midnight, texting
you at 6 a.m.
[Laughter.]
Chair Klobuchar. Okay. To address the issues we are
discussing today, I'm working with Senator Lee on the AMERICA
Act to improve competition and transparency in ad technology
markets. This legislation is a key part of the work this
Committee has been doing over the last few years to rein in the
market power of a handful of online gatekeepers that are
dominating our digital economy.
I would note some other bills. The American Innovation
Choice Online Act that Senator Grassley and I have introduced,
making it the first tech competition bill last year voted out
of the Committee since the dawn of the internet. We did the
same with the Open App Markets Act, something that Senator
Blackburn and Senator Blumenthal are leading, along with
myself. And then I mentioned already the Journalism Competition
Preservation Act.
I know that on this Committee, we are ready to stand up for
American consumers, small businesses, and innovation. I see
Senator Booker and Senator Welch here, two examples of people
who are willing to take on consolidated power in many ways
across the economy. We have other examples that I've mentioned
on the Republican side. We thank Senator Durbin and Senator
Graham for their leadership on these issues, having voted, both
of them, or been Co-Sponsors of a number of these bills.
I want to introduce the witnesses before turning it over--
maybe I'll let Senator Lee make a opening statement. Then I'll
introduce the witnesses.
OPENING STATEMENT OF HON. MICHAEL S. LEE,
A U.S. SENATOR FROM THE STATE OF UTAH
Senator Lee. Thank you, very much. Two-and-a-half years
ago, when I was Chairman of this Committee--this Subcommittee
at the time, we held a hearing to explore a number of
competition concerns rising in the digital advertising market.
At the time, it wasn't clear exactly what the solution was, but
we wanted to understand the problem before we figured out what
solutions might exist.
And since then, it's become more clear. And here we're
going to discuss that today. The solution lies in the
Advertising Middlemen Endangering Rigorous Internet Competition
Accountability or AMERICA Act. This is one of the acronyms of
which I'm most proud with legislation.
Very grateful, not only to my excellent team in helping to
put this together, I'm also very grateful for my Co-Sponsors,
starting with my lead Democratic Co-Sponsors, Senator
Klobuchar. We've also got Senators Cruz, Blumenthal, Rubio,
Warren, Schmitt, Hawley, Kennedy, Graham, and Vance. And we're
just getting started. We'd love to get Senators Booker and
Welch on board with us, as well, and hopefully today's hearing
will help with that effort.
Now, some may be asking: Why focus on this? Why all this
fuss just about digital advertising? After all, this isn't
necessarily the most high-profile market. Consumers don't
necessarily lay at wake at night ruminating over whether their
favorite website is earning enough money from selling digital
advertisements, or whether the shoes that they just bought
online might have been a little bit cheaper if the manufacturer
had saved a fraction of a penny on 1,000 impressions last month
that they paid for in their advertising budget.
Instead, we do lay awake at night worrying about other
things. We spend a lot of time as Americans worrying about
things like how Big Tech firms sometimes track our location--at
all times, following us to work, to school, on dates, to
church, to the doctor, everywhere else in-between. And we worry
about large trillion-dollar corporations that control our
phones, our watches, our movies and our music, our wallets, our
books, our thermostats, appliances, home security systems,
cars, even baby monitors, fitness routines, and a whole lot
more.
We worry about Big Tech firms giving computers to schools
to give to our children, whom they then track and monetize by
feeding them endless streams of social media, pornography, and
other mindless entertainment, shaping their thoughts and
psyches, sometimes with devastating or even deadly
consequences.
We worry about how these companies might use artificial
intelligence to shape and influence how we think, feel, and
interact and communicate with the rest of the world, ensuring
it's only in ways that are profitable for them, of course.
But the fact is that all of this technological and
financial hegemony rests on one thing: digital advertising.
Because digital ads are how you turn data into money. This is
the lifeblood of the tech sector in many respects.
That's why the first step toward reining in the power and
the predation of the monopolist tech companies is to bring
transparency and competition into the digital advertising
market.
This is a--this is an important thing. Without that, you
can't really do that. This is the lifeblood of the tech
economy, which is why the AMERICA Act does what it does to rein
in the power and the predation of these companies.
Now, the Department of Justice, along with 33 States and
Territories and numerous businesses, have all seen some of the
same problems and have brought antitrust lawsuits trying to
address these issues in court. Antitrust litigation, of course,
can be an effective tool to bringing an end to significant
intractable competition problems.
But these sorts of things take a long time. This litigation
will likely take many years to complete. And even assuming that
enforcers are successful at the end of the day in that
litigation, it's only going to result in an injunction that
applies to a single firm. Congress could solve the problem
tomorrow and do so in a way that ensures today's monopolist
isn't necessarily replaced by tomorrow's monopolist doing the
exact same thing.
I'm very grateful to our panel of witnesses here to educate
us and enlighten us on these issues, and I look forward to our
conversation and ultimately to helping advance the AMERICA Act
one step closer to the President's desk. Thank you.
Chair Klobuchar. Thank you, Senator Lee. I was just noting
with our great staff here, Avery, and Mark, and Keagan, that we
don't usually have any natural light in these rooms. So we can
say we're shedding light on this very important issue as the
curtains are open for the first of many, many hearings.
Okay, I'm going to introduce our witnesses here today. I
want to also thank Senator Hirono who's with us, who's been an
early leader on a number of these bills.
With us today are Dina Srinivasan, who is a lawyer and a
fellow with the Thurman Arnold Project at Yale University.
She's also the author of ``Why Google Dominates Advertising
Markets: Competition Policy Should Lean on the Principles of
Financial Market Regulation.''
Also, Professor Roger Alford. He is a law professor at
Notre Dame Law School, where he teaches about international
antitrust issues and is a former deputy assistant attorney
general for international affairs.
Barry Lynn is with us, a frequent flyer on this Committee.
He is the executive director of the Open Markets Institute, a
non-profit research and policy group that focuses on addressing
monopoly power and modernizing our antitrust laws.
Jason Kint is the CEO of Digital Content Next, a trade
association serving digital content companies, and is chairman
of TrustX, a cooperative digital advertising marketplace.
Last, but not least, Todd Henderson is a law professor at
the University of Chicago, my alma mater. Thank you. Professor
Henderson's research interests includes corporations,
securities regulation, and law and economics.
If the witnesses could please stand and raise your right
hand?
[Witnesses are sworn in.]
Chair Klobuchar. Thank you. You can be seated, and I will
now recognize the witnesses for 5 minutes of testimony each.
Ms. Srinivasan, please, begin. Thank you.
STATEMENT OF DINA SRINIVASAN, THURMAN ARNOLD PRO-JECT FELLOW,
YALE UNIVERSITY, NEW HAVEN, CONNECTICUT
Ms. Srinivasan. Thank you, Senator. Chair Klobuchar,
Ranking Member Lee, and distinguished Members of the
Subcommittee, thank you for the opportunity to testify before
you today. The AMERICA Act is really just a simple piece of
legislation that'll fix a major problem at the heart of online
markets. The problem that the bill aims--I'm sorry. The problem
that the AMERICA Act aims to fix is simple. You see, entire
sectors, as we've discussed already, of the U.S. economy depend
on being able to buy and sell online ads.
And this includes entrepreneurs who might buy ads to reach
new customers and grow their businesses, and it includes
content creators and media businesses selling ads to fund their
operations and to keep their subscription prices for consumers
low. It's an industry today that is not small. It's worth
hundreds of billions of dollars.
Now, people used to buy and sell ads in person. Say the
local owner of a restaurant calling his newspaper and haggling
over price. That is no longer the case.
Today, as we've begun to discuss, ads are bought and sold
at lightning speed on sophisticated exchanges. Ad companies
have modeled their exchanges after stock exchanges that we're
familiar with, like the New York Stock Exchange.
So now the owner of the local restaurant must go and use an
ad broker, just as he'd have to go use a stockbroker, like
Fidelity, to buy ads from his newspaper that are now trading on
exchanges. And he must trust his broker to act in his interest
and to fetch him a good price.
The problem today is that the companies that operate the
new ad exchanges and brokers operate without any of the common-
sense rules that Congress has enforced on Wall Street for
nearly a century. There are no rules that manage conflicts of
interest. There are no rules that require brokers or exchanges
to be open, honest, and transparent with their own customers.
The industry is most certainly not policing itself. That's the
essence of the problem.
I'd like to share a few concrete examples of what's wrong
with the picture. The company that owns the major ad exchange,
also operates on the sell side, also operates on the buy side,
and also sells advertising itself. They don't even bother
keeping the different divisions internally separate from one
another.
So imagine that restaurant hands $1,000 to its broker to go
buy ads for its business, and that broker turns around and uses
its customer's money and information to trade against that
customer, to force ads to clear on its own exchange, even
though that decision is bad for its customer and costs its
customer more money.
For many years on the other side of the equation, websites
and apps were at the mercy of the largest broker using
deceptive tactics and exploiting information advantages when
routing trades to exchanges, resulting in those websites and
apps making up to 50 percent less revenue than they otherwise
would. This might sound abstract, but imagine for a minute if
The Washington Post is suddenly making 50 percent less revenue
than it otherwise would.
As Senator Klobuchar mentioned, the harmful behavior not
only hurts the bottom line of these online businesses, but it
has broader implications to institutions critical to the
strength of our democracy.
In dollars and cents terms, the burden on the public is
real. Financial exchanges charge far less than 1 percent on a
typical stock trade. In advertising with no rules, no
transparency and runaway conflicts of interest, the broker's
exchanges and exchanges in the middle, take anywhere between 30
to 50 percent of each and every trade.
Now, there's nothing inherently wrong in a capitalist
society with exchanges and brokers charging what the market
will bear. The problem, instead, is that in advertising they
are only charging that much because they're not managing their
conflicts, they're trading on inside information, and they're
not being open, honest, and transparent with their own
customers.
Those practices impede the process of competition itself,
and they cause prices to soar. And when the cost to buy and
sell ads soars, that increases the prices of all goods and
services being advertised.
One thing that I thought might be helpful to mention is,
sometimes these things, again, are abstract, and we might think
stock exchanges are different than--or, stocks are inherently
more important than stocks, but entrepreneurship, the last time
I checked, was a fundamental source of wealth creation for
Americans, and advertising is really a critical part of that.
Thank you for your time today, and I look forward to
answering your questions.
[The prepared statement of Ms. Srinivasan appears as a
submission for the record.]
Chair Klobuchar. Thank you, very much. Professor Alford?
STATEMENT OF ROGER P. ALFORD, PROFESSOR OF LAW, UNIVERSITY OF
NOTRE DAME, NOTRE DAME, INDIANA
Professor Alford. Thank you, Senator Klobuchar. I've
actually read your book, and I'm a huge fan of that book and
the work that you're doing with respect to antitrust
initiatives. And----
Chair Klobuchar. And I assume you've read Senator Booker's
book, as well, and----
Professor Alford. I've read that. And----
Chair Klobuchar [continuing]. Senator Lee's book, what
happens----
Senator Booker. That was the most obsequious comment I've
heard in 10 years as a Senator.
[Laughter.]
Professor Alford. And Senator Hawley's book, as well.
Senator Booker. Just want to mark my protest.
Chair Klobuchar. And Senator Hirono's book.
[Laughter.]
Professor Alford. So I'm a conservative antitrust scholar
and former deputy assistant attorney general in the previous
administration, and I'm here today to speak in support of the
AMERICA Act.
Let me begin by saying that everything about online display
advertising is enormous. According to the DOJ's complaint filed
in January of this year, publishers sell more than 13 billion
advertisements every day. The daily volume of digital display
advertisements grossly outnumbers by several multiples the
average number of stocks traded each day on the New York Stock
Exchange.
Not only is the volume staggering, the margins are also
staggering. While the New York Stock Exchange, as Dina just
mentioned, makes less than 1 percent, less than $5 on a
$100,000 stock trade, Google intermediaries make approximately
40 percent, or $40,000, compared to the NYSE's $5 on a $100,000
ad campaign.
As a result of Google's revenue, it makes approximately
$280 billion a year, or $767 million a day. It makes more
revenue from ads in 1 week than Twitter makes in a year.
A third aspect about online advertising that it's enormous
is the enormity of the problem. It is almost completely
unregulated market, with neither litigation nor legislation
curbing the harmful conduct. Nearly identical practices in
financial markets would result in severe fines and even
criminal sanctions in the case of insider trading, but are
completely unregulated here.
Just as insider trading in the early 20th century was
commonplace, according to one commentator historian, taken as a
matter of course without indignation, without even a passing
comment in the early 20th century, today we have the exact same
problem in the display advertising markets. Google makes
billions in revenue from its dominance at every level of the ad
tech stack.
Some will tell you that these markets are competitive
because they are vertically integrated. But vertical
integration can be beneficial if it eliminates double
marginalization. Here, Google is enhancing triple
marginalization with high margins on the sell side, high
margins on the buy side, and high margins on the exchange in
the middle.
As introduced, the AMERICA Act prohibits entities with
significant digital advertising revenue, only the largest of
the large advertising players, from owning and operating
entities across the ad tech stack.
In the digital ad tech market, there are several advantages
to structural separation. Let me offer just a few.
First, structural separation recognizes the limits of
regulatory behavioral remedies that are difficult to devise,
implement, monitor, and enforce. The same reasons they prefer
structural remedies in merger review is the same reason that
it's important here.
Second, structural separation eliminates or minimizes the
conflicts of interest, as Dina just mentioned.
Third, structural separation eliminates or reduces the risk
of cross subsidizing and steering--steering products and
services to your preferred exchange, rather than to a more
competitive exchange.
Fourth, structural separation improves transparency and
information flows.
And fifth, structural separation eliminates or reduces
incentives to restrict competition.
Finally, let me close by emphasizing why conservatives
should support the AMERICA Act. I want to emphasize that the
legislation is consistent with conservative antitrust values,
and the list of Co-Sponsors that have been garnered already
just in this early stages of the bill underscores that point.
While litigation is appropriate to curb Big Tech abuse of
power, it is not sufficient. I obviously am a strong supporter
of litigation. I'm involved in the case brought by Texas
against Google, but it is not enough. Attorney General William
Barr, in his memoirs, has a whole chapter on Big Tech. And
there are two reasons, according to Attorney General Barr, why
targeted regulation of Big Tech is important as a complement to
antitrust litigation.
And again, remember, this is after having brought the
search case against Google and recommending the ad tech case.
So according to Attorney General Barr, these markets have
powerful network effects, prone to monopolization, and second,
they impact not just competition, but the collection of
personal data and the free flow of information.
According to his memoirs, let me just quote, ``I have
natural reservations about imposing a regulatory framework on
market activities, as most conservatives do, but the reality is
that some markets and market conditions require a degree of
regulatory intervention. In this case of Big Tech's major
platforms, it is hard to see how the challenges they pose to
competition, privacy, and the free flow of information can be
addressed in the absence of a regulatory framework.''
I look forward to taking your questions. Thank you.
[The prepared statement of Professor Alford appears as a
submission for the record.]
Chair Klobuchar. Thank you, very much, for those startling
statistics, Professor. Thank you. Next up, Barry Lynn.
STATEMENT OF BARRY C. LYNN, EXECUTIVE DIRECTOR AND CHIEF
EXECUTIVE OFFICER, OPEN MARKETS INSTITUTE, WASHINGTON, DC
Mr. Lynn. Chair Klobuchar, Ranking Member Lee, Members of
the Subcommittee, thank you for inviting me to speak on this
extremely important topic. It's good to see you all, again. The
AMERICA Act is a very smart idea that would do much to properly
structure a market for online advertising.
We at Open Markets strongly support this idea and commend
Senator Lee for working to restore traditional common-sense
regulation, and to ensure transparency and eliminate conflicts
of interest.
Open Markets also supports the ideas behind the America
Innovation and Choice Online Act and the Journalism Competition
and Preservation Act.
We view these as vital also to rebuilding a more
competitive and open internet and more democratic markets for
news and debate. That said, we do not believe these ideas, even
taken together, are sufficient to address the full array of
threats posed by the power and control concentrated in Google,
Facebook, Amazon, and Microsoft.
None, for instance, addresses the power of the middlemen to
manipulate what citizens read or whether they read at all.
Consider Facebook's dramatic reason shift from news to video.
None deals with the use of platforms to censor and manipulate
debate. Consider Elon Musk's seizure of Twitter and his gleeful
use of that platform to silence critics.
None deals with the routine extortion by these gatekeepers
of every company and individual who depends on them to get to
market a form of theft that is often booked as advertising.
The people in this room and the wider community fighting to
protect democracy from monopoly have made great advances these
last 7 years in understanding the nature of the threats posed
by monopoly power and control, and the source of monopoly, and
the ideas of Robert Bork and his allies in building enforcement
capacity, and the ability to cooperate across the aisle, and
bringing lawsuits to limit the powers of these corporations.
But the time has come to admit one big failure, which is,
to recognize that corporations like Google and Amazon have
today become essential infrastructure for communications and
commerce. This failure has allowed these corporations to
develop business models based on forcing users to pay them to
open the gates to the market for goods, for news, for ideas.
In short, we allowed these corporations to develop forms of
political power that are overtly autocratic in nature and that
pose far graver threats to democracy and liberty than any
plutocrats of the gilded age.
That's why Open Markets believe it is so critical that
enforcers in Congress move now to impose a system of non-
discrimination on these gatekeepers, one that will require them
to provide essentially the same service to every individual and
business who depends on them.
This principle of absolute equality of treatment traces to
the Declaration of Independence. It is a core goal of the
Constitution. It is the practical foundation for how Americans
regulated every network, monopoly, and other powerful
gatekeeper throughout our history.
Senator Sherman, in a speech backing the bill that bears
his name, explained why: It is the right of every man to work,
labor, and produce in any lawful vocation, and to transport his
production on equal terms and conditions and under like
circumstances.
This is industrial liberty and lies at the foundation of
the equality of all rights and privileges. But in the 1980s and
1990s, Bork and other radical pro-monopoly actors, overturned
these principles.
Today we face the consequences. And now, the reckless and
chaotic imposition of generative AI by Google and Microsoft
threatens to make these threats worse.
The good news is, we have an almost all-purpose solution.
One the American people has proven time and again in use on
technology after technology, the railroad, the telegraph,
electricity, broadcast, the internet itself.
In November 2017, Senator Franken, when he was a Member of
this Committee, pointed in the right direction: ``As tech
giants become a new kind of internet gatekeeper,'' he said, ``I
believe a basic principle should apply here. No one company
should have the power to pick and choose which content reaches
consumers and which doesn't.''
The time has come to take up Senator Franken's mission and
finish the job of making Google, Facebook, and Amazon safe for
American democracy and American liberty.
[The prepared statement of Mr. Lynn appears as a submission
for the record.]
Chair Klobuchar. Thank you, very much, Mr. Lynn. Mr. Kint?
STATEMENT OF JASON KINT, CHIEF EXECUTIVE OFFICER, DIGITAL
CONTENT NEXT, NEW YORK, NEW YORK
Mr. Kint. Thank you, Madam Chair, Ranking Member Lee, and
Senators. My name is Jason Kint. I'm the CEO of Digital Content
Next. DCN is the only trade organization dedicated to serving
high-quality digital content companies that manage trusted
direct relationships with both consumers and advertisers.
Our membership includes more than 60 media companies and
thousands of brands from every segment of the market, from
large to mid-size companies, some who have been around just
less than a decade, others for more than a century, all
creating original news and entertainment over the internet.
Our members include The New York Times, Wall Street
Journal, Washington Post, Disney, Paramount, Philadelphia
Inquirer, Vox Media Group, The Daily Caller, The Financial
Times, among others.
As background, I spent my first 20 years of my career
running major digital media businesses, beginning with the very
advent of the web in the early 1990s.
Our DCN members create trusted original content funded
primarily through advertising.
Yet, while advertising is woven into everyone's digital
lives, most people have only a vague idea of how it works,
including how closely its plumbing has evolved to resemble a
stock exchange.
In barely three decades, digital advertising has quickly
evolved into a high-speed marketplace in which a variety of
pricing, placement, targeting, and auction levers are pulled in
milliseconds as we go about our digital and physical lives.
This is now the largest advertising market, trading at more
than $200 billion of advertising per year in the U.S., executed
in real time entirely by machines.
And, like in the financial markets, brokers buy or sell on
behalf of clients. To guard against fraud in the stock
exchange, Congress enacted common-sense rules nearly a century
ago. These rules prohibit the biggest companies from operating
on both sides of the market. These rules also require
transparency and impose a duty on brokers to get the best deal
for their client.
In short, these are rules that every American can
understand and support. Unfortunately, there are no common-
sense rules in the digital advertising marketplace. As a
result, the supply chain is murky and rampant with fraud,
insider trading, and hidden fees. Ad tech companies often
arbitrage over users' data to use on behalf of other clients or
for their own profits.
Google, the most dominant company in the digital ad
marketplace, enjoys a stranglehold over the entire supply chain
since they offer the most popular software for advertisers to
buy ads, for publishers to sell ads, and the most dominant
exchange where bids are placed and winners are chosen.
Google's dominant position is so problematic that a group
of bipartisan State attorneys general have filed suit to end
the monopoly.
And earlier this year, the Biden administration's
Department of Justice filed a similar suit, which was the
result of an investigation by the Trump administration.
Perhaps the best illustration of Google's dominant position
was the quote that's been mentioned in Government suits. Yes, a
Goo-gle executive said the analogy would be if Goldman owned
the stock exchange. I kid you not.
How that plays out in reality, in the lawsuit allegations
and industry conversations, is when Google tells a publisher
that, ``Hey, if you want to have access to all this advertising
demand over here that's your lifeblood, then you also have to
give me access to all your user data and your browsing history
across the website,'' a.k.a., ``tying.''
Digital advertising is a critical driver for our economy.
That's why DCN wholeheartedly supports the AMERICA Act, which
was introduced by Senator Lee and co-sponsored by many of the
Senators mentioned. The bill would require transparency,
promote competition, reduce obvious conflicts of interests, and
stop market abuses by the most dominant companies.
The bill lays out basic common-sense rules for the digital
advertising marketplace that, once again, all Americans can
understand and support.
Ultimately, the focus of the discussion around this
legislation will be the breaking up of Google. That will be the
headline. Don't get me wrong, it's certainly a necessary and
good idea.
But there will be also some who argue, ``Why not just let
the courts, let the antitrust lawsuits first follow through
before we pass new laws? '' Well, I have two reasons.
First, as it relates to Google, we don't have time for a
long appeal process as they've increasingly sucked the oxygen
and the potential for profits out of the news media industry.
Second, the legislation isn't merely about the behemoth. It
also importantly addresses transparency and eliminates
conflicts of interest for even the middle-sized ad tech
companies, so that all brokers have to serve their clients'
interests. By lowering costs for publishers and advertisers,
the AMERICA Act will also lower costs for consumers, and it
will help protect consumers' privacy.
As Senator Lee previously said, ``This is not a bill that's
either liberal or conservative. It's not Republican or
Democratic. This is just a good business process bill.''
We agree wholeheartedly. We applaud your work on behalf of
the free and local press, small and large, old and new. Thank
you for inviting me here to testify today. I look forward to
answering any questions you have.
[The prepared statement of Mr. Kint appears as a submission
for the record.]
Chair Klobuchar. Very good, thank you. Professor Henderson?
STATEMENT OF TODD HENDERSON, PROFESSOR OF LAW, UNIVERSITY OF
CHICAGO, CHICAGO, ILLINOIS
Professor Henderson. Thank you for having me. It's a great
honor to be here. I have three points to make for the
Subcommittee today.
First, monopolistic markets are associated with rising
prices and restricted output, but digital advertising has, in
recent years, demonstrated the opposite, with ads becoming
cheaper and more effective.
Second, ads are not stocks, and any claim that they should
be regulated the way stocks are is based on a fundamental
misunderstanding of how securities regulation works and why it
exists.
Third, the divestiture portion of the Act may have perverse
effects on competition and innovation. Congress should
carefully consider what this market would look like if this
bill is passed.
First, let me talk about the market for open display ads,
which, it's worth noting, is a small part of the online ad
market, which is, in turn, just a small part of the overall ad
market, which is just an even smaller part of the overall
marketing budget.
Senator Klobuchar mentioned $55 billion for Google. That's
a giant number. That's all of their ads, which include search
and other things. The open display portion, which is what the
AMERICA Act is about, is much, much smaller. I think it's about
$7 billion.
This market is dominated by a couple of big firms, Google
and Facebook. But as Senator Lee has repeatedly warned, big is
not necessarily bad. We have to understand why and what harms,
if any, flow from bigness. Importantly, these intermediaries
are vertically integrated and operate in two-sided markets, and
they're trying to optimize across that entire operation of
advertisers and publishers.
I understand why The Washington Post is upset that 50
percent of--they see a 50-percent reduction in their ad
revenues, but there's advertisers and consumers on the other
side. One has to think about the net effects on all sides of
that market. When you do that, you can see in the last couple
of decades, just in the last 10 years, digital ad spending has
grown about 20 percent per year on average, and prices have
fallen 4 percent per year on average.
These are consistent with a highly competitive market, and
as the UK Competition Authority found, the 30 percent number or
70 percent number that Senator Klobuchar mentioned, Google's
was at the industry average. The evidence needed for a massive
remaking of a giant industry should be compelling and
overwhelming, not based on anecdotes and hypotheticals.
Let me talk about the analogy to stock markets. The logic
is simple, and we just heard it from Mr. Kint. Google should be
barred from acting as a broker on its own exchange, just as
Goldman Sachs is prohibited from owning the exchange on which
stocks are traded. But this is factually false. Goldman Sachs
does not own the New York Stock Exchange, but it does own a
different exchange called SIGMA X.
If your broker recommends you buy a company's stock and you
accept their recommendation, that broker can route your stock
trade to the New York Stock Exchange, they can route it to
their own wholly owned exchange, SIGMA X. Or, even more
remarkably, they could fill your order from their own
inventory. About half of stocks are traded in venues owned by
stockbrokers.
It's because of the lack of physical separation in stock
markets that the SEC has adopted the best-interest rule. That's
Rule 611 of the National Market Securities Rule passed in 2005.
It's worth noting that, notwithstanding the fact that this has
been a rule since 2005, it has required a massive bureaucracy
inside of firms and in the Government to try to enforce it.
And yet only 43 percent of trades happen at the national
bid offer price, which is the best-price rule. In fact,
exchanges market to their customers tools that allow them to
sell at something less than the bid ask, the national best
price. So, invoking this in stock markets, is one thing where
there is one price for Google, and that price is the same for
every person on planet Earth at a particular time.
In contrast, in the ad markets, every ad, at every second,
on every webpage, for every different person, is priced
differently. Ensuring that stock market trading is fair is a
monumental task for regulators. Doing this for online ads is
unimaginable.
There's a bigger issue with the analogy. We have aggressive
regulation of stocks because they are--the importance of stock
prices to consumers and--stock markets are the nerve center of
the capitalist economy. Stocks are the largest source of
savings for individual Americans. And while advertising is
important, it plays nothing like the role stocks do in our
society.
The stock market, by the way, is also 700 times bigger than
the online ad market--700 times bigger.
The last thing, and I have to close, I'm running out of
time, is the net effect of this bill on competition might be
really perverse. Amazon is building its own business
internally. They did this and routed trades through Google.
Once it got big enough, they stopped doing that because they
built a rival business that was important.
Walmart and Target are doing the same thing. If you make it
such that once you get to a certain size, then you have
basically got to get rid of that business, you're going to
impede companies from trying to build their own internal
improvements. I'll close there.
I'll just say, I like the transparency aspect of this bill,
and if my vote mattered, I would vote for that. The other parts
are more troubling to me. Thank you.
[The prepared statement of Professor Henderson appears as a
submission for the record.]
Chair Klobuchar. Okay, thank you, very much. I'll get
started. And I want to thank Senator Tillis and Senator
Blumenthal for being here. And Senator Blumenthal, we mentioned
your leadership on the App Store bill. Thank you.
As the daughter of a newspaperman, I have watched closely
as local journalism has seen its content and ad revenue
siphoned off by digital platforms like Google and Facebook. You
mentioned this, Mr. Kint. How has Google leveraged its monopoly
power to squeeze publishers like local newspapers out of ad
revenue that they would receive if there was a competitive
market?
Mr. Kint. Over time, Google and Facebook, in particular,
have absorbed most of the internal growth in the industry, and
they've done that by pervasive collection of data across the
web.
Google has tags, and pixels, and listening devices
basically on nearly 80 percent of the top one million websites.
Facebook does across 8 million plus websites, according to
regulator data and research. So they're collecting and mining
data across the web and using that to generate the most profits
possible because they dominate the supply chain.
Chair Klobuchar. Mm-hmm. From your perspective working
directly with publishers, what are the biggest threats to
publishers from a few tech giants controlling almost every
aspect of the tech ecosystem? How are you addressing those
threats?
Mr. Kint. Well, antitrust is, you know, key to us because
most of the downstream harms that we've seen, whether it be,
you know, lower quality content, disinformation, not being able
to fund journalism in newsrooms, data abuse, concerns about
censorship, and the way--those are all downstream harms from
what's upstream, which is, you know, a perverse amount of
market power by just a couple of companies.
And so anything in the area of antitrust or data protection
that actually aligns the consumer's interests with the content
and the news entertainment that they actually want to consume
is very valuable.
Other legislation, like what you're working on with the
JCPA, where there's a duty then to correct imbalances in
bargain power, is also very important to the future.
Chair Klobuchar. Okay, thank you. One of the concerns that
we have discussed here, and I've heard from both publishers as
well as advertisers, is that there's no way to verify limited
data that Google and Facebook provide about where ads are
shown, to whom, and for what price. Even you, Professor
Henderson, that doesn't agree with this bill, have noted that
transparency is a good thing.
One example of this, Facebook was sued by advertisers in
2018 for lying about how many people an ad could reach. What
information about ads do you think should be provided to
advertisers and publishers by ad platforms? And the secondary
question, how has a lack of competition empowered Google and
Facebook to limit transparency?
So why don't you get at that? Because I believe that this
bill would help give advertisers greater insight into what's
going on and whether their digital ad campaigns are even
effective. It's hard to know. So anyone want to take any bit of
that, about what information you think it should be provided,
and also what we could do better?
Ms. Srinivasan. Sure. Thanks, Senator. One thing that
Professor Henderson mentioned, and this is sort of thrown
around a lot, is that the price of ads has just gone down. So,
you know, nothing to see here, folks.
One of the things that the bill does which I think is great
is, is it requires brokers to disclose certain information to
advertisers. And that information will allow them to audit
whether what they're buying is good quality or whether what
they're buying is bad quality.
And so, one of the things that might happen is, finally,
we'll be able to actually measure whether, in fact, the
effective price of ads is going down or whether it's going up.
Chair Klobuchar. Mm-hmm.
Professor Alford. Can I just add one other small comment?
And that is that, you know, you would think the publishers and
the advertisers would both know what the price was for the
impression that was sold. The advertisers know what they paid,
the publishers know what they received, but neither the
publisher nor the advertiser know what the costs in the middle
were.
And so there's a disjunction of knowledge about what
publishers received and what advertisers paid, because these
intermediary margins are really, really large----
Chair Klobuchar. Mm-hmm.
Professor Alford [continuing]. And it would be like having
a stock trade without knowing what the price--the ultimate
price was, or a sale of a home without a closing sheet. And so
that's a very simple example of transparency.
Chair Klobuchar. Mr. Lynn?
Mr. Lynn. Yes, thank you. In an earlier life I ran a
magazine called Global Business. It was a 100,000-circulation
business--I mean, magazine. It was four-color, perfect-bound,
96-page monthly magazine. We lived 100 percent off of
advertising.
One of the things that we did in this, very--this period a
long time ago is, we spent about 7 percent of our revenue every
year sort of auditing our readership to make sure that
advertisers understood exactly who they were getting and how
they're getting it.
That was a long time ago. That was essentially before the
internet. I would say that advertisers back then were better
served than they are right now.
Chair Klobuchar. Okay. Very good.
Professor Henderson. Just--oh, go ahead.
Chair Klobuchar. No, go----
Professor Henderson. No, please----
Chair Klobuchar [continuing]. Professor Henderson. I'll go
back to--I've one last question our colleagues have to----
Professor Henderson. Okay. I just want to add, I said it
was for transparency, and I think that's fine. I think Louis
Brandeis said it well, like, you know, shine a light on things,
as you said, Senator Klobuchar, when we started. I should note,
though, that's a little bit misleading, because, as I
mentioned, Google, the UK Market Authority found that Google's
rate that they charge is in line with their competitors.
And if nobody had any idea how much these intermediaries
were taking, they would have incentives to jack--you know,
Google could get away with charging anything because nobody
knows what they're charging. They're charging a market rate,
the market rate of their competitors.
And I'll note that the average large publisher will use six
different ad platforms in a year, and the average advertiser
will use three different platforms. So it's not like this is
the only game in town. And if Google is fleecing everybody--I'm
from the University of Chicago, so I'm contractually obligated
to say that I believe in markets.
And if the Google was absolutely fleecing people, given
that the average person uses six or three or six different
other alternatives, they would be taking their business to
those places. Now, if they are, as you said Senator, committing
fraud by deliberately misleading people, then we should have no
tolerance for that.
Chair Klobuchar. Okay.
Professor Henderson [continuing]. We should go after them.
But the threshold for breaking them up, I think, should be a
lot higher than that.
Chair Klobuchar. Okay, Mr. Kint. You want to respond?
Mr. Kint. I was just going to say that, you know, I heard
the point earlier from Professor Henderson why, you know,
stocks are different than advertising. I don't think we're
arguing they're the same thing. But advertising in digital is a
high volume. We heard the numbers from Roger that, you know,
the volume of advertising impressions per day at that rate, the
average ad translates to about less than a penny per
advertising. That's ripe for fraud.
Those are the types of markets, large volume, low price. A
CEO of an ad tech company recently told me that Google and the
trade desk are non-transparent black holes. Nobody has any clue
what's going on inside them. So we need to actually have some
transparency, because the way it translates-----
Chair Klobuchar. Okay.
Mr. Kint [continuing]. Is that local publisher gets a check
every month from Google, and they have no idea what's behind
it.
Chair Klobuchar. Okay. One last example I want to use of my
own experience with this, and why I know that they have info
and they're targeting people.
One of the ways that Google is able to leverage its market
power to disadvantage its competitors is by drawing on that
vast amount of personal data it has on people, as well as the
lack of any Federal privacy legislation to limit how it can use
the data. So you have this twofer problem.
So I wanted to show this ad, only because--so this is a
pop-up ad against the self-preferencing bill. Okay. And I only
find it funny because I do want to thank the lawyers of Google
who put that little ``could'' in there.
[Laughter.]
Chair Klobuchar [continuing]. So it says, ``Senator
Klobuchar''----
[Poster is displayed.]
Chair Klobuchar [continuing]. With the little--my
colleagues will enjoy this--``could break Google Maps.'' Okay?
[Laughter.]
Chair Klobuchar. This gives me a lot of power. Senator Lee,
go ahead.
Senator Lee. Just the context throws me.
[Laughter.]
Chair Klobuchar. I know.
Senator Lee. You don't want it to suggest you could break,
that's not--that's not the message----
Chair Klobuchar. Well, I--that's exactly--I do wonder about
it. And if we want to look at the other ones and show these--
I'm going to get to the punchline in a minute. These are harder
to see, but these went all over the place.
[Poster is displayed.]
Chair Klobuchar. That I would ``erase Amazon Basics'' and
that I would ``break''--this one is interesting--``could''--
another ``could''--little ``could''--``could break FaceTime.''
Okay, so who saw these? Members of Congress saw these. So
these were targeted in Washington, DC, for Members of Congress
when they were home, against the bill. And this is part of the
over-$200 million advertising campaign put forth by Chamber of
Progress, or as I call them, Chamber of Lack of Progress----
[Laughter.]
Chair Klobuchar [continuing]. Which is the Big Tech
companies' front group.
And so--but what is interesting to me is, I heard about
these ads from who? Other Members of Congress. They were
targeted, so they saw them. I'm not going to put their names
forward on this thing, but I had multiple calls by Members of
Congress.
So I guess I would ask you, Ms. Srinivasan, if that
surprises you, that they would be able to have this data to
target people so they scare them from supporting our bills
because they don't want to have these really scary ads that
they're breaking into be put up on sites where people are just
looking up TV shows like I was doing. Okay, go ahead.
Ms. Srinivasan. It doesn't surprise me. When Google bought
DoubleClick way back when, one of the things that it promised
to do was to keep customers data separate. Of course, it
purchased DoubleClick, and then after it gained market power,
it started to use that information.
And it can use that information now for different trading
purposes, whether it's to hyper-target ads like that, that is
data that's originated on the publisher side, on the seller
side, that Google is gaining by virtue of its position as
publisher's broker. And now it's using it on the other side to
target ads and to inflate its trading revenue. And so that's
one of the things that this bill would target and prohibit.
Chair Klobuchar. Exactly. And of course, the ultimate
interesting part is, they're using it to target people on a
bill, using their own monopoly power to target a bill that
tries to do something about their monopoly power. So I just
think it shows what we're up against, but it also has to be
revealed to the public. So with that, I'm going to turn over to
Senator Lee.
Senator Lee. Thank you. Ms. Srinivasan, let's start with
you.
You've looked at the ad tech industry from multiple angles.
You've looked at it from the inside, as within an ad tech
company, and you've also looked at it from the outside, as a
legal scholar. And--so Ms. Srinivasan, in your assessment, what
are the biggest harms to competition that we currently face in
digital advertising? And do you think the AMERICA Act would be
effective in addressing those harms?
Ms. Srinivasan. I do think the AMERICA Act would be
effective. Based on my research and studies, I'm not aware of
any exchange market that is vertically integrated the way ads
are. The biggest problem, to answer your question directly, is
that they're not self-managing conflicts of interest and
there's very little transparency in the market.
And so we don't know whether prices are going down, whether
prices are going up, whether what I bought was good, whether
it's fraudulent, whether it existed, whether it didn't exist.
And the bill addresses all of those problems.
Senator Lee. Thank you. Mr. Alford, sometimes we expect
vertical integration, in most markets, in fact, to create some
efficiencies--some efficiencies that can end up benefiting
consumers, enhancing consumer welfare. But it's not always the
case. Is it? I mean, when there are substantial barriers to
entry, and/or when there are switching costs, it can also lead
to foreclosure that keeps out new competition, and either
entrenches or expands monopoly power.
How has this worked out in ad tech? Is it more what we
would expect in some industries where it increases
efficiencies, or is--we have substantial barriers and switching
costs leading to foreclosure?
Professor Alford. Yes, thank you for the question. So yes,
the prevailing wisdom about vertical integration is that it's
beneficial because you eliminate double marginalization. You
don't--the wholesaler takes one profit margin, then the
retailer takes another profit margin, and you eliminate that if
there's vertical integration.
But of course, that's assuming you're all on one side.
Right? In this situation, we're talking about vertical
integration, as Dina just mentioned, in an auction on both
sides across the spectrum. And in that situation, you have the
ability to arbitrage your fees. And basically, where there's
competition in different segments of the stack, you can lower
your prices, and where there's not competition, you can raise
your prices.
Todd Henderson calls it subsidization, but it's really
arbitraging and recoupment, not in a future time, but actually
in present time, just in a different segment of the stack. And
so you have massive conflicts of interest.
Imagine the buyer trying to get the best price at the--I
mean, the best quality product at the lowest price, and the
seller trying to get the highest price. And they're calling
that vertical integration. That's just not the way that you
typically think of exchange markets working.
Senator Lee. Mr. Kint, what are the challenges that
publishers face in their unique world? The vicissitudes of that
business are somewhat unique. What do they face when it comes
to navigating the digital advertising ecosystem?
Mr. Kint. I think the, you know, the primary challenge is
the scale that comes with Google and Facebook and the lack of
transparency into the supply chain, coupled with--you've got
the scale that makes it really easy to buy, coupled with this
pervasive collection of data in which an individual publisher
can't compete.
I think one of the things that people often miss is that
Google and Facebook, according to the regular report that
Professor Henderson keeps referencing, which was quite damning
for Google and Facebook, by the way--it also concluded that
most of Google and Facebook's data actually doesn't come from
people using their products. It comes from third parties when
people are actually choosing to use other products. And so that
underlying collection of data is a way that an individual
publisher can't compete.
Senator Lee. Now one tech firm--as we were preparing for
this hearing and talking about this bill, one tech firm told my
office that separating the buy side from the sell side of the
ad tech business to eliminate conflicts of interest could
actually cause publishers to pay more. Do you share this
concern, and what's your assessment of it?
Mr. Kint. No, I think that word, ``could,'' is being placed
again in a very operative way. You know, ultimately, I mean,
that's why the second tier in the legislation is so important,
the best-interest and best-execution obligation, because it
aligns then the interest with the principal on the end. And so
that will ultimately drive down price with competition.
And, you know, the idea that by having a single company
that controls the entire supply chain that has a duty to
maximize--it's not even just Google. The entire ad tech
landscape are for-profit companies trying to extract as much
value out of that supply chain from the consumer, and
publisher, and the advertiser on the endpoints. And so having
actual competition and best-interest obligations is a huge win.
Senator Lee. Okay. On that topic of collecting data on lots
of people, Ms. Srinivasan, I've heard allegations suggesting
that Google cuts off publishers who don't consent to having
Google collect data on their web visitors, their visitors to
their websites. How would the AMERICA Act address that problem?
Ms. Srinivasan. Currently, publishers don't really have a
choice when they're using an intermediary on the sell side.
Google's intermediary on the sell side has over 90 percent
share of the market, and that's why it's being sued by so many
State attorneys general and the Department of Justice.
So what the bill does basically is, it will create
competition, both on the sell side and on the buy side, and
then the exchanges in the middle. And that competition will
cause firms to enter that offer better terms with respect to
data. They'll start competing to offer better privacy and
better terms.
Senator Lee. So would it be fair to say that, you know,
perhaps counterintuitively, or it's not necessarily obvious to
someone looking casually at this legislation, you could end
up--through this bill that focuses on competition policy, you
could end up enhancing the privacy interests, the ability of
consumers to protect their own privacy, the ability of people
who operate one website or another, to protect the privacy of
those who visit their websites. Is that fair to say?
Ms. Srinivasan. Absolutely. I would expect it to have that
immediate effect.
Senator Lee. Okay. I see my time's expired. Thank you,
Madam Chair.
Chair Klobuchar. Okay, very good. Good questions. Thank
you, Senator Lee. Senator Hirono.
Senator Hirono. Don't you love antitrust? You say,
``What?''
Chair Klobuchar. No, it's great. Go ahead.
Senator Hirono. Thank you for holding this hearing. So, I
heard you say, Professor Alford, that vertical integration,
when we're talking about the digital advertising, is not how we
usually think about vertical integration in the, say, in the
antitrust case where the refinery owns the gas stations. So
that's so much easier to understand than vertical integration,
if there's such a thing even, in the digital space. Can you
explain a little bit more why there's such a tremendous
conflict and what's going on in digital advertising?
Professor Alford. Sure. Yes, happy to do that. Thank you
for the question. So again, this is a situation where you have
multiple monopoly practices going on. You have unbelievable
power with respect to the information that is provided to make
the ads targeted advertisements. You have monopoly power with
respect to the publisher side.
So if you're going to try to offer your services, a
publisher has to pretty much use a Google broker.
And then you have extraordinarily high shares in the
exchange in the middle, and then you also have just
unbelievable power on the buy side, on the advertiser side.
And then above and beyond all of that, then you have their
own owned-and-operated products, like Search and like YouTube,
where, if you want to use YouTube and do digital advertisements
on YouTube, you have to use Google broker products.
And so, as a result of that, because of the multiple layers
of control that they have, they can basically steer people to
Google products, and they can charge prices across the stack to
their advantage.
And equally important, they can use information over here,
and take that information and use it over here, and basically
arbitrage the information and the price that they're going to
adjust.
So it's not just insider trading where they're using it for
their own advantage. They're using that inside information for
the opposite side of the transaction's advantage. And so it's a
really, really unusual environment, and we just don't see that
in auction markets.
Can I also make one final comment in responding to Todd
Henderson? He says, ``Well, it can't be that big a problem
because prices are declining.'' Well, he's assuming that it's
only monopolization on the sell side, but obviously you can
have a monopoly on the buy side. That's called monopsony power.
And if you have all the power on the buy side, then the result,
you would think, would be prices are going to be reduced.
And we see that with the DOJ's challenge to the Penguin
merger. There was a concern about monopsony power. Just because
prices go down, if you're the buyer, that's exactly what you
want as a monopoly.
Senator Hirono. So I'm assuming that the rest of you agree
that the way the professor is describing what's going on in
digital advertising, that this kind of complexity where so much
of what happens is owned by--is controlled by entities like
Google and Facebook, do you agree that that's a pretty good
description of what goes on? Yes. What does the----
Professor Henderson. I don't agree, but----
Senator Hirono. You don't?
Professor Henderson. Well, let me just--I just want to
respond very quickly to two things that were said. So first of
all, Ms. Srinivasan said there is no market with this vertical
integration. As I mentioned in my opening remarks, this is the
stock exchange. It has the same features. Goldman Sachs
represents buyers. It represents sellers. It owns exchanges
where things are traded. I have a paper that I've submitted to
the Committee that's 54 pages that lays this out in detail. So
you can take a look and see if I'm right or not.
One other thing to respond to Professor Alford, yes, this
market seems strange because it has this vertical integration.
It's not just about double margins on both sides. It's about
economies of scale and network effects----
Senator Hirono. Professor Henderson----
Professor Henderson [continuing]. If you were building an
ad market from the ground up, you would make it centralized.
Senator Hirono [continuing]. I am not looking for a debate
among our--the people testifying. I'm trying to clarify some
things in my own mind. I understand that you have a very
different perspective of what needs to happen.
So, for--okay, I have a question for Ms. Srinivasan. There
was a non-profit last year called the Center for Intimacy
Justice, and they released a report alleging that Meta was
systematically blocking advertisements about women's healthcare
products on its platforms because it was classifying them as,
quote, unquote, ``adult content.'' If there were many different
digital advertisers, that would be less problematic. But Meta
is a dominant player.
So for Ms. Srinivasan, you've highlighted a number of
problems with the dominance of a few platforms. What do you
think about the idea that these platforms are gatekeepers of
their advertising--of advertising, who can decide what kinds of
ads can be placed on their platforms? And will the AMERICA Act
prevent that sort of thing from happening?
Ms. Srinivasan. Thank you for the question. You know, I
guess we see--it's a simple answer, but basically when we have
more competition, two things happen. You have competition on
price, and you have competition on terms and conditions.
And so if we fix competition, we would expect firms to
start competing to be more intelligent about these types of
decision-making that could be sloppy. So yes, I would expect
the Act to address and fix that problem.
Senator Hirono. Thank you.
Chair Klobuchar. Thank you, very much, Senator Hirono.
Senator Blumenthal.
Senator Blumenthal. Thank you, Senator Klobuchar. Thanks
for this really important and informative hearing, and to the
Ranking Member, as well. I support all three bills that are
before us today, and an additional bill, the Open Apps Market
Act. I want to thank all of you, particularly Ms. Srinivasan
from Yale, for being here today.
And you have highlighted what I think is a central
challenge here in your testimony, how to go from the abstract
to the real--not just in this hearing room, but for the
American public. Because there is a fundamental difference
between what's happening here and the stock exchange, which is,
people make or lose money every day.
And they watch what's happening on the stock exchanges, and
it's sometimes confusing, and frustrating, and enraging, but
they have tangible results. And I think the challenge here is
to go from that abstract to what in real life makes a
difference for them.
Because Senator Lee has said that, and I have said that,
this 40 percent that's added by Google and others, that's a
tax. That's money that they should know is added somehow to
their bill. How do we inform them?
And Ms. Srinivasan, you've written about the hidden fees
and the opaque financial practices. How do we make clear to
them that their newspapers are going under? The New Haven
Register, and The Hartford Courant have been hit hard by these
online advertising practices. It makes a difference in their
lives.
And I know this is not in your job description, but it is
our challenge in trying to pass this legislation, which all of
you agreed meets a problem that we need to address. So I'll
just throw that open-ended question to you.
Ms. Srinivasan. I think one of the best things that this
bill does is it just shines a lot of sunlight on what's
happening in the middle. So one of the problems today is that,
if I'm an advertiser in Connecticut and I buy an ad from
Google's broker, from Google's exchange, often I don't even
know where that ad ended up.
So I don't know if it ended up on The Hartford Courant, or
I don't know if it ended up on, you know, a Russian website
that is not--that I don't need to advertise my products to. And
so one of the things that it does is it requires disclosure so
that advertisers can know what they're buying.
Another thing that it does, with respect to transparency,
is it forces the brokers on each side to actually tell their
customers what bids they submitted and what the bids cleared
for. So today, The Hartford Courant might use a broker to sell
ads, and those ads might sell at let's say, at $20 cost per
thousand, and The Hartford Courant might get a $2 cost per
thousand, and might not even know that that's what the
advertiser paid, or what the delta in the middle was.
And so the transparency section of the bill requires
disclosure about basic things, like price bids and what was
sold. And that itself should reduce a lot of fraud and generate
a lot of competition.
Senator Blumenthal. Thank you. Others? Mr. Lynn?
Mr. Lynn. Yes, I think there's a--there's a reason I
brought--one of the reasons I brought up discrimination--price
discrimination is because in many ways the problems that have
been so well-described thus far, they're actually worse than we
understand. Which is, in this system there is no pricing.
When you have a monopoly and when one actor in the system
has all of the power, has all of the data, has a specific
relationship with each actor, none of the pricing is being set
within a marketplace. It is being set between the master and
the subject. So the problem is actually vastly graver because
we can't even measure the economic harms that we're dealing
with here.
Senator Blumenthal. Thank you, all. This is a topic which
really deserves a lot more--a lot more explanation and
exploration, and my time has expired. But thanks, again, to
Senator Klobuchar for all her work--very thoughtful work on
this issue.
Chair Klobuchar. Thank you. Senator Lee and I were amused
as you and Dina were geeking out on Connecticut with the Yale
and Hartford references, noted by Professor Henderson, as well,
I note--the rivalry, you know. Okay. Senator Lee.
Senator Lee. I mean, the University of Chicago is close to
your home State, and it is your alma mater. I'm sure it's
littered with monuments, statues, and plaques honoring Senator
Klobuchar.
[Laughter.]
Senator Lee. Mr. Alford, what does antitrust law have to
say about when under what circumstances, divestiture, or
structural separation is an appropriate remedy for
anticompetitive conduct?
Professor Alford. Yes, thank you for the question. So
obviously, divestiture is a preferred approach with respect to
any sort of merger analysis. Administrations on Republican side
and on Democratic side preferred divestiture because it's so
much easier to monitor and to avoid these sorts of conflicts of
interest and to promote effective competition.
Divestiture is also a common remedy that occurs in the
antitrust context. There are lots of examples--famous examples
of divestiture that occur in the litigation context. Of course,
with respect to the ad tech litigation right now brought by the
Department of Justice and by the different State AGs, they're
all requesting divestiture as a result of the misconduct of
Google.
If I can comment on Professor Henderson's comment that
divestiture is inappropriate here, he says two things that I
think need to be clarified.
One is, Goldman Sachs can own the dark web exchange, but
that is in the backdrop of regulatory limitations. Right? He
mentioned transparency, but obviously the best-interest duty
and all the other sort of duties that would apply.
So it's almost like he's saying, ``I'm fine with everything
else about the bill except for the divestiture component of the
largest companies.''
But if you're going to allow that, then you have to have
these other things that provide the backstop to protect against
it. And, of course, this bill only deals with the very, very
largest ones having those restrictions. Everyone else below
that, the middle and the smaller ones, can do exactly what he
said.
So, you know, we're not talking about a radical proposal
here with respect to divestiture. And what we're doing is
similar to what you would have in antitrust competition cases
where there's a serious problem.
Senator Lee. So it's more of a safety valve at the top of
the market.
Professor Alford. Exactly.
Senator Lee. And when it's a safety valve at the top of the
market, it makes sure that there can continue to be a lot of
other things happening----
Professor Alford. Right.
Senator Lee [continuing]. Below.
Professor Alford. Notice he did not say that Goldman Sachs
could own the New York Stock Exchange. Right? He did not say
that. He said that they could own certain small, minor dark web
exchanges.
Senator Lee. Well, the----
Professor Henderson. Can I just, since he said----
Senator Lee. Sure, sure. I thought you were----
Professor Henderson. Because I just want to just clarify
what I said. So first of all, ``dark web'' is the wrong term.
They're called ``dark pools.'' But they're alternative trading
systems under a regulation passed by the SEC. So this is not
some nefarious place. And moreover----
Senator Lee. Illegal stock trading.
Professor Henderson. Yes. And 50 percent of stock trades
happen on alternative trading systems--50 percent.
Senator Lee. What's it called? What was it?
Professor Henderson. Dark pools.
Senator Lee. Dark pools. Okay.
Professor Henderson. And the reason they're dark pools,
they're just called that because you can trade anonymously,
because sometimes people want things other than price.
Just one other thing I wanted to note. I feel a little bit
like we're having, you know, just trains passing in the night
here. Comments are that Google just completely is the master,
and the poor New York Times is the servant, and they just have
to take the terms that Google gives them, and this is just not
correct.
The New York Times has innovated themselves in creating
header bidding. So they sell their own ads on their space.
There are plenty of competitors, as I've mentioned numerous
times, and the big competitors here, Amazon, AT&T, Facebook,
they all preference their own sites and give their same
preferences that Google's doing. So Google's behaviors, whether
they're good or bad, that's for other people to judge----
Senator Lee. But Google blocks header bidding.
Professor Henderson [continuing]. They're all the same.
Senator Lee. It blocked header bidding.
Professor Henderson. For school----
Senator Lee. That's part of the lawsuit.
Professor Henderson. That's right, and in certain
locations. But now they've agreed--I think it was with the
French Competition Authority, and now they're--they've changed
on that, is my understanding.
Senator Lee. They've repented worldwide of that?
Chair Klobuchar. Because of Europe. Because they----
Professor Henderson. Yes, that's fine. And if antitrust
regulators find particular conduct that is bad, then that would
be--that's fine. But we're talking about something that is, you
know, that's treating an illness. This is just lopping off the
head in surgery here.
Senator Lee. All right, I want to put a pin in that----
Professor Henderson. Yes.
Senator Lee [continuing]. And we may come back to it, if we
have time later.
Chair Klobuchar. The lopping off the head.
Senator Lee. But--but, and I also want to get back later.
I'm not sure your comparison to the stock exchanges works. It
is, as you pointed out, a market that is 700 times larger than
this market. And the market concentration is a lot less
significant there. Anyway, I want to get back to that, but
let's go back to Mr. Alford for a minute.
I noticed that in his recent memoir, former Attorney
General Bill Barr described a possible approach that Congress
could take to laws dealing with Big Tech. And he suggested it
could involve, quote, ``ordering platforms to divest certain
previously acquired firms with the aim of reducing the
platform's market dominance and promoting competition, not
directing specific divestitures by name, but defining the
particular characteristics requiring divestiture.''
And the law that he describes could also impose rules,
quote, ``governing the collection use and analysis of personal
information,'' he writes. Now, I did not put him up to this. He
did not consult me when writing his book. But that sounds a
little like the AMERICA Act. Does it not?
Professor Alford. I think it is--I think it is the AMERICA
Act. You know, as he was finishing his tenure there, he was
actively wanting to also pursue ad tech litigation. And they
were in the middle of that investigation, and it was picked up
by the Biden administration. Of course, they filed suit this
past January. But absolutely. And I'm sure if you ask him--I'm
sure you know him--you could say, ``Yes, this is exactly the
kind of legislation that I think I was writing about,'' because
it's what he was saying in his memoirs.
Senator Lee. Now, Mr. Kint, one of the defenses that we
hear of Google, and specifically Google's ad tech business, is
that they pointed to all the innovation that has occurred, and
that innovation brought to the marketplace has lowered the cost
of advertising. Prices have gone down.
It seems like--I'm not sure that argument holds water
because Google tends to buy up those who do new things.
Google isn't necessarily introducing anything new on its
own. It acquires firms that do, acquiring up would-be nascent
competitors--nascent competitors so they can get their
innovation. The innovations originating from Google seem to be
more focused on building gigantic walls, fences, moats with
alligators, crocodiles, and sharks with lasers mounted on their
heads around their market position.
And then the lower prices get, and the lower prices are,
they don't account for the need to buy more ads because of the
declining quality of the ad placement.
So people are having to pay more per ad, having to buy more
ads overall, because the quality of the placement impacts the
impact that they have. Is that consistent with your
observations of the market?
Mr. Kint. Absolutely. And, you know, there's a lot of
jargon that can be thrown out, a lot of different metrics that
Google can throw out. Frankly, I've seen it all. I installed
the first ad server back in 1996 before Google, and before
DoubleClick, and I've seen every sequence of every single
company that's tried to create some sort of new angle into the
ad tech landscape that Google has then typically acquired and
squashed, in different ways, which is well-documented in the
various antitrust lawsuits.
And so I take you back to kind of a real-world example, and
it's from Europe, actually, with their privacy law, GDPR. When
it came out you had Europe trying to innovate around consumer
privacy, and even the largest publishers, including the one
that Professor Henderson mentioned, they had no control over
how privacy law rolled out.
They basically had to wait until Google--literally, when
they had 2 years to tell the market what they were going to do,
1 month before GDPR rolled out, Google said, ``You're going to
get us consent as a publisher. You're going to give us all the
data. We're going to bundle it, and we're not going to tell you
how we're going to use it, and you're going to be liable for
it.''
And so that was how Google decided to roll out privacy in
Europe. And they decided--and you think about the informational
advantages asymmetry in the data and the value of that that
continue to flow to Google at a point when, you know, there was
a lot of risk for Google if GDPR played out the wrong way
because it would--sorry----
Senator Lee. Right.
Mr. Kint. Go ahead.
Senator Lee. But instead, they use GDPR as----
Mr. Kint. That's exactly right.
Senator Lee [continuing]. Additional mortar for the moat,
and the wall, and the other moat, and the other wall----
Mr. Kint. So they do. Exactly.
Senator Lee [continuing]. And the sharks with the lasers on
their heads.
Mr. Kint. Yes. Yes, consistent.
Senator Lee. Pretty well--it's played, and further
entrenched them.
Mr. Kint. Further entrenched them around something that
should have been better for consumers.
Senator Lee. Electrified fence, also. We won't go too far,
but----
Mr. Kint. They still have access to as much data as they
want, and they can use it however they want. And at the end of
the day, they just created an obstacle for publishers that
extracted more value for Google.
Senator Lee. Right. That seems troublesome. And it also
seems like the kind of thing you could do. You couldn't get
away with that if you didn't already have a degree of market
dominance.
Mr. Kint. Exactly. And your legislation--excuse me.
Senator Lee. Go ahead.
Mr. Kint. Your legislation, I mean, that second tier that
says, you know, even if you're above $5 billion of volume, you
have a best-interest obligation, you no longer can take that
data and then use it for an entirely different purpose, in an
entirely different context, for a different client, or for your
own profit enrichment.
So it--the legislation directly, I think, improves that.
And I think that's--you know, you mentioned this earlier, but I
think there will be consumer privacy benefits out of this
legislation.
Senator Lee. [Speaking off microphone.]
Chair Klobuchar. Okay. Why don't I just go now?
Senator Lee. Yes.
Chair Klobuchar. Okay.
Senator Lee. Thank you.
Mr. Kint. Thank you.
Chair Klobuchar. Just for the record, Bill Barr didn't
consult me before he wrote his book, either. I just wanted to
say that.
[Laughter.]
Chair Klobuchar. Just get it out of there. Although I am
in, it's not that bad.
Okay, so why don't I start? I thought I'd mentioned
something about AI here, Mr. Kint. In addition to Google's
power in digital advertising, it looks to have an early
advantage, along with Microsoft and other monopolies, in
deploying AI, like Bard.
Those systems are trained on content developed by many of
the publishers in your coalition. You know, AP, News Corp, USA
Today, you name it. Are you concerned that Google could use its
advantages in digital advertising, consumer data, and computing
power to deploy AI in ways that is going to exacerbate what
we're already talking about here today?
Mr. Kint. Deeply concerned. And there's a pattern of
behavior there that we've seen with, you know, with Google, and
we saw it with Facebook. You know, it's, treat all websites,
all webpages, as an interchangeable commodity, layer on your
targeted advertising.
So, if they can absorb the entirety of the web--and they'll
say that the publishers you just mentioned are just a very,
very small fraction of what's out there on the web, when the
reality is that's the signal and the noise, that's the
instructional data from the journalism--that's deeply
concerning.
So, we're thinking about, kind of, three things. We're
thinking about, how do you protect that intellectual property,
and that art of the journalists, and the photographers, and our
various members? We're thinking about--and so that plays into
copyright. We're thinking about other----
Chair Klobuchar. And we know there's an exception under
Section 230 for copyrighted material. But the answer just can't
be that--having talked to one of my small, smaller newspaper,
nothing like the size of The New York Times, Professor
Henderson, already on its back because of the issues----
Mr. Kint. Right.
Chair Klobuchar [continuing]. That we're raising today, and
really badly needs this--the bill that Senator Kennedy and I
have passed, the Journalism bill.
Mr. Kint. That's right.
Chair Klobuchar But it's--but it--they don't have the kind
of resources that the big guys have----
Mr. Kint. Yes.
Chair Klobuchar [continuing]. To take this on. They're not
going to be able to sue. Just hearing them talk about--and the
conversation about something totally different, but hearing
them talk about how they're doing experiments to see on some of
their own stories what is right now on ChatGPT, not a Google
product, or some of the other sites, and they're looking at
what's going to happen here, and seeing echoes of their own
news coverage, which they know is deeply local, getting picked
up on this. So continue on as your descriptions of what some of
the solutions are.
Mr. Kint. Yes, so that's right. It's protect that--the
ability for them to say, you know, ``You can or cannot use our
content in order to train your models,'' which is really hard
to do against market power, especially when they, you know, a
company dominates in search, which is the subject of a
different antitrust lawsuit with Google.
But number two, how do we advance the future broadly for
professional news entertainment? Because this is part of the
future. And in that vein, I think there is opportunities and,
you know, revenue opportunities for premium publishers that do
create high-quality news entertainment that need to also be
explored. But you have to come to the fight without your hands
tied behind your back against monopolists.
Chair Klobuchar. Exactly. And I guess I'd go to you, Mr.
Lynn. We talked about what we're seeing with journalism. I
mentioned the stat that a recent study by Northwestern
University predicted that one third of the U.S. newspapers that
existed roughly two decades ago will be gone by 2025.
Senator Kennedy and I introduced a Journalism Competition
and Preservation Act to allow news outlets to band together, to
negotiate free compensation from the platforms that are
monetizing their news content for free. Talk about why this
legislation is needed to strengthen local news across the
country.
Mr. Lynn. Thank you for that, Senator. This legislation is
necessary because the newspapers are being starved. It's like
the middlemen have established themselves, just very simply
put, in-between the advertiser and the publisher, and they are
diverting the money into their own pockets.
Chair Klobuchar. Mm-hmm.
Mr. Lynn. And so what's happening is places like the
Minneapolis Star Tribune, and the Seattle Times, and the, you
know, Dallas Morning News, pretty much every single newspaper
in America is being starved. And this is, as you know, is bad
for democracy. But it's--so this piece of legislation that
you've put forth is actually the first piece of legislation
that is taking a step in the right direction of preventing this
extreme concentration of power.
And just to be clear, we don't--whatever The New York
Times--The New York Times is in a privileged position. But
having one newspaper left in the United States is not the
outcome we would like to see.
Chair Klobuchar. And I will note there's been support from
both big news organizations in the ilk of New York Times,
Washington Post editorial boards, but also very small news
organizations as well, and everyone from News Corp, on very
different political ideologies, not only of the Senators that
support this bill, but also for those news organizations, and
that this is pretty much an across-the-board belief.
And it's, to me, I see this as a duo approach: one is the
Newspaper bill and then the other is the AMERICA Act--in these.
And the final thing that I think is worth very much talking
about is the American Innovation, Choice and Online Act. So
Google, as we've noted many times here, advertising giant, also
gatekeeper, like, on search, where it has a 90 percent market
share, or on its app store.
I've worked on this bipartisan legislation now with Senator
Grassley. We mentioned it, that would require digital
gatekeepers to compete fairly with small businesses and stop
anticompetitive self-preferencing that allows companies like
Google to drive traffic to their own websites, which drives up
their advertising revenue.
I guess, Professor Alford, would this kind of legislation,
would this reform lead to healthier, more competitive set of
digital marketplaces generally?
Professor Alford. Yes. I think that the different types of
legislation that you're proposing, the AMERICA Act obviously is
targeted specifically at one specific market, and I think that
would be incredibly beneficial. But there's a lot of benefits
that you're talking about with respect to the Innovation and
Choice Act. You know, specifically, you mentioned the self-
preferencing problem.
Self-preferencing problem is very, very acute in this
market. We see it all the time, that they're steering clients--
their own clients to their exchange instead of a competing
exchange, even though the clients would be better served if
they were allowed to go to other exchanges. That's what Senator
Lee was talking about when he said they're trying to kill
header bidding. And so if you had limitations on that ability
to do that, then it would be definitely an improvement in the
market.
Professor Henderson. Can I just say one thing about
newspapers? Yes? Is that a yes?
Chair Klobuchar. You can, yes, but you keep mentioning one
newspaper----
Professor Henderson. I'll--I'm going to mention----
Chair Klobuchar [continuing]. That isn't even covered by
the Journalism bill.
Professor Henderson. I'm going to mention your hometown
paper, Senator.
Chair Klobuchar. Yes.
Professor Henderson. So first of all, love newspapers. I
subscribe to four at my house, including two local ones. So I'm
all for newspapers. Antitrust law is not supposed to be about
newspapers or producers. It's about consumers.
So just--that's an important thing to keep in mind, is
focusing on consumer welfare, not producers. I understand why
the newspapers don't like Google. We're talking about consumer
welfare here. But I just want to mention one fact.
Chair Klobuchar. I think there's just many of us have a
very strong belief
Professor Henderson. That--that----
Chair Klobuchar [continuing]. In the First Amendment----
Professor Henderson. I'm with you, Senator.
Chair Klobuchar. Professor Henderson, and that consumer
welfare, in my mind, is about the consumers and the people who
participate in this democracy, their own welfare. And that
means they have to have local news that is covering corruption
on a city council, or covering when a business is closing down,
or covering when a football team wins the championship in their
local high school league. So I----
Professor Henderson. We 100 percent agree.
Chair Klobuchar [continuing]. It brings people together in,
not only as a news source for understanding what's happening,
but it also brings them together in terms of being members of
the same community.
Professor Henderson. I totally agree. I just want to
mention this. Minneapolis Star Tribune, while we were talking--
and this claim about Google being a monopoly and really hurting
local newspapers, you can go to Star Tribune's website [holds
up cell phone], which I've pulled up here, and look at their ad
agencies that they use, their online ad platforms.
And its pages, and pages, and pages of Google's
competitors, including Google. So the Star Tribune uses dozens
of ad platforms, including Google, and it's publicly available
information you can look.
Chair Klobuchar. Mm-hmm.
Professor Henderson. So the idea that the Star Tribune,
when it's placing its ads and selling its real estate, is
limited to just Google, and that Google is able to use that in
a kind of master/servant relationship, as we've heard discussed
here, is just false, and the Star Tribune's own website will
show you that it's false.
Chair Klobuchar. Mr. Lynn, what is about the market share
of Google right now, of the search engine market?
Mr. Lynn. Depends who's counting, but it's probably about
90 percent.
Chair Klobuchar. Mm-hmm. That's what I thought. Okay.
Mr. Lynn. Actually, could I make one quick----
Chair Klobuchar. Yes.
Mr. Lynn. The idea that antimonopoly law is not pertinent
to protecting the free press is an outrageous statement, and it
stands contrary to the entire history of the United States,
going back to the Constitution, which established the postal
service as an independent and neutral system for the
distribution of, mainly, news.
Chair Klobuchar. Okay----
Mr. Lynn. So----
Chair Klobuchar [continuing]. Thank you.
Mr. Lynn [continuing]. We have used antimonopoly law time
and again to protect American journalists and publishers
against concentrated power, sir.
Chair Klobuchar. Okay, thank you. Mr. Kint?
Mr. Kint. One quick point. Thank you. You know, all those
ad tech companies that are being brought in on the page of the
Minneapolis site are being mostly ushered in by Google. So
Google is still a choke point that's just a disclosure that all
these companies are touching the page.
And then second, I think we use newspapers as a proxy for
news, generally. Our organization is entirely focused on the
digital world in the future.
Chair Klobuchar. Mm-hmm.
Mr. Kint. I don't care in the same way about the actual
printed newspaper. I'm focused on the future. And I can tell
you that the digital-only companies, the ones that launched in
the last 10 years, are seeing the exact same issues. BuzzFeed
News just shut down last week. It's not--the business has
underlying problems. It's not related to printed newspaper.
Chair Klobuchar. Thank you. That's a good point. And again,
I just want to emphasize, as Senator Lee is aware, just the
different ideology in elected officials being willing to take
this on, which includes, of course, State attorneys general
with very different beliefs.
And Professor Alford, both the Justice Department and many
State attorneys general have sued Google for monopolizing the
ad tech market. You've been involved in some of that
litigation. Could you speak to the need for both litigation and
legislation to address those market issues?
Professor Alford. Yes. So I think everyone that is
concerned about these markets is supportive of both regulation
and litigation. They are complementary to one another, not
competing with one another.
Obviously, antitrust litigation focuses on the most
egregious harms of the largest, biggest players, whereas the
regulation that is being proposed here, and the other
regulation that you've been involved in, tries to look at the
larger picture and try to deal with larger questions. Right?
Not just harm to competition, but also public discourse
concerns about privacy, and also conduct not just of the very,
very largest, but other players that might not be in the
dominant position.
The litigation is slow, it's cumbersome, it's
extraordinarily expensive. You have to have very, very certain
thresholds you have to meet with respect to monopoly power. And
even if you win, you'd have no guarantee whatsoever what kind
of remedy you're going to get, if it's going to be some sort of
injunctive relief or some sort of divestiture. And even then,
there'll be an appeal to the circuit courts and then appeal to
the Supreme Court.
You know, thanks to your work on the Venue Act, you know,
Texas is trying to get back to the Northern District of Texas.
But we started that case in 2020, and we're not even scheduled
for trial till 2025.
Chair Klobuchar. Yes.
Professor Alford. And we barely started discovery. So, you
know, they're complementary. I mean, your very--your very
first----
Chair Klobuchar. Yes, I'm just picturing as all these news
organizations----
Professor Alford. Yes.
Chair Klobuchar [continuing]. Are folding, and we're
waiting for this litigation----
Professor Alford. Right.
Chair Klobuchar [continuing]. And we're just sitting there,
and that's to the benefit----
Professor Alford. I mean, I would----
Chair Klobuchar [continuing]. Of the companies.
Professor Alford. The litigators support regulation, too. I
mean, the Department----
Chair Klobuchar. Yes.
Professor Alford [continuing]. Of Justice has written in
favor of litigation--of----
Chair Klobuchar. They've--they've written in favor of the
Self-Preferencing Bill.
Professor Alford. Yes.
Chair Klobuchar [continuing]. They've written in favor of a
number of these bills, yes.
Ms. Srinivasan, just a few hours ago the FTC announced that
it is seeking to modify an order about how Facebook monetizes
data about its users. I believe there's actually a connection
between having that market power and then the way they handle
sensitive data. Do you think if there were more competition in
the digital ecosystem companies might compete to be better on
privacy?
Ms. Srinivasan. Absolutely, Senator. I think more
competition, we've seen empirically in the market, lead to more
privacy. It's something that I spent a lot of time studying,
especially with respect to Facebook. When Facebook faced
competition it offered much higher levels of privacy, and it
competed explicitly on privacy.
Chair Klobuchar. Exactly. But when we have Mr. Zuckerberg
making statements that the House discovered, during their
lengthy hearings on this subject, ``I'd rather buy than
compete,'' in reference to his purchase of several other--what
were then small competitors--I think you get the results when
there--when you don't have laws in place that can police this
or any enforcement.
And now there's been a shift, as we've all noted, with
cases going on in both the last administration and this
administration.
By acting on the buy side and the sell side of the ad tech
stack, Google faces an inherent conflict of interest that's
been referenced by Senator Lee and myself.
While publishers want to sell their inventory at high
prices and advertisers want to pay as little as possible,
Google makes more money if advertisers pay a high price, but
publishers actually receive a low price. Plus, Google is also
selling its own ad space.
Ms. Srinivasan, what evidence have we seen that Google uses
its position in these markets to maximize its profitability and
increase its market power?
Ms. Srinivasan. Well, we could chat about this for a while,
I suppose. I also----
Chair Klobuchar. It is 4:10 in the afternoon, so you can
keep the answer short, I'm sure.
Ms. Srinivasan. Gosh, there are--I mean, there are a bunch
of examples. Senator, what were you looking for precisely?
Chair Klobuchar. Well, just examples about how they're kind
of double-dealing on both sides, and how it uses its position
in the markets to maximize profitability, increase market
power.
Ms. Srinivasan. Yes, I mean, I guess I would just make two
comments. In the allegations in the State AG complaint led by
the State of Texas there were a bunch of auction manipulations
that are alleged with fund names like Project Bernanke, where
Google was supposedly using information on one side to
manipulate the auction mechanics in the middle.
The other thing that I would say is that, you know, we
actually see them extracting a higher fee in the middle, not
taking less from one side and giving more to the other, or
taking more from one side and giving less to the other. The
actual intermediary fees are inflated.
Chair Klobuchar. Mm-hmm. Okay, very good. All right. I
think I'm going to turn it over to Senator Lee for some closing
questions.
Senator Lee. Ms. Srinivasan, so there's been a lot of talk
about Google when it comes to digital advertising. Let's talk
about some of the other Big Tech firms for a minute. Keeping in
mind, like any market, this isn't static. You've got other
companies moving, and it's always good to keep our eye on where
things could be going next.
Apple seems to have realized that the market for the iPhone
is quite saturated. I mean, it's a good position for anyone
making phones to be in, where pretty much everyone who wants an
iPhone now has one, and so most sales are going to come from
replacements. And so it's now using the vast network that it
has and citing privacy concerns in order to gain exclusive
control over our data, so it can monopolize ads that we see on
our iOS devices.
And correct me if I'm misstating any feature of this
marketplace.
You've got Amazon, that increasingly serves as kind of a
clearinghouse for goods made in China, opting for higher
margins from selling ads to Chinese manufacturers. And then
you've got Facebook, which of course sits on a treasure trove
of data.
Now, Facebook has always been dependent on ads. It would
likely have an even greater presence in the ad tech space in
digital ads had it not reached its own agreement with Google
preventing that. Should we be concerned about any of these
other firms' activity in digital advertising at this point?
Ms. Srinivasan. Well, I would say that this bill doesn't
aim to fix, you know, all problems. But most of the companies
that you mentioned do operate what would be termed and captured
by the bill as exchanges that are bringing together third-party
buyers and third-party sellers. And they would be subject to
the same conflicts of interest rules and the same rules around
having to sort of siphon off, and manage, and protect the data
in different divisions.
Senator Lee. Okay. So they're not in the same position as
Google, but would be in the same position in the sense that
they're covered entities?
Ms. Srinivasan. They would be covered entities in some
respect. So for example, Facebook does act as a broker under
the bill on the buy side, and they do bring together buyers and
sellers--buyers and third-party sellers in real-time auction
markets. And Amazon also plays multiple roles in this respect,
too. So Amazon is not just selling ads on Amazon.com, but it's
also intermediating ads on behalf of third parties. And so it,
too, would be captured under certain aspects of the bill.
Senator Lee. Okay. Thank you. Mr. Kint, let's talk about a
little bit more about data. You've written a fair amount on
this, and you've written that collecting data in one context
but then using it in another context--e.g., behavioral
advertising--tends to violate consumer expectations. How would
the AMERICA Act prevent a company like Google from collecting
data in one context and then using it in another in the harmful
ways that you described?
Mr. Kint. Yes, I guess, two ways. The best-interest and
execution obligations will require that they don't collect that
data and use it for a different purpose.
So the data's only going to be collected by Google, or
Facebook, or whoever the company is that's in that tier for the
purpose of the publisher and maximizing value for the
publisher. So that data stays, almost has a ring fence if you
will around it, so that it can't be taken and used for other
value elsewhere. And so I think that's--that's one way.
And then, you know, the restrictions on being on both sides
of the market, too, will eliminate the example that I used in
my opening remarks around ``tying,'' where, you know, one
company can say, ``I control most of the demand in the ad
marketplace, and so therefore you'd need to give me all this
data as part of the conditions--as a precondition''----
Senator Lee. Right.
Mr. Kint [continuing]. ``Of the deal.'' Which is quite
abusive and it's quite documented in all the AG----
Senator Lee. Well, and you----
Mr. Kint [continuing]. Lawsuits
Senator Lee [continuing]. And you wouldn't get away with
that.
Mr. Kint. You wouldn't get away with it.
Senator Lee. If there were a free market, nobody would get
away with that because they'd tell you to ``pound sand.''
Mr. Kint. If the consumer knew it was happening and the
publisher actually had any sort of market power, yes.
Senator Lee. Right.
Mr. Kint [continuing]. And again, every single publisher,
any size, can't stop that.
Senator Lee. Right. And presumably, the customers of that
entity would also insist upon it. But it's hard to tell someone
to pound sand when----
Mr. Kint. Yes. We've done the research on it, Senator. You
know, we've asked, you know, ``When you're not using a Facebook
product, would you expect your data to be collected and used
for a different purpose? '' And the answer is ``no''--from like
60 percent of the users.
We asked the same question about Google.
Users do not want to be tracked across the web. If they
choose to use a product as part of real choice and real
competition, and that data is used to deliver the service to
them, that's great: ``That's fine, I'm a subscriber. You can
use my data to authenticate my subscription. Wonderful. I'm a,
you know, customer of this product. You can personalize it
based on the data that I'm giving you to make the product
better. If I don't like what you're doing, I'll go elsewhere.''
They do not expect that data to be collected and used in a
totally different purpose.
Senator Lee. So that prevailing assumption, with regard to
Facebook that you just described, is not accurate?
Mr. Kint. Correct.
Senator Lee. Right. Now, you've also said that, quote,
``The issue of tracking and data collection, and use by third
parties is a really important issue, and that consumers should
have a global privacy control'' and, you know, an ability to
opt out. But you limited that to opting out of third-party data
use. Is that right?
Mr. Kint. I did.
Senator Lee. Here it seems that the first-party data use is
really the fundamental problem because companies like Google,
or like Meta, can use all the data they collect on their
properties to feed their advertising engines. So how could a
law like the AMERICA Act address this problem?
Mr. Kint. Again, I'll go back to the data point from the UK
Competition Authority report that showed that Google and
Facebook uniquely collect a majority of their data from third
parties. They get a majority of the data they have for targeted
advertising from third parties, according to that report. So
it's collected in a third-party context when the customer is
not choosing to use a Google or Facebook product.
And so, one, it cuts that all out because the user can no
longer be tracked from one context to the other. And then the
first-party data is still an issue. I mean, if you're on Google
Search, because 90 percent of the searches happen on Google,
they're going to have a lot of first-party data on you. You
still need to have choice in search, but that's a different
issue than we're trying to address here.
[Pause.]
Senator Lee. Mr. Henderson, let's go back to you for a
minute. This stock market example: Is that really fair? I mean,
you've got 700 times--the scale is much larger, the market
concentration, market power of any individual firm in that
setting, it's a lot more distributed. Isn't it?
Professor Henderson. So first of all, Senator, I didn't
make up this analogy. I was res--my paper responds to the
claims that the proper analogy here for the litigation.
Senator Lee. No, I get it. Yes.
Professor Henderson. Okay. So I was just responding to
that, the--and the claims that they are not vertically
integrated, etc.----
Senator Lee. Uh-huh.
Professor Henderson [continuing]. With respect to market
concentration in the securities business, the publicly traded
securities, so not on the dark pools, the top three companies,
the New York Stock Exchange, NASDAQ, and the Cboe, have an
overwhelming market share.
So there is concentration. And the reason there's
concentration--it's the same reason there's concentration in
this market--is because there's economies of scale and network
effects. And that, you know, that can explain why there are
very few competitors. In the dark pool, the alternative trading
systems under Reg NMS--again, the couple, two-three largest
firms, Goldman, Bank of America, JP Morgan, have overwhelming
market shares there as well for the same reasons, economies of
scales and network effects.
So I don't want to push the analogy to stock markets and
say that's a basis. I was merely responding to the claim that
this vertical integration across the whole ad stack is some
kind of monster we don't see anywhere.
And I'll just note one final comment, which is, the New
York Stock Exchange, it is true that they do not own a broker
dealer. But the New York Stock Exchange sells tools for both
buyers and sellers of stock, in fact--which is what Google
does. In fact, if you are a small-time trader and you do not
have your own algorithmic trading department, like the big
traders do, the New York Times--the New York Stock Exchange
will sell you their version of that, which is, you're like a
small advertiser exactly the same way that Google does.
So this behavior that we see with these kinds of potential
conflicts of interest exists everywhere. And I want to say, I'm
sensitive to the concerns that you have about privacy,
pornography, all the things that you said. I've got three kids
myself. These issues that you're raising are serious concerns.
And if Google or anybody else--I'm not here on behalf of
Google. If Google or anybody else is being deceptive, and
they're misleading people about how they're using their
personal data, we've got laws against that. I'm here just to
point out some of the costs of the AMERICA Act that I think
aren't being considered.
Senator Lee. No, I get that. But there are--there are some
significant differences here. I mean, you--the stock example,
you've got--it's a pretty diffused marketplace. It is highly
regulated, and it's quite fragmented. And you don't have one
firm dominating the lion's share of the activity, the buying
and the selling. And this is just----
Professor Henderson. It's true. And I just want to say--let
me just say one thing about the highly regulated. I completely
agree with you. As I lay out in my paper, the reason it's
highly regulated has nothing to do with these conflicts of
interest. Because when I go into CVS, there are also conflicts
of interest with them selling branded products, and generic
products, and using data, and using cameras to check my eye
line, and where they place everything, and the data there.
I happily turn over my cell phone number to them to get a
2-percent discount, and they collect that data. They know
exactly what I'm buying. They use that to target me. This is--
this is ubiquitous in all markets. The point about regulation I
want to emphasize is, the SEC has been trying for 20 years to
implement a best-interest rule in the stock market. For 20
years, they've been trying, and they've-- 43 percent of trades
trade at the best-interest rule. And this isn't a market that
is trivial compared to the complexity of the ad market.
So if you sign on for a best-interest rule--and the only
reason we have it in the stock market is because there's not
physical separation. So you're using a kind of belt-and-
suspenders approach here.
But if you sign on to a best-interest rule, you're signing
on to a massive regulatory apparatus that cannot be
administered by State attorneys general, or the Department of
Justice. It will require an administrative agency to oversee
the vast amount of data because the SEC is that, with 4,500
employees, and they are not successful at implementing a best-
interest rule after 20 years.
Senator Lee. Is this one reason why it's sometimes fair to
insist on structural separation instead of a massive regulatory
body?
Professor Henderson. I think that's a mistake for reasons
I've said otherwise. I'm merely pointing out that if you go
with the best-interest rule you are signing on, in my opinion
and based on my experience in the stock exchange, which is much
simpler, to a huge, massive regulatory apparatus to enforce a
best-interest rule. I've given a----
Senator Lee. It's not just--it's not the case with this
bill. That's just not true. That's utterly at odds with what
the bill says.
Professor Henderson. I'm just taking the language of the
bill as it is, which is enforcing a best-interest rule that
would require an exchange to trade in the best interests of its
clients. That's the rule that the stock exchange has. It's Rule
611 and requires the same best execution rules for stock
trades. It's the exact same. On that narrow point, it's the
exact same.
Senator Lee. Okay, Ms. Srinivasan, and Mr. Kint, and Mr.
Lynn are all champing at the bit to answer this----
[Laughter.]
Senator Lee [continuing]. And I have to know what they're
saying. This will be it--I promise, I promise.
Chair Klobuchar. No, I want to see, too----
Senator Lee. Okay.
[Laughter.]
Chair Klobuchar [continuing]. I've been--I was going to
actually have them do it because they just seemed so eager----
[Laughter.]
Chair Klobuchar [continuing]. To defend you. Yes.
Senator Lee. All right, Barry, let's start with you.
Mr. Lynn. Thank you, Senator. Professor Henderson said
that, you know, this kind of vertical integration across the ad
stack is not some kind of a monster that we don't see
elsewhere. He said it actually exists everywhere.
Pre-1980, it existed nowhere. It was against the law. It
was against the traditions of the United States going back to
the beginning. And that's why what you just said, that's why we
need to insist on structural separation, is absolutely correct.
And I bless you for working on this--this bill.
Senator Lee. Thank you. Ms. Srinivasan?
Ms. Srinivasan. So the bill actually applies a best-
interest rule not to exchanges but to the brokers. And to my
knowledge today, I am not aware actually of any of the sort of
entities that are helping buyers or sellers that proclaim to do
anything but act in their customers' interests.
And so in effect the only thing that this bill really does
is shed sunlight onto what's actually going on, so that the
customers can complain and hold their brokers to account when
they're not actually doing what they're promising that they're
doing.
The other thing that might be helpful to just be clear
about is that in financial markets there's really a two-tiered
approach. So Goldman can't own the New York Stock Exchange
because the New York Stock Exchange is big and important, and
it has a lot of market share.
And then the smaller guys can do both. They can be brokers
and operate dark pools or ATSs. And those guys have to manage
their conflicts of interest and disclose a lot of information,
so that we can hold those conflicts of interest to account.
The bill takes the exact same approach, really. It says
that the very largest firms that own the very largest exchanges
can't simultaneously be on all sides of the transaction at the
same time.
But smaller ones, like in financial markets, can both be a
broker and an exchange. And in those situations, what we need
to do is--that's not being done now--is we need to manage
conflicts of interest, we need to make sure they are managing
their conflicts of interest, and we need to make sure that
there's enough transparency and disclosure so that customers
themselves can audit and police the behavior of intermediaries.
Senator Lee. Which they would have a greater ability to do
under this bill.
Ms. Srinivasan. That's correct.
Senator Lee. Currently they don't have the ability to do
that. Mr. Kint?
Mr. Kint. Yes, and a last point, thank you, I'm not going
to go deep on the stock piece again. But I still--the thing I
understand enough is that if the dark pools--if these dark
pools--that if there's some self-preferencing, or preferencing,
or favoring, that would be illegal. And so we need something to
actually make that same behavior illegal in the digital
advertising world, which it's currently not.
And yes, to Ms. Srinivasan's point, the SSPs, we call them,
they're brokers on behalf of the publishers--they're supposed
to act in their best interests. But in the case of at least
Google and a few others, when the publisher says, ``Are you
actually doing this? '' they have no recourse. There's no way
to get the data to prove that that company is not taking the
data and the value and using it elsewhere.
And so time and time again we see that issue where they
might not be acting in the best interest. And so that's the
core underlying problem. And I think that's resolved by the
legislation.
Senator Lee. Thank you. It keeps occurring to me that I
keep confusing the dark pool with dark web and Deadpool----
[Laughter.]
Senator Lee [continuing]. I'm going to try to keep those
separate in my mind. Thank you.
Chair Klobuchar. All right, on that note, thank you, all. I
think it's been a very enlightening hearing. I think you know
that these bills are more important than ever as we see the
momentum off the end of last year, where we actually did get
something done on merger fees in the Venue bill, and now we
have several major pieces of legislation that we have interest
in advancing.
We have growing support, we have growing money spent
against us, as I showed from that lovely advertisement that my
guess is most people had not seen on the witness panel, but
somehow a bunch of my colleagues did--an example of how
targeting advertising works and what we are up against.
But with the advent of AI, with the need to continue to
support our Constitution and the First Amendment and the
balance of powers in this country, with the need to take on
monopoly power, I think that our momentum is growing stronger
and stronger. People just are afraid to talk about it
sometimes. But in the end there will be votes, and we must get
a number of these bills passed.
So it's been really, really great to have this civil
discussion, despite some disagreements. I think you understand
we had a number of Members here that couldn't all ask
questions. I'm sure some of them will do--will, on the record,
including, we were joined by Senator Hawley, and Senators
Tillis, and Booker, and Blumenthal, and Hirono. And we thank
them for being with us today.
And I thank my colleague, as well, Senator Welch. I thank
my colleague, Senator Lee, for his leadership and always being
a good pal to hold discussions with. And when we do agree on
things, we actually get a lot done. So watch out.
With that I will hold the record of the hearing open till
May 10th. Do you want to add anything, Mike?
Senator Lee. No, just that this has been terrific, and I
want to thank my staff, and Mark Meador, for helping to put
this together. And to each of you, this has been an absolutely
fascinating hearing. This is the most fun I've had in a long
time doing something that doesn't involve ice cream----
[Laughter.]
Senator Lee [continuing]. So thank you, very much, for
joining us.
Chair Klobuchar. All right. And again, thank you to Keagan,
and to Mark, and to Avery, on our staff, for all they do. I
know they've worked with a number of people in this room--
always open to new ideas, always open to criticisms. Right?
[Laughter.]
Chair Klobuchar. Because we get a lot of those. We get a
lot of incoming. And we're excited, the progress we're making,
the Members that we're educating about these important issues.
And with that, the hearing is adjourned. Thanks.
Senator Lee. Thank you.
[Whereupon, at 4:30 p.m., the hearing was adjourned.]
[Additional material submitted for the record follows.]
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